The OECD’s BEPS 2.0 project has been on the agenda of taxpayers and practitioners since the G7 agreed to progress the implementation of two pillars of new international tax rules in June 2021. For the aircraft leasing community, the steps taken to put in place a 15% minimum global effective tax rate for groups falling in scope of BEPS 2.0 have been particularly significant. Our Aviation Finance team explain the implications below.

The rules designed to achieve this rate are set down under Pillar Two of BEPS 2.0, and over recent months we have started to get some clarity on how they will impact lessors. Notwithstanding this progress, much remains to be finalised. In this article we will highlight some of the key outstanding areas of importance to the aviation finance community, as well as discussing what we expect to come next.  

Progress to date

Over the last number of months there has been a great deal of activity in relation to BEPS 2.0, particularly from the perspective of Pillar Two. Immediately prior to Christmas 2021 the OECD released their detailed rules for the implementation of the minimum effective tax rate, and this was swiftly followed by the release of the EU’s draft Directive designed to respond to the new rules.

The further release of the OECD’s Commentary to the GloBE Rules set Pillar Two in context, and the publication of an Implementation Framework is now anticipated which should provide further detail on how it is to be put into practice by tax authorities.

The EU Directive is still in draft pending the agreement of all Member States, and it is clear now that the earliest the rules will have effect is 2024. There has been some resistance at the level of individual Member States over recent months, however the expectation is that agreement will ultimately be reached in due course.

Beyond the EU’s borders, there is a question over the ability of the Biden administration to pass the federal tax reforms needed to make BEPS 2.0 function alongside the US tax code. While broader geopolitical and global economic concerns are taking up significant amounts of bandwidth, it is still most likely that the coming years will see a very material level of change to international tax rules, one which will directly impact all groups within scope of the consolidated €750m cut-off for Pillar Two.

Consultation process

In recognition of the likely need to draft and pass legislation transposing the Directive in 2023, in May 2022 the Irish government launched a public consultation on the implementation of the Pillar Two rules. In our experience, both the Irish Department of Finance and the Irish Revenue Commissioners are keenly aware of the need to balance being a global leader on the implementation of the new rules with managing the local economic impact of the changes and their effect on taxpayers.

The consultation process offers an opportunity to make the impact of the rules heard. KPMG is responding to the consultation document and is also working closely with a number of industry bodies, including Aircraft Leasing Ireland, to represent clients’ needs for certainty, efficiency and continued ease of doing business as the rules come into effect. 

Clarity needed

There are a number of issues for aircraft lessors emerging from the OECD’s proposed rules for implementing Pillar Two, when read alongside the Commentary and the draft EU Directive. Chief among these is the question of whether Ireland will introduce a Qualifying Domestic Top-up Tax (“QDTUT”) as provided for under the EU’s draft Directive. Broadly, this option allows for an additional 2.5% top up cash tax amount, on top of the 12.5% already applicable to trading in-scope entities, bringing their Irish effective tax rate up to 15%.

The alternative under consideration is to raise the Irish headline rate of corporation tax applicable to in-scope entities to 15% (from 12.5%). The decision will have a material impact on the timing of payments of additional tax, and on lessors’ deferred tax positions.

While we await finalisation of the Irish rules, our understanding at this point is that a headline rate change will require a remeasurement of deferred tax balances (and consequently a significant upfront hit to profit and loss at implementation for in-scope lessors).

Introducing a QDTUT should not give rise to this deferred tax effect, however it would mean an additional yearly 2.5% amount of cash tax payable. The Department of Finance seem minded to introduce a QDTUT, however a final decision is pending the outcome of the consultation process.


There also remains an important question on the availability of the substance-based carve-out for a proportion of the tangible assets held on the balance sheet of aircraft lessors. This carve-out provides for a deduction from GloBE Income for 5% of the carrying value of eligible tangible assets.

The OECD’s Commentary on the Pillar Two rules contains some unhelpful language which has generated uncertainty on whether this carve-out will be available to lessors who are very actively involved in the management of the aircraft owned and leased as part of their trades.

This is a point that stakeholders are actively engaging on in their responses to the public consultation. Uncertainty remains; however, the release of the Implementation Framework over the coming months should help provide clarity on this point.

Lessors also require certainty around the timing of payment and filing obligations, both with regards to the QDTUT if implemented, and more broadly. Pillar Two is certain to introduce very significant additional layers of complexity to the tax return preparation and filing process, and lessors will be keen to manage this to the greatest extent possible.

The draft Directive provides for a fifteen-month timeline for parent entities to prepare and file a GloBE information return. In our response to the Department of Finance’s consultation document, KPMG will request that this provision be retained in Irish implementing legislation. It is important for clients that the GloBE deadlines not be amalgamated with existing Irish corporation tax and preliminary tax payment and filing deadlines, so as to manage the inevitable complexities of Pillar Two as much as is possible.  

Next steps

Over the coming months, we expect EU-wide agreement on the text of a final Directive. As we move towards the preparation and publication of Irish implementing legislation ahead of a 2024 introduction of the rules, what steps do lessors need to take now?

The first and most important step is to understand whether your group is likely to be in scope of the Pillar Two rules. The cut off is consolidated group revenues of €750m or more in two out of the last four financial years. Consolidation will bring into scope lessors who might not have expected to fall within the rules on their own accounts.

For example, where a lessor is consolidated under international accounting standards into a larger bank or broader group, they may find that group revenues exceed €750m and bring them into scope. Currently, we expect that the majority of aircraft lessors will find themselves in scope of BEPS 2.0 and will be subject to that increased global minimum 15% effective tax rate.

Given this, tax and finance teams should take steps now to understand the impact and costs of the proposed changes for their groups, and to communicate these to their C suites and boards of directors. The implementation of BEPS 2.0 is the most significant change to tax law in generations, and it will have a material effect on groups falling in scope.

Consequently, it is important to begin the process of planning for an effective tax rate change as early as possible. KPMG can help clients work through the impact of the changes and understand the nuances of the rules as they apply to your group as we move closer to implementation.

Get in touch

If you have queries in relation to the impact of Pillar Two on your group, reach out to your KPMG contact team to discuss. In the meantime, keep an eye out for further updates and KPMG thought leadership on BEPS 2.0 as the final rules emerge.

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