- 11 Jun 2021
- David Wyndham
- Aircraft Ownership
With an increase in US government enforcement actions for failure to comply with applicable aircraft export laws, it’s vital to understand these complex requirements and regulations. Here, the National Aircraft Finance Association (NAFA) breaks them down…Back to Articles
Aircraft transactions are complicated and involve a host of tax and regulatory issues. While attention has rightly been focused on federal and state tax planning and compliance with FAA, DOT (among other agencies) regulations, compliance with US export laws has often been inadvertently overlooked.
In many cases, parties have failed to properly export aircraft due to confusion over, and lack of awareness of, the requirements.
Nevertheless, recent government enforcement actions, including an uptick in aircraft seizures, have placed a spotlight on the importance of compliance with US export laws.
As the failure to comply with applicable export laws (including making Electronic Export Information (EEI) filings when required), may result in significant penalties (including, but not limited to, substantial fines, aircraft seizure and forfeiture) you would be well advised to pay attention to this issue.
What is an Export?
The term ‘export’ is broadly defined to include an actual shipment or transmission of an item out of the United States.
Accordingly, anytime an aircraft is flown out of the United States it is an export. Generally, when aircraft are physically exported from the United States as part of a sale, lease or transfer of possession/control to a foreign person, and/or if the aircraft is intended to be based outside of the United States for more than one year, an EEI filing will be required.
What is an EEI Filing?
An Electronic Export Information (EEI) filing is an electronic submission of export data, which contains details such as the parties to the transaction, the export classification control number, the value, the date of export, and the country of ultimate destination, among other data.
EEI filings are used by the US Census Bureau Foreign Trade Division (Census) – the government agency which administers the Foreign Trade Regulations – to collect trade statistics. They are also used by Customs and Border Protection (CBP) and the Department of Commerce Bureau of Industry and Security (BIS), which administers and enforces the Export Administration Regulations (EAR), for export control purposes.
When an EEI is filed correctly, it generates an Internal Transaction Number (ITN), which serves as proof that such filing was made.
When is an EEI Filing Required?
Generally, an EEI filing is required when the value of the item being exported is over $2,500, or if a license is required, unless an exemption is available under the applicable regulations. In the context of aircraft, EEI filings are generally required when aircraft are permanently exported from the United States.
If the intent is to base the aircraft outside of the United States for more than one year, the first flight out of the United States would be considered a permanent export and, in such case, an EEI filing would generally be required prior to the aircraft’s departure. This is the case even if the aircraft is on the N-registry and/or owned or operated by US persons.
Examples of exemptions to this requirement generally include, among other things: (i) Permanent exports to Canada; and (ii) Temporary exports (where the intent is to base the aircraft outside of the United States for no more than one year).
Who is Responsible for the EEI Filing?
Generally, the US Principal Party in Interest (USPPI), or an “authorized agent” (typically a customs broker) acting on the USPPI’s behalf, is responsible for making the EEI filing. The USPPI is the party in the United States that receives the primary benefit, monetary or otherwise, from the export transaction.
Examples of parties that may be the USSPI include:
In many aircraft export transactions the foreign buyer/lessee controls the removal of the aircraft from the United States. Such transactions are known as ‘routed export transactions’.
In a routed export transaction, the Foreign Principal Party in Interest (FPPI) authorizes a US agent to facilitate the export of the aircraft from the United States and to prepare and file the EEI.
Who is the ‘Exporter’?
The term ‘exporter’ is defined in Section 772.1 of the EAR as “the person in the United States who has the authority of a principal party in interest to determine and control the sending of the items out of the United States”. The exporter is responsible for determining license requirements and obtaining licensing authority.
Generally, the USPPI is the exporter, except in certain routed transactions where the USPPI contains written confirmation from the FPPI, whereby the FPPI expressly assumes responsibility for determining licensing requirements and obtaining licensing authority. In such case, the FPPI’s US agent is the exporter.
Corrective EEI Filings
As of April 23, 2021, Census, in coordination with BIS and CBP, issued informal guidance setting forth procedures for corrective EEI filings.
Lenders, if an aircraft is based outside of US, place EEI filing on the closing checklist. And make sure to obtain an ITN.
Ultimately, the regulations are super complex – consult with counsel. It pays to be proactive!
More information from National Aircraft Finance Association, www.nafa.aero