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This excerpt taken from the AYR 10-K filed Mar 2, 2009. Risks
Related to Taxation
If AL
were treated as engaged in a trade or business in the United
States, AL would be subject to U.S. federal income taxation
on a net income basis, which would adversely affect our business
and result in decreased cash available for distribution to our
shareholders.
If, contrary to expectations, AL were treated as engaged in a
trade or business in the United States, the portion of its net
income, if any, that was “effectively connected” with
such trade or business would be subject to U.S. federal
income taxation at a maximum rate of 35%. In addition, AL would
be subject to the U.S. federal branch profits tax on its
effectively connected earnings and profits at a rate of 30%. The
imposition of such taxes would adversely affect AL’s
business and would result in decreased cash available for
distribution to our shareholders.
If
there is not sufficient trading in our shares, or if 50% of our
shares are held by certain 5% shareholders, we could lose our
eligibility for an exemption from U.S. federal income taxation
on rental income from our aircraft used in “international
traffic” and could be subject to U.S. federal income
taxation which would adversely affect our business and result in
decreased cash available for distribution to our
shareholders.
We expect that we are currently eligible for an exemption under
Section 883 of the Internal Revenue Code of 1986, as
amended (the “Code”) which provides an exemption from
U.S. federal income taxation with respect to rental income
derived from aircraft used in international traffic, by certain
foreign corporation. No assurances can be given that we will
continue to be eligible for this exemption as our stock is
traded on the market and changes in our ownership or the amount
of our shares that are traded could cause us to cease to be
eligible for such exemption. To qualify for this exemption in
respect of rental income, the lessor of the aircraft must be
organized in a country that grants a comparable exemption to
U.S. lessors (Bermuda and Ireland each do), and certain
other requirements must be satisfied. We can satisfy these
requirements in any year if, for more than half the days of such
year, our shares are primarily and regularly traded on a
recognized exchange and certain shareholders, each of whom owns
5% or more of our shares (applying certain attribution rules),
do not collectively own more than 50% of our shares. Our shares
will be considered to be primarily and regularly traded on a
recognized exchange in any year if: (1) the number of
trades in our shares effected on such recognized stock exchanges
exceed the number of our shares (or direct interests in our
shares) that are traded during the year on all securities
markets; (2) trades in our shares are effected on such
stock exchanges in more than de minimis quantities on at least
60 days during every calendar quarter in the year; and
(3) the aggregate number of our shares traded on such stock
exchanges during the taxable year is at least 10% of the average
number of our shares outstanding in that class during that year.
If our shares cease to
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satisfy these requirements, then we may no longer be eligible
for the Section 883 exemption with respect to rental income
earned by aircraft used in international traffic. If we were not
eligible for the exemption under Section 883 of the Code,
we expect that the U.S. source rental income of Aircastle
Bermuda generally would be subject to U.S. federal
taxation, on a gross income basis, at a rate of not in excess of
4% as provided in Section 887 of the Code. If, contrary to
expectations, Aircastle Bermuda did not comply with certain
administrative guidelines of the Internal Revenue Service, such
that 90% or more of Aircastle Bermuda’s U.S. source
rental income were attributable to the activities of personnel
based in the United States, Aircastle Bermuda’s
U.S. source rental income would be treated as income
effectively connected with the conduct of a trade or business in
the United States. In such case, Aircastle Bermuda’s
U.S. source rental income would be subject to
U.S. federal income taxation on its net income at a maximum
rate of 35% as well as state and local taxation. In addition,
Aircastle Bermuda would be subject to the U.S. federal
branch profits tax on its effectively connected earnings and
profits at a rate of 30%. The imposition of such taxes would
adversely affect our business and would result in decreased cash
available for distribution to our shareholders.
One or
more of our Irish subsidiaries could fail to qualify for treaty
benefits, which would subject certain of their income to U.S.
federal income taxation, which would adversely affect our
business and result in decreased cash available for distribution
to our shareholders.
Qualification for the benefits of the Irish Treaty depends on
many factors, including being able to establish the identity of
the ultimate beneficial owners of our common shares. Each of the
Irish subsidiaries may not satisfy all the requirements of the
Irish Treaty and thereby may not qualify each year for the
benefits of the Irish Treaty or may be deemed to have a
permanent establishment in the United States. Moreover, the
provisions of the Irish Treaty may change. Failure to so
qualify, or to be deemed to have a permanent establishment in
the United States, could result in the rental income from
aircraft used for flights within the United States being subject
to increased U.S. federal income taxation. The imposition
of such taxes would adversely affect our business and would
result in decreased cash available for distribution to our
shareholders.
We may
become subject to an increased rate of Irish taxation which
would adversely affect our business and would result in
decreased earnings available for distribution to our
shareholders.
Our Irish subsidiaries and affiliates are expected to be subject
to corporation tax on their income from leasing, managing and
servicing aircraft at the 12.5% tax rate applicable to trading
income. This expectation is based on certain assumptions,
including that we will maintain at least the current level of
our business operations in Ireland. If we are not successful in
achieving trading status in Ireland the income of our Irish
subsidiaries and affiliates will be subject to corporation tax
at the 25% rate applicable to non-trading activities which would
adversely affect our business and would result in decreased
earnings available for distribution to our shareholders.
We may
become subject to income or other taxes in the
non-U.S.
jurisdictions in which our aircraft operate, where our lessees
are located or where we perform certain services which would
adversely affect our business and result in decreased cash
available for distributions to shareholders.
Certain Aircastle entities are expected to be subject to the
income tax laws of Ireland
and/or the
United States. In addition, we may be subject to income or other
taxes in other jurisdictions by reason of our activities and
operations, where our aircraft operate or where the lessees of
our aircraft (or others in possession of our aircraft) are
located. Although we have adopted operating procedures to reduce
the exposure to such taxation, we may be subject to such taxes
in the future and such taxes may be substantial. In addition, if
we do not follow separate operating guidelines relating to
managing a portion of our aircraft portfolio through offices in
Ireland and Singapore, income from aircraft not owned in such
jurisdictions would be subject to local tax. The imposition of
such taxes would adversely affect our business and would result
in decreased earnings available for distribution to our
shareholders.
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We
expect to continue to be a passive foreign investment company,
or PFIC, and may be a controlled foreign corporation, or CFC,
for U.S. federal income tax purposes.
We expect to continue to be treated as a PFIC and may be a CFC
for U.S. federal income tax purposes. If you are a
U.S. person and do not make a qualified electing fund, or
QEF, election with respect to us and each of our PFIC
subsidiary, unless we are a CFC and you own 10% of our voting
shares, you would be subject to special deferred tax and
interest charges with respect to certain distributions on our
common shares, any gain realized on a disposition of our common
shares and certain other events. The effect of these deferred
tax and interest charges could be materially adverse to you.
Alternatively, if you are such a shareholder and make a QEF
election for us and each of our PFIC subsidiaries, or if we are
a CFC and you own 10% or more of our voting shares, you will not
be subject to those charges, but could recognize taxable income
in a taxable year with respect to our common shares in excess of
any distributions that we make to you in that year, thus giving
rise to so-called “phantom income” and to a potential
out-of-pocket tax liability.
Distributions made to a U.S. person that is an individual
will not be eligible for taxation at reduced tax rates generally
applicable to dividends paid by certain United States
corporations and “qualified foreign corporations” on
or after January 1, 2003. The more favorable rates
applicable to regular corporate dividends could cause
individuals to perceive investment in our shares to be
relatively less attractive than investment in the shares of
other corporations, which could adversely affect the value of
our shares.
None.
We lease approximately 19,200 square feet of office space
in Stamford, Connecticut for our corporate operations. This
lease expires in December 2012. We lease approximately
3,380 square feet of office space in Dublin, Ireland for
our acquisition, aircraft leasing and asset management
operations in Europe. The lease for the Irish facility expires
in June 2016. We also lease approximately 1,550 square feet
of office space in Singapore for our acquisition, aircraft
leasing and asset management operations in Asia. The lease for
the Singapore facility expires in November 2009.
We believe our current facilities are adequate for our current
needs and that suitable additional space will be available as
and when needed.
The Company is not a party to any material legal or adverse
regulatory proceedings.
During the fourth quarter of the fiscal year ended
December 31, 2008, no matters were submitted to a vote of
security holders.
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