Cross Border Leasing...economists chime in

[Shannow]

I'm struggling with the concept of the assets of a company being leased a decade ago, and the company not paying any regular lease payments, and the lease was "defeased" at the time of implementation.

Company leasing the equipment operates a cash balance, invests capital into the equipment as though the equipment was theirs, but doesn't pay lease payments or anything else.

How does such a scheme work ?

How can a company get a cash windfall by selling their assets into a lease, "defease" the lease payments, and end up operating plant owned by another party...while apparently gaining financial benefit from the arrangement ?

How does the lessor party benefit by buying an asset from the lessee, then never receiving a cent of income after the initial transaction ?

Drew, anyone ?

I'm struggling.

 

[Gary Allan]

I'm just trying to understand the principles here and surely don't have a clue.

Essentially I build you a plant for nothing. You operate it for nothing (as viewed from the "owner"). I incurred costs in the building which you don't endure You incurred costs in the operating that I don't endure.

Who gets the profits from the operation?

 

[Pablo]

Must be an aussie thing. I don't understand the "Cross Border Leasing" part, threw me for a loop.

But it wouldn't surprise me if there are some sort of legal kick back, or incentive and some tax loop holes, with the cost of doing bus./depreciation making dough for the lessee (maint cost) and the lessor (purchase cost).

 

[Shannow]

Plant was built in Oz, using Oz money.

Leased to a U.S. consortium entity. Cash flowed from the U.S. to the Oz builder.

Lease was "defeased", meaning that there were no lease payments...ever, but the consortium own the plant, but the company "leasing" has to pay for all maintenance and capital upgrades on the plant...i.e. maintain the asset.

Feds and tax office made it illegal after it happened, but this agreement is still extant.

This sort of explains it, but my grasp on the concept has now reached "tenuous".
http://library.findlaw.com/1997/Jan/1/126560.html

 

[Gary Allan]

When someone filters through the mumbo-jumbo, I'd really like the Cliffnotes version.

If you can put it in Garyscamese lingo, all the better.

 

[Pablo]

1997?

I could see MacQuarie (sp?) doing this with one of their own in a another country.....

 

[Shannow]

Originally Posted By: Gary Allan
If you can put it in Garyscamese lingo, all the better.


uuuuurrrmmmmm....it's all too hazy.

Try this.

http://en.wikipedia.org/wiki/Cross-border_leasing

The airline example makes a little more sense in that they can't use the depreciation due to narrow profit margin, but can deduct the lease payment.

The lease payment is low, because the lessor CAN use the depreciation to offset their profit...cheaper than finance.

you and/or I pay depending on whether we are the country of the lessor/lessee/both.

Still struggling with the concept, must have to do with marginal tax rates in countries, depreciation rulings etc. and finding the right combination of fuzzy connections.

 

[Shannow]

Originally Posted By: Pablo
1997?

I could see MacQuarie (sp?) doing this with one of their own in a another country.....


Not MacQuarie, an Oz power station sold (years ago) to a U.S. bank and finance division of a car company.

They'll name Australia "MacQuarie" one day soon, as they'll own everything else.

 

[Pablo]

Yep that's what I was thinking and said in my first reply. Different rules (and playing games to take advantage of said rules) in different countries........it's all about tax dodging.