Jim Armitage: Airlines, their owners and corporate tax

The next plane you catch will probably be owned by a vast company that flies well clear of paying meaningful corporate tax

Next time you jump on an aeroplane, it may say British Airways, easyJet or Virgin on the side, but the chances are it will be owned by a company you’ve never heard of. That company is a specialist arm of the giant General Electric conglomerate called Gecas, or to give its full name, GE Capital Aviation Services.

With a fleet of 1,700 planes, it leases Boeings, Airbuses and other popular aircraft to pretty much every major airline around the world, and most of the smaller ones too. No fewer than 230 airlines use its services.

Gecas doesn’t stop there, though. It also lends money to companies wanting to buy aircraft, effectively acting a lot like a bank.

Its hugely powerful position in the aviation industry has created a vast, profit-making machine, raking in $1.3bn (£790m) of pure profit last year, according to its website.

Why should we care?

Because on the vast majority of that profit, ultimately made from our plane tickets, Gecas apparently pays barely any meaningful corporate tax at all.

Gecas’s boss Norm Liu may operate out of headquarters in Stamford, Connecticut, but the company is registered in the super low-tax region of Shannon, Ireland. This is a legacy of its heritage as Tony Ryan’s Guinness Peat Aviation group.

Recognise that aviation name, “Ryan”? Yup. Same guy.

Before creating the behemoth we know today as Ryanair, Mr Ryan pretty much created an industry – global aviation leasing – from scratch in the 1970s.

He figured out his formula while at Aer Lingus, where he was part of the team trying to make money out of the un-needed aircraft it had lying around after the Opec oil crisis. They realised they could make good money putting them to work for other airlines.

GPA expanded massively in the 1980s and the Irish government feted him as a hero, offering the aircraft-leasing industry extraordinary tax breaks that exist to  this day.

A failed stock-market flotation in the 1990s and overbearing debts eventually saw the business start to unravel and General Electric snapped up the bulk of it, creating the current-day Gecas.

While its headquarters are stated on its website to be in Shannon and Connecticut, a Gecas senior manager agreed in a recent court case brought against Gecas by Alexander Lebedev, financial backer of The Independent, that the company was “very sensitive about the notion that its US management might be giving instructions to people working outside the US”. Accountants said this was likely to be, entirely legally, for tax reasons.

The Gecas holding company in Shannon, GE Capital Aviation Funding, made nearly $1bn of profit in 2012 but paid only $105,000 tax, a rate of just 0.01 per cent, according to its most recent set of accounts filed at the Irish version of Companies House.

Despite its pre-tax profit of $902.1m, the business employs no staff, using those of its subsidiaries instead. It makes its money by earning interest on loans to other parts of the GE aircraft-leasing empire.

Beneath it is a sea of companies across Europe and in offshore locations, paying it large dividends from their hugely profitable activities in return for its finance. Accountants said dividends generally accrue very little tax.

Among the money pouring in was a $100m dividend from a subsidiary called GE Capital Aviation Services Ltd. This appears to be the second link in the long GE chain. It made a profit of $124.2m in 2012 but, far from paying tax, actually got a $466,000 tax credit.

Gecas Ltd also earned huge sums from dividends from other associated GE plane leasing businesses, with $122.5m coming in from two associated companies.

Its 232 staff are highly paid: from the janitor to the manager, they earned an average salary higher than at many City and Wall Street banks – $210,000.

Gecas stresses that it pays all its tax dues in full around the world, but declined to comment on the specifics, or state where those taxes were paid.

Accountants say aircraft leasing is one of the most aggressively tax-efficient industries in the world, and an extremely specialist area. One said: “Much of the planning revolves around exploiting cross-border rules to get ‘double’ or ‘triple dip’ [tax breaks] on expenditure such as capital allowances and financing costs. For example, you might get a tax deduction for an interest payment in one country but no tax charge on the receipt.”

It is not clear if this is how Gecas operates, and there is no suggestion of illegality.

The accountant added: “Tax is only payable on profits, so the skill is to get the profits to arise in jurisdictions where tax is low or nil.”

You certainly have to drill a long way into Gecas’s accounts to find any meaningful tax rate. We eventually found one another link down the chain at a company called Gecas Services Ltd, which mustered up a  2.5 per cent corporate tax rate. But it is a tiny operation compared with the top companies. The tax take was $302,000 on its $12m pre-tax profit.

Gecas Services’ 22 employees are at the top of the tree financially, being paid an average $560,000 each.

A General Electric spokesman said: “Our Gecas business was formed from the Guinness Peat Aviation acquisition 20 years ago and it remains the core of our non-US operations. GE carries on significant and substantive business activity in Ireland and fully complies with all tax laws and regulations in all jurisdictions in which it does business.”

The Gecas companies are welcomed by the Irish government. In fact, Ireland has whole websites dedicated to the joys of its low-tax aircraft-leasing hub. Local newspapers rejoiced at a recent takeover by another Shannon-based giant, AerCap, of the financial conglomerate AIG’s vast plane-leasing business.

But in the US, where corporate tax rates are far higher, these structures are less popular. General Electric has been the target of repeated criticism in the US over its tax arrangements.

Bob McIntyre of the group Citizens for Tax Justice, said: “GE is a notorious tax avoider. Its leasing businesses are one of its biggest tax shelters.”

He added: “GE takes advantage of a loophole in US tax law so that it pays no US income tax on its “active financing” income abroad. It then shifts its foreign profits into tax havens to avoid paying tax to foreign governments – ridiculously easy to do in Europe and elsewhere.”

But what does Ireland get out of this practically untaxed industry?

Cormac Marum, tax specialist at Harwood Hutton, says there are benefits: “By attracting such companies to Ireland, the Irish government enables financial services to be provided which Ireland will tax. Even taking a little tax is a little tax that otherwise would never be seen in Ireland.”

We asked the same question of Citizens for Tax Justice’s Mr McIntyre, who gave a more simple answer: “What does Ireland get? Not much.”

PROMOTED VIDEO
Arts and Entertainment
Robert De Niro, Martin Scorsese and DiCaprio, at an awards show in 2010
filmsDe Niro, DiCaprio and Pitt to star
News
i100
News
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
science
Sport
England captain Wayne Rooney during training
FOOTBALLNew captain vows side will deliver against Norway for small crowd
Life and Style
Red or dead: An actor portrays Hungarian countess Elizabeth Báthory, rumoured to have bathed in blood to keep youthful
health
News
peopleJustin Bieber charged with assault and dangerous driving after crashing quad bike into a minivan
News
ebooksAn unforgettable anthology of contemporary reportage
News
peopleHis band Survivor was due to resume touring this month
News
people'It can last and it's terrifying'
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
Sport
Radamel Falcao poses with his United shirt
FOOTBALLRadamel Falcao's journey from teenage debutant in Colombia to Manchester United's star signing
Life and Style
fashionAngelina Jolie's wedding dressed revealed
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Front-Office Developer (C#, .NET, Java,Artificial Intelligence)

£30000 - £45000 per annum + benefits+bonus+package: Harrington Starr: Front-Of...

C++ Quant Developer

£700 per day: Harrington Starr: Quantitative Developer C++, Python, STL, R, PD...

Java/Calypso Developer

£700 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, J2EE, J...

SQL Developer

£500 per day: Harrington Starr: SQL Developer SQL, C#, Stored Procedures, MDX...

Day In a Page

Chief inspector of GPs: ‘Most doctors don’t really know what bad practice can be like for patients’

Steve Field: ‘Most doctors don’t really know what bad practice can be like for patients’

The man charged with inspecting doctors explains why he may not be welcome in every surgery
Stolen youth: Younger blood can reverse many of the effects of ageing

Stolen youth

Younger blood can reverse many of the effects of ageing
Bob Willoughby: Hollywood's first behind the scenes photographer

Bob Willoughby: The reel deal

He was the photographer who brought documentary photojournalism to Hollywood, changing the way film stars would be portrayed for ever
Hollywood heavyweights produce world's most expensive corporate video - for Macau casino

Hollywood heavyweights produce world's most expensive corporate video - for Macau casino

Scorsese in the director's chair with De Niro, DiCaprio and Pitt to star
Angelina Jolie's wedding dress: made by Versace, designed by her children

Made by Versace, designed by her children

Angelina Jolie's wedding dressed revealed
Anyone for pulled chicken?

Pulling chicks

Pulled pork has gone from being a US barbecue secret to a regular on supermarket shelves. Now KFC is trying to tempt us with a chicken version
9 best steam generator irons

9 best steam generator irons

To get through your ironing as swiftly as possible, invest in one of these efficient gadgets
England v Norway: Wayne Rooney admits England must ‘put on a show’ to regain faith

Rooney admits England must ‘put on a show’ to regain faith

New captain vows side will deliver for small Wembley crowd
‘We knew he was something special:’ Radamel Falcao's journey from teenage debutant to Manchester United's star signing

‘We knew he was something special’

Radamel Falcao's journey from teenage debutant to Manchester United's star signing
'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York