Senate Proposes New Measure To Combat Leasing Tax Shelter

by Leroy Baker, Tax-News.com, New York

08 April 2004

A proposal put forward in the international tax bill currently progressing through the Senate, will limit many firms in claiming billions of dollars in deductions from infrastructure leasing arrangements with local governments.

Although the new measures will not prevent firms from benefiting from arrangements where companies lease back public assets such as bridges and dams whilst claiming large depreciation allowances, they will limit the amount that can be claimed in the initial stages of the lease, thus delaying the tax benefits to the firm.

The potential gain in terms of tax revenue for the Treasury could be in the region of $14 billion, according to reports. However, the plan has yet to be officially calculated by Congressional tax experts.

Whilst the measures do not on the surface appear to go as far as previous proposals from both the House and Senate, which have both advocated an outright ban on the leasing arrangements, they contain a retrospective element that could penalize firms for leasing deals entered into some years ago.

This feature of the Senate Finance Committee’s new proposals has led the Equipment Leasing Association to label them an “extreme” tax measure.

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