Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Income Taxes

v3.3.1.900
Income Taxes
12 Months Ended
Dec. 31, 2015
Income Taxes [Abstract]  
Income Taxes

16. Income taxes 

Our subsidiaries are subject to taxation in a number of tax jurisdictions, principally, the Netherlands, Ireland and the United States of America.

The following table presents our provision for income taxes by tax jurisdiction for the years ended December 31, 2015, 2014 and 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2015

 

2014

 

2013

Deferred tax expense (benefit)

 

 

 

 

 

 

 

 

The Netherlands

$

(7,453)

 

$

1,339 

 

$

686 

Ireland

 

151,623 

 

 

87,147 

 

 

17,158 

United States of America

 

(65,341)

 

 

26,267 

 

 

3,686 

Other

 

22,130 

 

 

(5,744)

 

 

(344)

 

 

100,959 

 

 

109,009 

 

 

21,186 

 

 

 

 

 

 

 

 

 

Deferred tax expense (benefit) related to an increase (decrease) in changes in valuation allowance of deferred tax assets

 

 

 

 

 

 

 

 

The Netherlands

 

13,915 

 

 

 —

 

 

 —

United States of America

 

10,074 

 

 

 —

 

 

 —

Other

 

(13,922)

 

 

6,850 

 

 

 —

 

 

10,067 

 

 

6,850 

 

 

 —

 

 

 

 

 

 

 

 

 

Current tax expense (benefit)

 

 

 

 

 

 

 

 

The Netherlands

 

37,512 

 

 

5,290 

 

 

4,840 

Ireland

 

(99)

 

 

229 

 

 

 —

United States of America

 

39,358 

 

 

15,553 

 

 

 —

Other

 

2,008 

 

 

442 

 

 

 —

 

 

78,779 

 

 

21,514 

 

 

4,840 

Provision for income taxes

$

189,805 

 

$

137,373 

 

$

26,026 

The following table provides a reconciliation of the statutory income tax expense to provision for income taxes for the years ended December 31, 2015, 2014 and 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2015

 

2014

 

2013

Income tax expense at statutory income tax rate of 25%

$

341,425 

 

$

229,224 

 

$

77,698 

 

 

 

 

 

 

 

 

 

Non-deductible expenditures (permanent differences) (a)

 

59,234 

 

 

24,426 

 

 

(128)

Foreign rate differential

 

(210,854)

 

 

(116,277)

 

 

(51,544)

 

 

(151,620)

 

 

(91,851)

 

 

(51,672)

Provision for income taxes

$

189,805 

 

$

137,373 

 

$

26,026 

                   

 

(a)

The 2015 non-deductible expenditures  included the non-deductible intercompany interest allocated to the United States of America, non-deductible share-based compensation in the Netherlands, non-deductible costs relating to the transfer of certain functions from the Netherlands to Ireland, and a valuation allowance taken in respect of U.S. and Dutch tax losses. In the United States of America, due to the restructuring of certain entities, previously disallowed tax assets can now be utilized against additional projected taxable income, resulting in the release of $25.0 million of valuation allowance from the opening balance sheet. It also included the non-taxable income arising from aircraft with a higher tax basis in general. The 2014 non-deductible expenditures included the non-deductible intercompany interest allocated to the United States of America, non-deductible share-based compensation in the Netherlands and the non-deductible transaction costs from the ILFC Transaction.

The following tables present our foreign rate differential by tax jurisdiction for the years ended December 31, 2015, 2014 and 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2015

 

Pre-tax income (loss)

 

Local statutory tax rate (a)

 

Variance to Dutch statutory tax rate of 25.0%

 

Tax variance as a result of global activities (b)

Tax jurisdiction

 

 

 

 

 

 

 

 

 

 

 

The Netherlands

$

175,897 

 

25.0 

%

 

0.0 

%

 

$

 —

Ireland

 

1,212,190 

 

12.5 

%

 

(12.5)

%

 

 

(151,524)

United States of America

 

(43,825)

 

36.3 

%

 

11.3 

%

 

 

(4,952)

Isle of Man

 

181,118 

 

0.0 

%  

 

(25.0)

%  

 

 

(45,280)

Other

 

77,671 

 

13.3 

%  

 

(11.7)

%  

 

 

(9,099)

 

$

1,603,051 

 

 

 

 

 

 

 

$

(210,854)

Loss arising from non-taxable items (c)

 

(237,352)

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax

$

1,365,699 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

Pre-tax income (loss)

 

Local statutory tax rate (a)

 

Variance to Dutch statutory tax rate of 25.0%

 

Tax variance as a result of global activities (b)

Tax jurisdiction

 

 

 

 

 

 

 

 

 

 

 

The Netherlands

$

26,081 

 

25.0 

%

 

0.0 

%

 

$

 —

Ireland

 

694,605 

 

12.5 

%

 

(12.5)

%

 

 

(86,826)

United States of America

 

95,585 

 

38.3 

%

 

13.3 

%

 

 

12,713 

Isle of Man

 

167,689 

 

0.0 

%  

 

(25.0)

%  

 

 

(41,922)

Other

 

7,528 

 

23.0 

%  

 

(2.0)

%  

 

 

(242)

 

$

991,488 

 

 

 

 

 

 

 

$

(116,277)

Loss arising from non-taxable items (c)

 

(74,590)

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax

$

916,898 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

 

Pre-tax income (loss)

 

Local statutory tax rate (a)

 

Variance to Dutch statutory tax rate of 25.0%

 

Tax variance as a result of global activities (b)

Tax jurisdiction

 

 

 

 

 

 

 

 

 

 

 

The Netherlands

$

22,106 

 

25.0 

%

 

0.0 

%

 

$

 —

Ireland

 

135,424 

 

12.5 

%

 

(12.5)

%

 

 

(16,928)

United States of America

 

10,354 

 

35.6 

%

 

10.6 

%

 

 

1,098 

Sweden

 

(1,848)

 

18.6 

%

 

(6.4)

%

 

 

118 

Isle of Man

 

143,327 

 

0.0 

%  

 

(25.0)

%  

 

 

(35,832)

 

$

309,363 

 

 

 

 

 

 

 

$

(51,544)

Income arising from non-taxable items

 

1,428 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax

$

310,791 

 

 

 

 

 

 

 

 

 

                   

 

(a)

The local statutory income tax expense for our significant tax jurisdictions (the Netherlands, Ireland, the United States of America and Isle of Man) does not differ from the actual income tax expense.

(b)

The tax variance as a result of global activities is primarily caused by our operations in countries with a lower statutory tax rate than the statutory tax rate in the Netherlands.

(c)

The 2015 non-taxable income included the non-deductible intercompany interest allocated to the United States of America, non-deductible share-based compensation in the Netherlands, non-deductible costs relating to the transfer of certain functions from the Netherlands to Ireland, and a valuation allowance taken in respect of U.S. and Dutch tax losses. The 2014 non-taxable income included the non-deductible intercompany interest allocated to the United States of America, non-deductible share-based compensation in the Netherlands and the non-deductible transaction costs from the ILFC Transaction.

The calculation of income for tax purposes differs significantly from book income. Deferred income tax is provided to reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured under tax law in the various jurisdictions. Tax loss carry forwards and accelerated tax depreciation on flight equipment held for operating leases give rise to the most significant timing differences.

The following tables provide details regarding the principal components of our deferred income tax assets and liabilities by jurisdiction as of December 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

The
Netherlands

 

Ireland

 

United States
of America

 

Other

 

Total

Depreciation/Impairment

$

11,580 

 

$

(876,219)

 

$

5,393 

 

$

963 

 

$

(858,283)

Intangibles

 

 —

 

 

(10,071)

 

 

(18,763)

 

 

 —

 

 

(28,834)

Interest expense

 

 —

 

 

 —

 

 

(5,435)

 

 

 —

 

 

(5,435)

Accrued maintenance liability

 

 —

 

 

(7,003)

 

 

11,880 

 

 

 —

 

 

4,877 

Obligations under capital leases and debt obligations

 

 —

 

 

(3,411)

 

 

 —

 

 

 —

 

 

(3,411)

Investments

 

 —

 

 

 —

 

 

(10,155)

 

 

 —

 

 

(10,155)

Deferred losses

 

 —

 

 

 —

 

 

66,543 

 

 

 —

 

 

66,543 

Accrued expenses

 

 —

 

 

 —

 

 

14,554 

 

 

 —

 

 

14,554 

Valuation allowance

 

(13,915)

 

 

 —

 

 

(35,074)

 

 

(23,011)

 

 

(72,000)

Losses and credits forward

 

13,915 

 

 

630,302 

 

 

32,342 

 

 

39,282 

 

 

715,841 

Other

 

(2,936)

 

 

(20,647)

 

 

7,350 

 

 

(11,651)

 

 

(27,884)

Net deferred income tax assets (liabilities)

$

8,644 

 

$

(287,049)

 

$

68,635 

 

$

5,583 

 

$

(204,187)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

The
Netherlands

 

Ireland

 

United States
of America

 

Other

 

Total

Depreciation/Impairment

$

12,479 

 

$

(618,323)

 

$

(28,964)

 

$

(3,189)

 

$

(637,997)

Debt

 

 —

 

 

(355)

 

 

1,681 

 

 

 —

 

 

1,326 

Intangibles

 

 —

 

 

(73)

 

 

(36,960)

 

 

 —

 

 

(37,033)

Interest expense

 

 —

 

 

 —

 

 

6,008 

 

 

 —

 

 

6,008 

Accrued maintenance liability

 

 —

 

 

(7,673)

 

 

19,816 

 

 

 —

 

 

12,143 

Obligations under capital leases and debt obligations

 

 —

 

 

(3,725)

 

 

 —

 

 

 —

 

 

(3,725)

Investments

 

 —

 

 

2,500 

 

 

(5,446)

 

 

 —

 

 

(2,946)

Deferred losses

 

 —

 

 

 —

 

 

49,787 

 

 

 —

 

 

49,787 

Accrued expenses

 

 —

 

 

 —

 

 

26,532 

 

 

 —

 

 

26,532 

Valuation allowance

 

 —

 

 

 —

 

 

(25,000)

 

 

(36,933)

 

 

(61,933)

Losses and credits forward

 

 —

 

 

514,757 

 

 

3,586 

 

 

43,949 

 

 

562,292 

Other

 

3,210 

 

 

(1,127)

 

 

2,870 

 

 

(13,241)

 

 

(8,288)

Net deferred income tax assets (liabilities)

$

15,689 

 

$

(114,019)

 

$

13,910 

 

$

(9,414)

 

$

(93,834)

The net deferred income tax liabilities as of December 31, 2015 of $204.2 million were recognized in our Consolidated Balance Sheet as deferred income tax assets of $161.2 million and as deferred income tax liabilities of $365.4 million.

The net deferred income tax liabilities as of December 31, 2014 of $93.8 million were recognized in our Consolidated Balance Sheet as deferred income tax assets of $190.0 million and as deferred income tax liabilities of $283.8 million.

The following table presents the movements in the valuation allowance for deferred income tax assets during the years ended December 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2015

 

2014

Valuation allowance at beginning of period

$

61,933 

 

$

 —

ILFC Transaction

 

 —

 

 

55,083 

Increase of allowance to income tax provision

 

10,067 

 

 

6,850 

Valuation allowance at end of period

$

72,000 

 

$

61,933 

 

 

 

 

 

 

The valuation allowance as of December 31, 2015 of $72.0 million included $23.0 million related to losses and credit forwards in Australia, $35.1 million related to having insufficient sources of projected taxable income to fully realize the deferred tax asset in the United States of America, and $13.9 million related to loss carry forwards in the Netherlands. In the United States of America, due to the restructuring of certain entities, previously disallowed tax assets can now be utilized against additional projected taxable income, resulting in the release of $25.0 million of valuation allowance from the opening balance sheet.

The valuation allowance as of December 31, 2014 of $61.9 million included $36.9 million related to losses and credit forwards in Australia and $25.0 million related to deferred losses in the United States of America.

As of December 31, 2015 and December 31, 2014, we had $15.5 million and $12.4 million, respectively of unrecognized tax benefits. As of the Closing Date of the ILFC Transaction, we had $5.4 million of unrecognized tax benefits.  Substantially all of the unrecognized tax benefits as of December 31, 2015, if recognized, would affect our effective tax rate. Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, based on the information currently available, we do not expect any change to be material to our consolidated financial condition.

Our primary tax jurisdictions are the Netherlands, Ireland, and the United States of America. Our tax returns in the Netherlands are open for examination from 2010 forward, in Ireland from 2011 forward, and in the United States of America for 2012 and 2014 forward. In the United States of America, the 2013 federal income tax return for AerCap, Inc. and its subsidiaries was subject to examination. This closed without adjustment in early 2016. None of our other tax returns are currently subject to examination.

Our policy is to recognize accrued interest on the underpayment of income taxes as a component of interest expense and penalties associated with tax liabilities as a component of provision for income taxes.  

The Netherlands

The majority of our Dutch subsidiaries are part of a single Dutch fiscal unity and are included in a consolidated tax filing. Aside from the one-time current tax expense related to the transfer of certain functions from the Netherlands to Ireland, current tax expenses are limited with respect to the Dutch subsidiaries  due to the existence of interest bearing intercompany liabilities. Deferred income tax is calculated using the Dutch corporate income tax rate (25.0%). Tax losses in the Netherlands can generally be carried back one year and carried forward nine years before expiry.

Ireland

Since 2006, the enacted Irish corporate income tax rate has been 12.5%. Some of our Irish tax-resident operating subsidiaries have significant losses carry forward as of December 31, 2015 which give rise to deferred income tax assets. The availability of these losses does not expire with time. In addition, the vast majority of all of our Irish tax-resident subsidiaries are entitled to accelerated aircraft depreciation for tax purposes and shelter net taxable income with the surrender of losses on a current year basis within the Irish tax group. Accordingly, no Irish tax charge arose during the year. Based on projected taxable profits in our Irish subsidiaries, we expect to recover the full value of our Irish tax assets and have not recognized a valuation allowance against such assets as of December 31, 2015.

United States of America

Our U.S. subsidiaries are assessable to federal and state U.S. taxes. Since the ILFC Transaction, we no longer file one consolidated federal income tax return. We have two distinct groups of U.S. companies that each file a consolidated return and various individual subsidiaries that file single company returns. The blended federal and state tax rate applicable to our combined U.S. group was  36.3% for the year ended December 31, 2015.  Due to an intragroup restructuring within the U.S., we are able to generate additional sources of taxable income to fully realize our deferred income tax asset in our U.S. ILFC group. As a result, we have fully released the existing valuation allowance against our U.S. ILFC deferred income tax asset of $25.0 million as of December 31, 2015. Due to a restructuring of activities in the U.S. AeroTurbine group, we do not expect to generate sufficient sources of taxable income to realize our deferred income tax asset in the U.S. AeroTurbine group. Thus, we have recorded a full valuation allowance against our U.S. AeroTurbine group deferred income tax asset of $33.3 million as of December 31, 2015. We had $91.7 million U.S. federal net operating losses as of December 31, 2015, which expire between 2025 and 2035.