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Cross Border Leasing

Cross Border Leasing

Meaning : In case of cross-border or international lease, the lessor and the lessee are situated in two different countries. Because the lease transaction takes place between parties of two or more countries, it is called cross-border lease. It involves relationships and tax implications more complex than the domestic lease. Cross-border leasing has been widely used in some European countries, to arbitrage the
difference in the tax laws of different countries.

Cross Border Leasing

Cross-border leasing have been in practice as a means of financing infrastructure development in emerging nations – such as rail and air transport equipment, telephone and telecommunications, equipment, and assets incorporated into power generation and distribution systems and other projects that have predictable revenue streams. Basic Prerequisites Of Cross Border Leasing : The basic prerequisites are relatively high tax rates in the lessor’s country, liberal depreciation rules and either very flexible or very formalistic rules governing tax ownership.

Cross Border Leasing

Objective Of Cross Border Leasing :A major objective of cross-border leases is to reduce the overall cost of financing through utilization of tax depreciation allowances to reduce its taxable income. Other important objectives of cross border leasing include the following :
a) The lessor is often able to utilize nonrecourse debt to finance a substantial portion of the equipment cost.
b) Also, depending on the structure, in some countries the lessor can utilize very favourable “leveraged lease” financial accounting treatment for the overall transaction.
c) In some countries, it is easier or a lessor to repossess the leased equipment following a lessee default.
d) Leasing provides the lessee with 100% financing.

Cross Border Leasing

Principal Players Of Cross Border Lease: The principal players are
(i) one or more equity investors;
(ii) a special purpose vehicle formed to acquire and own the equipment and act as the lessor;
(iii)one or more lenders, and
(iv) the lessee.
Benefits Of Cross Border Leasing : Cross border lease benefits are more or less the same as are available in domestic lease viz. 100% funding off-balance sheets financing, the usual tax benefits on leasing, etc. In addition to these benefits, the following are the more crucial aspects which are required to be looked into:
a) appropriate currency requirements can be met easily to match the specific cash flow needs of the lessee;
b) funding for long period and at fixed rate which may not be available in the lessee home market may be obtained internationally;

Cross Border Leasing

c) maximum tax benefits in one or more regions could be gained by structuring the lease in a convenient fashion;
d) tax benefits can be shared by the lessee or lessor accordingly by pricing the lease in the most beneficial way to the parties;
e) choice of assets for cross border lease is different than domestic lease because those assets may find here attractive bargain which are internationally mobile . have adequate residual value and enjoy undisputed title.

Cross Border Leasing

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Cross Border Leasing

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