RYANAIR told the Department of Finance it might have to move its operations out of Ireland because of an anomaly that sees pilots and air crew taxed in two countries.
The warning was included in a submission prepared for Finance Minister Paschal Donohue who was told the low-fares airline would have to consider “the migration of Ryanair’s operations” out of Dublin.
Ryanair’s concerns hinge on the double taxation of pilots and aircrew, who are forced to pay income tax and USC in Ireland and social insurance in their country of residence.
Minister Paschal Donohoe was warned however, that rectifying the problem
could blow a €40 million hole in his plans for Budget 2019.
He opted to do nothing in last year’s budget while Ryanair have gone to court in an attempt to have the problem solved legally.
The aircrew are getting hit on the double because unlike Ireland where income tax rates are high, many EU states have much higher rates of social insurance [the equivalent of PRSI].
In four countries, Hungary, Italy, Poland, and Lithuania, non-Irish based crew have ending up with marginal rates of tax of over 65 percent.
In Romania, it’s even worse with pilots faced with a marginal rate of tax of 83 percent.
There, according to Ryanair figures, a pilot on €150,000 would get €39,000 after tax although it would be possible to later claim relief on the double payments.
A Department of Finance submission said Ryanair, along with Cityjet and Norwegian Air, were affected by the issue and faced a “significant commercial disadvantage”.
It said Ryanair – because of its size – was worst affected with difficulties in competing to recruit pilots against other unaffected airlines.
The submission said: “Ryanair has stated that in the absence of a viable solution … it will be forced to consider alternative operating structures in order to sustain existing operations and the employment of non-Irish resident aircrew.
“This would include the migration of Ryanair’s operations from Ireland.”
It suggested that it was possible the airline – one of the world’s biggest – would look at moving management and “control of relevant sections” to Italy.
This would mean that corporation tax from that part of Ryanair’s business would in future be paid in Italy and lost to Ireland.
However, the cost of rectifying the double taxation anomaly was also very steep, according to the internal memorandum.
Figures provided by Ryanair suggested that €35 million a year in tax revenue could be affected by a change with an estimate of €5 million more for the other airlines involved.
It said that a change to the rules would have “immediate implications for fiscal space available” and would leave a major gap in the public finances.
The submission suggested that Minister Donohoe could “do nothing for the present” and reassess during 2019.
It said any proposed move by Ryanair to another jurisdiction would be complicated by higher rates of corporation tax in other countries.
The submission concluded: “Further sustained representations from Ryanair in particular or other measures from the company in support of its case may be expected.”
In a hand-written note, Mr Donohoe recognised that he was caught in something of a catch-22.
He wrote: “So if I amend [legislation] the Exchequer stands to lose €40 million. On the other hand if I don’t amend, there is a risk of operation movement out of Ireland with a separate tax economic loss.”
He said his “current assessment” was to hold off on doing anything and that they would give “this matter serious consideration”.
In a later submission, he confirmed he would not be making any changes for Budget 2019.
Ironically, the tax anomaly came about because Ryanair had themselves raised concerns that some pilots were in the past able to benefit from “double non-taxation”.
They had approached the Department of Finance in 2010 saying they had become aware that it was possible for employees outside the state to get tax rebates from Ireland.
The submission explained: “Ryanair had become aware that certain employees resident outside the State had lodged claims for, and received, repayment of PAYE income tax deductions from their salaries in respect of employment duties exercised outside the state.”
It said that this had allowed for “double non-taxation” to take place. The submission said: “The matter was brought to your predecessor’s attention by Ryanair who sought the change at the time.”
In a statement, the Department of Finance said Ryanair had lodged a legal challenge to the measure in the High Court in November of last year.
“As this matter is the subject of on-going legal proceedings, we will not be commenting further,” they said.
Ryanair did not respond to a request for comment.