Aviation finance—aircraft tax leases


Produced in partnership with Norton Rose Fulbright
Practice notes

Aviation finance—aircraft tax leases


Produced in partnership with Norton Rose Fulbright

Practice notes
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Aviation finance lends itself to tax leasing in many jurisdictions. Tax leases are usually a means of tax deferral. They can be advantageous, from a tax perspective, to equity investors that have taxable profits arising from their normal course of business.

Tax leases can be completed in various jurisdictions including Japan, Germany and France.

The key risk in tax leasing arises if the transaction is terminated early. This will mean that the equity investors will be unable to defer their tax liability to the extent and for the period they had anticipated.

What is a tax lease?

Most tax leases are tax deferral structures. They occur when certain entities (equity investors) enter into a transaction with the express intention of incurring an immediate tax loss, which they can set off against their taxable profits arising from their normal course of business. At a certain time in the future, they will expect the transaction to generate profits and, at that point, the overall liability of the equity investors to tax will increase.

The equity investors will normally act through

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Jurisdiction(s):
United Kingdom and Ireland
Key definition:
Equity definition
What does Equity mean?

Capital that is used to finance companies in the form of ordinary share capital as opposed to debt finance. The term is also sometimes used to describe preference shares or subordinated loan capital contributed by equity investors (commonly known as quasi-equity) to distinguish it from third party debt.

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