Tax on profits - they were able to take all profit without paying any tax and it could be withdrawn to Germany without paying any tax there because it was considered as tax paid.
Lufthansa runs its pilot school in Bremen/ Germany and Goodyear/ Arizona. They used to offer flight training for their affiliated companies like City Line etc in Zadar. However since more than five years they cannot offer any jobs to the students afterwards. Thats why they closed it - they still have enough capacity in Goodyear=Phoenix.
Tax on profits - they were able to take all profit without paying any tax and it could be withdrawn to Germany without paying any tax there because it was considered as tax paid.
Yes, but a flying school can be easily arranged to not make a profit 
Many seem to manage it automatically without any effort.
Do you mean they were using transfer pricing to move German profits to Croatia and then take them out as cash? That would be quite smart...
Lufthansa runs its pilot school in Bremen/ Germany and Goodyear/ Arizona
I recall seeing a long TV programme on some airline pilot school in Arizona, c. 15 years ago, before I started flying. They were flying twins.
Today, I wonder how they did it because you cannot do the JAA IR outside JAA-land. The PPL and the CPL are wholly possible, and any amount of hour building, but not the IR. This may however have been pre-JAA.
It's even possible they were training for FAA papers and then converting. I hear that even the UK CAA would convert FAA papers to UK CAA ones, more than 20 years ago.
Peter, what about opening an FTO in Croatia? I agree it's the perfect place. Good weather, good infrastructure, reasonable cost of living. I'll invest...
Isn't there an issue with EASA not accepting Croatian papers right now?
A whole ago they specially refused to recognise "Croatian JAR-FCL" papers. One could sidestep that by running it under a German approval.
Otherwise, yes, you get hold of somebody who knows how to set up and run an FTO and off you go. I can think of 1 or 2 people I know.
An FTO, run in a modern way (i.e. not hammering the NDB holds, not doing the UK 170A "flight test") with good external communications, in a warm climate, run by Germans, should do well.
One issue is the aircraft. If you have DA42s then how many will be usable at any one time? I know of one FTO "down south" with an all-diesel fleet (no avgas where they are) which was about 50% to 75% grounded, on average.
I suppose these days there is the Tecnam Rotax twin...
Peter, what about opening an FTO in Croatia? I agree it's the perfect place. Good weather, good infrastructure, reasonable cost of living. I'll invest...
I'm running PPL training facility with some friends and that's hardly sustainable business. We're planning to upgrade to ATO but it's hard to justify the investment when there's no demand for training. Local market is small and acquiring international students requires huge investment in marketing nad competing with proven and highly recognized schools.
Isn't there an issue with EASA not accepting Croatian papers right now?
Yes, but only for next three days. From July 1st Croatian papers will be valid as of any other EU country. CCAA issued directives confirming compliancy and defining procedure for replacing the licenses.
Interesting...
What I heard in Greece is that almost none of the students at the FTOs there are Greek. A visit to one of them made this very obvious. A few Greeks doing PPLs but the "ATPL" business is nearly all from N Europe.
It is hard for me to place myself in the position of the "standard" 20+ year old ATPL student and his/her outlook on life, but if I was going to hang out somewhere far from home for some months (which itself is possible - never mind attractive - only if you don't have any kind of real job or family life) then Croatia or Greece would completely outclass any N. European location.
The weather is better, the food is infinitely better (for a few months, you do need to eat healthy food; not the stuff most people consume on a holiday), and the costs should be lower because fuel is cheaper and fewer flights are cancelled to bad wx.
OTOH they are all told by N European FTOs that they won't get a job unless they do their training in N Europe...
Now if you take the presumed vast numbers of FAA IR holders who, from 2014 onwards, are going to get shafted by EASA FCL, that would be a different kind of business, for the 15hr conversion course, or possibly for a CBM IR based conversion course, which in reality IMHO will be just the same amount of flight training, but no written exams. But the FTO makes no money from exams anyway; they just delay the cash flow from flight training!
In the conversion business, one is dealing with really old people (like myself, nearly 56 ) and they want a very straight process with no hassle and no risk of getting nearly there and then getting shafted. There is / used to be a Spanish operation at Jerez which would convert you in 1 week. This worked partly because they were not operated from the UK and didn't do NDB holds (which can take up 90% of the IR-conversion flight training). One could do the same formula in Croatia. One would need to support customer aircraft of course (including N-reg) because nearly everybody with an FAA IR already owns (or part owns) their own plane.
When I went to Arizona in 2006 to do the FAA IR, I was assigned an instructor for the whole 2 weeks, with military precision. The 2 weeks were mapped out in detail and we flew 2x a day. In fact I thought he was ex military, from his organisation, but he wasn't. He did some other stuff in between my flights but he would always do my flights.
Currently almost nobody is converting because everybody is hoping that the CBM IR will arrive in time (because nobody of anywhere near this age wants to do yet more silly exams, having left university what seems 100 years ago) or at the very last moment there will either be another 2 year derogation, or a treaty with the FAA will magically appear. And I am sure they will keep hoping till the very last minute. Then there should be a surge of FTO business - perhaps a few k pilots in Europe. I don't think a treaty will arrive.
Another thing is that EASA FCL, 2014 onwards, will make it barely worthwhile for Europeans to do the FAA PPL just for a PPL holder who wants to fly VFR, or even as a starting point for a PPL/IR. Many European pilots went to the USA and using the well organised package described above did the whole lot in some weeks. Whereas a N European PPL takes ~ 1 year, mainly due to weather but partly due to disorganised schools and crap (defunct) planes. This business should transfer to Europe in 2014, but whoever was able to spend say 4-6 weeks in Florida (which is hardly an attractive place to stay for so long, and it is much worse if you also have to eat there) can spend that time in say Croatia and be much closer to home, with Easyjet etc. And of course none of that stupid I-20/M-1 visa / TSA business.
Those who went the FAA route for medical reasons will now be grounded permanently, though probably all of them (I am not an AME) can get back up using the LAPL.
For the average Euro GA FAA IR pilot, there is a shortage of FTOs, and a worse shortage of FTOs willing to train in customer owned aircraft. Most don't like private pilots much, anyway. And if I am based at say Shoreham and my nearest suitable FTO is at Bournemouth (2.5 hrs' drive, or a 30min flight but flying is not practical if training in the morning of same day) and I am going to be sitting at some cheap hotel in Bournemouth for a couple of weeks, Croatia is a no-brainer.
Peter wrote:
Do you mean they were using transfer pricing to move German profits to Croatia and then take them out as cash? That would be quite smart…
My understanding/guess from Emir’s description is they were running a legit operation in Croatia (the training was happening in Croatia), so that operation was taxable in Croatia. And to encourage them to do it in Croatia, they got income tax breaks in Croatia for five years. Like many places do… It made some sense with “traditional industry”… if your country is competitive for that kind of activity. They key aspect is that once installed there, the activity was costly to move (heavy machinery, your employees and know-how are in the area, …), so they would tend to stay and pay normal tax for long afterwards.
It does not work if your country is not competitive… Villeroy & Bosch got such breaks (or was it straight subsidy?) in order not to close their manufacturing plant in Luxembourg… They pocketed that, stayed a bit and then moved to Germany (lower salary costs). For that company, being older than most of the surrounding states, changing jurisdiction is part of its history; it used to be because the borders moved, though, not because they moved ;)
To come back to Lufthansa, I understand the income tax breaks expired, and they moved out… And during that period, since the operation is taxable in Croatia, you can move the money around freely, it is not new revenue in any other jurisdiction. If it was in a branch, moving the money is a non-event; if it was in a subsidiary, the subsidiary pays out a dividend and the exemption for dividends gotten from subsidiaries kicks in. That exemption is “forced” by EU legislation for EU-to-EU dividends since 1990; many countries sensibly expanded it to non-EU dividends.
Thread mummy resurrection 
They are often great threads but yes I added “2013” into the subject header.
