Alternative leasing structures
Alternative leasing structures

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Alternative leasing structures
  • Synthetic leases
  • Japanese operating leases

This Practice Note looks at two other important types of leasing transactions that may arise, outside the standard operating or finance leases. The most suitable particular structure used in each transaction will change from time to time as they will be influenced by the taxation environment and the regulations that exist in the countries in which the transaction is to be structured. The majority of leasing transactions are set up to seek to obtain the maximum tax benefits and allowances possible and so leasing structures will depend to a significant extent on the tax and accountancy laws in any particular jurisdiction.

Synthetic leases

Synthetic leases were developed in the United States and are a structure that is treated as a lease for accounting purposes but as a loan for tax purposes. The asset is in effect owned indirectly by the lessee/operating company and the company leases the asset to itself. The structure allows that:

  1. for accounting purposes the asset is owned by a special purpose vehicle (SPV) and is then leased to the operating company (the lessee) under an operating lease. The lease agreement requires the lessee to pay periodic lease payments. For further information on operating leases, see Practice Note: Operating leases. In practice, the SPV is typically owned by the lessee but is kept off the balance sheet of the company. The asset itself

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