BRASILIA (Reuters) – Brazilian airlines are up in arms over a decision by Brazil’s tax authority to list Ireland as a tax haven, which means about 1 billion reais ($306 million) in new taxes on aircraft leases for carriers struggling to regain profitability.
“The impact is brutal,” said Eduardo Sanovicz, head of Brazilian airline association ABEAR, who will meet today with tax authorities in Brasilia to try to reverse the surprise tax decision taken without consulting the airline industry.
Sanovicz said 60 per cent of the 520 aircraft flying commercially in Brazil are leased from companies registered in Ireland, where they enjoy favorable tax rules.
Brazil’s tax authority announced on Thursday it was adding Ireland, Austria, Curaçao and Saint Martin to its list of countries denominated as tax havens.
Companies based there will have to start paying a 25 per cent tax rate on transactions with Brazilian companies, costing airlines about 1 billion reais ($306 million) on leasing contracts that are signed for up to 10 years, Sanovicz said by telephone.
Shares of carrier Gol Linhas Aereas SA fell 12 per cent last week on the decision.
Brazilian airlines are reeling from high jet fuel costs and the drop in demand for air travel due toBrazil’s two-year recession, and say they have no room to pass additional taxes along to ticket prices.
The companies complain jet fuel accounts for 37 per cent of airfares compared to an average 27 per cent worldwide, mainly due to the ICMS sales tax collected by Brazilian states. The world’s second largest mining company, Brazilian iron ore giant Vale SA, will also be affected by Brazil’s listing of Austria as a tax haven, adding to its woes resulting from low iron prices that are down 50 per cent since 2014.
Vale owns Salzburg, Austria-based subsidiary Vale International Holdings GMBH, which is used as a holding company for various international assets.
Vale and other Brazilian companies have used holding companies in countries such as Austria with low corporate taxes to reduce their tax burden on overseas assets and subsidiaries.
Brazil’s JBS SA, the world’s largest meatpacker, is also considering a planned global reorganization, basing the headquarters of a new company in Ireland and listing its shares in New York.
