The amendment has been latched to the US tax bill that has been passed by the House of Representatives, but has still to be passed by the Senate. The bill, however, is being pushed through at speed as the White House is keen to see tax reform, one of its key campaign pillars, enacted by the end of the year.
Senator Johnny Isakson, a Republican in Delta Air Lines’ home state of Georgia, added language in November to Senate finance committee chairman Orrin Hatch’s tax bill that would lead to the Gulf carriers being subject to US taxes.
Current US tax laws provide reciprocal exemption for gross income derived by foreign airlines. Under the Isakson proposal, that exemption would no longer apply if two conditions exist: The foreign airline is headquartered in a country that does not have an income tax treaty with the US and American passenger airlines operate fewer than two arrivals and departures per week to that foreign country.
Those conditions would encompass the UAE, home of Abu Dhabi-based Etihad Airways and Dubai-based Emirates Airline, and Qatar, home of Qatar Airways.
Those three Gulf carriers have been in the crosshairs of a campaign led by Delta, American Airlines and United Airlines, to curtail their growth in the US market. The US carriers allege that the Gulf carriers operate with the support of large government subsidies that contravene the US Open Skies agreements with the UAE and Qatar. The Gulf carriers strongly deny the subsidy allegations.
At the opening session of the AACO AGM in Sharjah Nov. 21, AACO Secretary General Abdul Wahab Teffaha raised the tax amendment issue after a presentation by IATA SVP Africa & Middle East Muhammad Al Bakri.
Teffaha asked Al Bakri to relay AACO’s concerns to IATA.
Describing the aviation tax proposal as “an extremely bad turn of events,” Teffaha said the dangers were twofold: it would suppress demand for travel and it could proliferate.
“This will hurt global aviation in a major way like nothing else,” Teffaha said. “There is a real danger it will suppress aviation and it will be bad for the consumer. And there is also the danger of proliferation; I am afraid that many countries will see what the US is doing and will follow suit.”
Teffaha told ATW that the US should also be cautious about the likelihood of reciprocal taxation on its carriers, especially by Latin American countries where similar conditions apply.
If the US tax bill does get passed with the aviation amendment, it would be effective for taxable years beginning after Dec. 31, 2017.
Some countries have full-fledged tax conventions with the US to ensure reciprocal tax exemptions. Other countries have reciprocal non-taxation agreements with the US that are not on the same level as tax treaties, but which have the same effect. The Isakson language targets the UAE and Qatar, which have the latter, and where there are fewer than two weekly arrivals and departures by US carriers.
But while the amendment seems to target the three Gulf carriers, it would immediately have a broader impact because it would also encompass the airlines of countries that include Saudi Arabia, Jordan, Bahrain, Malaysia and more.
“This is really bad public policy with potential ramifications for other US industries. If you set a precedent of using reciprocal tax exemptions as a competitive weapon, there surely are other countries and foreign competitors in a range of industries that will be intrigued by the prospect of applying that precedent to competitive US companies in a variety of sectors, not to mention foreign state treasuries that would like the extra revenue,” an industry source told ATW.
American, Delta, United and US airline labor groups have spent millions of dollars in their campaign against the Gulf carriers. In 2015 alone, tax filings show, The Partnership for Open and Fair Skies, which represents the airlines and a coalition of unions, spent $6.1 million.
(Karen Walker - ATWOnlin News)