Turbulence At Austrian Airlines

by Ulrika Lomas, for LawAndTax-News.com, Brussels

30 March 2009

Austrian Airlines (AuA) has vehemently denied any wrongdoing after being accused by Green Austrian politician, Peter Pilz, of salting away profits in its Guernsey leasing subsidiary to avoid Austrian corporation tax - this at a time when the airline received a state subsidy of EUR500m. This accusation was made when it was revealed that AuA's Guernsey subsidiary leased Boeing aircraft from a Cayman Islands company and leased the aircraft on at a higher rate to AuA.

AuA maintains that the results of its Guernsey subsidiary are fully consolidated in its accounts for Austrian Corporation Tax purposes and that the structure of its leasing arrangements through Guernsey are audited in full detail and explained in its annual reports. After several tax inspections no objections were raised. Such arrangements are widespread in the airline industry for obtaining the most cost-effective forms of financing.

In this instance the Boeings are leased to a Cayman Islands company to make use of 85% US export credits, a condition of the credit being that the purchaser is domiciled under US jurisdiction to facilitate an effective aircraft mortgage under US law. To allow for a further 15% front-end financing making up the full 100% financing package, the credit providers required the operator to be separate from the owner of the aircraft and the Guernsey company was used for this financing - these financing costs accounting for the higher leasing costs passed on to AuA.

Lufthansa is currently seeking EU clearance for its acquisition of a 42% share in AuA.

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