The government proposed a series of tax changes late last year that would take much of the juice out of the structures.  German leases shift the lessor profit to lease expiration.  The lessor can qualify for capital gains rates at one half the normal tax rate on the profit by liquidating when the lease expires.  The government proposes to kill off the half tax rate from the beginning of 1999.

German law limits investors in lease transactions from using net losses during early years of the lease term to shelter more income from other transactions than the amount of equity they have invested in the lease deal.  However, the leasing industry has found a way around this limit by moving the debt up one tier so that the investor contributes the borrowed funds to the lessor entity as equity.  The government hit back in a draft tax bill last November by proposing a new minimum tax that would prevent individuals from using passive losses from leasing and other loss-making structures to reduce taxable income by more than half.  This will reduce the amount of available lease equity in the market.

The finance ministry also issued a draft tax guideline recently that would bar leasing funds from using the regular tables to calculate tax depreciation.  They would have to accept a longer life for the assets linked to the high residual value usually claimed in the prospectuses for leasing deals.CHINA RUMORS…Unconfirmed reports from China are that the government has declared a moratorium on construction of new thermal power plants for the next three years.  There is no information on whether the moratorium affects proposed projects that use fuels other than coal

Meanwhile, the State Power Corporation — the successor to the former Ministry of Electric Power — has declared that new power purchase agreements may no longer contain minimum power purchase obligations.  Power projects that have received final approval from the State Development Planning Commission are expected to be grandfathered under the prior regulations that allowed such “minimum take” provisions.  This latest action is expected to launch China into a full economic dispatch environment within the next few years.

AUSTRALIA AWARDED Ash1 MILLION IN TAX REBATES TO FOUR INFRASTRUCTURE PROJECTS, including A$32.6 million to Duke Energy for development of an 800-kilometer gas pipeline from New South Wales to Victoria and A$10.4 million to Japanese trading company Itochu for development of a cogeneration plant in New South Wales.  The rebates represent approximately 8% of the total cost of the projects and are taken over five years.  They are the first rebates under an “Infrastructure Borrowings Tax Offset Scheme” established last year.