Paradise Papers: GMR firm bought plane, sold it in two weeks at loss

For, within a fortnight, GADL sold this plane to a US-based aircraft sales and acquisition company Avpro Inc. for $23 million — thereby incurring loss of $4.5 million in its books.

Written by Sandeep Singh | New Delhi | Published:November 9, 2017 4:45 am
Paradise Papers, Appleby, GMR black money, GMR companies, GMR, GMR paradise papers, GMR Holdings Private Ltd, GMR group, GMR group infrastructure, GMR group money laundering, paradise papers india, Appleby documents show that even as GMR group incurred a loss of .5 million, its transactions were structured in a manner that they escaped the VAT.

Appleby records investigated by The Indian Express show that GMR Airport Developers Limited (GADL) International, a GMR Group group company registered in the Isle of Man, purchased a Falcon 2000 aircraft on December 9, 2013 — a 10-seater passenger plane — from France’s Dassault for $27.5 million setting off a series of curious transactions.

For, within a fortnight, GADL sold this plane to a US-based aircraft sales and acquisition company Avpro Inc. for $23 million — thereby incurring loss of $4.5 million in its books. Records show that 10 months after it purchased the Falcon aircraft, Avpro put it up for sale at $26.5 million or around $3.5 million above the price at which the US company purchased it from GADL International.

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Appleby documents show that even as GMR group incurred a loss of $4.5 million, its transactions were structured in a manner that they escaped the VAT (Value Added Tax) payment obligation on the aircraft purchase and sale deal.
Documents available with Appleby show that GADL purchased the plane with money coming from “an Indian company connected to” GADL. This is corroborated by the GMR group, which, in a response to queries sent by The Indian Express, admitted that “temporary assistance was given by another GMR group company and the dues were settled immediately on sale of aircraft by GADL International”.

Since the transaction involving GADL, registered in Isle of Man, and Dassault (in France), was an “intra-community” supply by virtue of both the destinations being in EU, it traveled free within the EU without payment of any VAT.

Appleby records reveal that GADL did show a VAT charge of 20 per cent under the the EU’s VAT regime but was able to recover it, leading to no actual VAT payment to tax authorities. “The VAT charge and recovery are effectively contra entries on the same VAT return and no actual VAT is paid to any tax authority — provided that the purchaser (GADL) goes onto make taxable supplies with the asset purchased,” said the advice from an Isle of Man tax advisory hired by GADL, ICM Tax Consultants. This advisory is part of Appleby records.

That’s why within a fortnight of the purchase from Dassault, when GADL sold the aircraft to US based Avpro Inc., no VAT was paid because the sale took place “outside the scope of EU VAT”.

The tax consultants working on the scheme argued that “the sale of the aircraft in the US would be a supply that would allow GADL to be considered to be ‘in business’ and would therefore allow for the input VAT recovery on the initial acquisition of the Aircraft as purchased from Dassault”.

In Sep 2014, the Falcon 2000 was publicly put up for sale by Avpro priced below market at $26.5 mn.

GMR’S RESPONSE:

In the changed business scenario in India and overseas, the group decided to rationalise its fleet and hence negotiated with Dassault to shift to smaller aircraft Falcon 2000 at a price of USD 27.5 Million. However, the business prospects of chartering were not conducive for profitable deployment of new aircraft in India and hence finally the group took a call to cancel this booking.

“Dassault has not agreed for any amicable solution and hence it was decided to explore opportunities to sell the aircraft after taking delivery…the group has no option but to take delivery and sell in the market in Dec 2013 to avoid forfeiture of $11 mn of advance paid to Dassault. As flying the aircraft into India, getting it registered and then selling would have been a cost option in terms of time and costs, we explored ways to sell overseas without bringing this aircraft into India. In line with this plan, aircraft was purchased by overseas company and sold to buyer soon after taking delivery. Thus we could reduce the loss to only $4.5 mn instead of forfeiture of $11 mn.

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Asked how Avpro could put it up for sale at a higher price, the spokesman said: “We cannot comment on the activities of Avpro as we do not have any business dealings with them other than sale of this aircraft…The sale by Avpro was almost 10 months after their purchase from us and in the international market saddled with huge inventory of aircraft up for sale because of stagnant market, some variations in prices are possible over a period of time.”

EXPLAINED: Why the Paradise Papers matter

“The losses incurred by the group on account of sale of aircraft was disclosed in respective company and incorporated in the consolidated accounts of the listed entity. There was no requirement for separate reporting in any Indian company as the loss is incurred in the overseas entity. Finally we wish to inform you that all the above transactions were fully reflected in our books of accounts and annual reports which were filed with the respective regulatory authorities like ROC, RBI, GoI etc. in India and other respective places in the globe.”

Dassault did not response to queries sent by The Indian Express. (Full response indianexpress.com)

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