Indian Carriers Bid Farewell to Withholding Tax Waiver
March 22, 2007, Jane's Transport Finance

Withholding tax is at the center of the aircraft operating leases controversy in India. The country’s Ministry of Finance recently cancelled the exemption on withholding tax – subjecting many airlines to hefty expenses as of April 2007.

"The concern the operating lessors are going to have is where there is an extension option on the lease. Will this extension also be exempt?" noted Adrian Beasley, an asset finance partner in White & Case’s London office.

Raviv Surpin, a senior associate in White & Case’s Los Angeles office, added: "The bite is not going to be felt for upcoming deliveries because I am assuming many of the airlines will have lease agreements in place by the end of March."

Surpin explained that India’s exemptions are lessor-specific, and it is therefore unclear what effect novation will have on the withholding tax obligations.  "We have instructed tax counsel to look into the different double taxation treaties," said Beasley. "Even if you do find a relatively attractive jurisdiction, you have to look at whether you want to set up a special purpose vehicle there."