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Arab carriers seek to put down US proposal to remove tax exemptions for foreign airlines

Representatives for Arab airlines, which include Emirates and Etihad Airways, are looking for measures to nip a US proposal to take away the longstanding tax exemption for foreign airlines.

The move, should it be ratified, would result in increased fares for passengers and damage to global networks, said the representing body of the Arab carriers.

The Arab Air Carriers Organisation (AACO) – whose 30-strong membership network also includes Gulf Air, Oman Air, Air Arabia, Kuwait Airways and Saudia – raised numerous concerns with global industry bodies, said its Secretary-General Abdul Teffaha.

“The notion of imposing income tax on foreign carriers belongs to the first half of the last century, not today’s globalized world,” Teffaha said.

“We have communicated with the International Air Transport Association (IATA) and the United Nations’ International Civil Aviation Organization (ICAO) on the matter and are talking to other stakeholders and governments, as this could be very dangerous.”

A change to the US tax code that was proposed last week by US Senator Johnny Isakson of Georgia pleas for airlines which are based in foreign countries, to pay corporation tax if the carrier’s home country has fewer than two arrivals and departures per week operated by major US airlines, and/or the carrier’s country does not already have an income tax pre-agreement with the US.

Under such a policy, companies from foreign countries are either exempt or pay a reduced rate on their income.

There are more income tax exemptions for certain foreign airlines but these would be taken away under Senator Isakson’s adjustments, which relate to the state of Georgia.

“If this happens, it could set a precedent for other states to follow suit,” Teffaha stated. “That would raise costs for airlines significantly, dismantle the global network and deprive customers of choice.

“Ultimately, it would turn back the clock to a pre-Open Skies era when countries used to impose restrictions on carriers to balance their [involvement in the domestic market].”

If applied, the new rules would widen the rift between the three largest US airlines – United, Delta and American Airlines – and their Arabian Gulf counterparts, Emirates, Etihad Airways and Qatar Airways further.

For years now, the US carriers have urged the federal government to halt Gulf carriers’ expansion in the states, which they say represents “unfair competition” and is in breach of Open Skies agreements. Incidentally, Delta is based in Atlanta, which sits within Senator Isakson’s constituency.

Adding even more fuel to the fire is the fact that UAE’s flag carrier Etihad Airways would cancel all flights to Dallas-Fort Worth in Texas next year after American Airlines said it would put an end to its codeshare with the Abu Dhabi-based airline in March.

Slapping on tax on foreign airlines would be a “highly counterproductive move”, as air passengers would eventually shoulder the extra costs, Teffaha said.

“We would ask the relevant authorities to help international aviation operate unhindered, and not burden airlines with extra taxes that will ultimately be reflected in costs to passengers, hurting them.”

A spokesman for Etihad Airways said in a statement: “Etihad Airways is aware of the language in the Senate tax reform bill, which is widely agreed to be inappropriate under US law and contrary to several international agreements.

“We are working with a broad coalition of industry representatives to inform lawmakers on this issue, which appears to be the result of continued anti-competitive efforts by one or more of the ‘Big Three’ US legacy carriers.”

Emirates did not comment on the proposals.

IATA meanwhile, said it “does not support” the Isakson provision. According to a statement, the seamless experience of air travel “is possible only because governments cooperate across borders on rules and regulations that govern the industry,” an IATA spokesperson remarked.

“Reciprocity between governments on taxation is a vitally important part of this cooperation. If enacted, the Isakson provision would upend decades of precedent–which the US has long supported–on the taxation of international aviation. It would directly impact multiple airlines from multiple countries. Foreign governments – even those not directly affected by the proposed language – could be tempted to follow the U.S. example and impose reciprocal taxes in return.”

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