A United States congressional proposal that would take away income tax exemptions for specific airlines could impact major carriers from the Gulf, potentially making an already tense situation between U.S. airlines and their Middle East rivals, even worse.
U.S. carriers have long expressed their desire for the federal government to step in in what they perceive to be unfair competition by the three major Gulf airlines.
The proposal, which is included in the Senate tax-cut plan, calls for airlines headquartered in foreign countries to pay the U.S. incorporate tax rate if: 1) the carrier’s home country does not have an income tax treaty with the United States and 2) the carrier’s country of origin has fewer than two arrivals and departures, per week, operated by major U.S. airlines.
Qatar Airways, Emirates and Etihad Airways have long been accused by its American counterparts of receiving subsidies from their governments. The Gulf carriers have vehemently denied the accusation.
If the proposal is ratified, it could leave the Gulf carriers in a more vulnerable state since their home countries – the United Arab Emirates and Qatar – do not have income tax treaties with the United States, according to the Internal Revenue Service website.
A number of countries also run the risk of being affected during a time when perceived discrepancies in U.S. trade agreements are being closely monitored by U.S. corporations and the federal government.
The language in the Senate proposal paves the way for a crackdown in tax leniency for these and other airlines. This would likely be well received by American carriers, which have for years asked the U.S. government to intervene in the dispute.
Under U.S. tax treaties, entities of foreign countries are either freed or pay a lowered rate on their income, and vice versa for U.S. entities abroad. Reciprocity agreements, however, are less formal deals that don’t have an official accord, according to tax attorney Sam Brotman of Brotman Law.
“Reciprocity agreements are usually with countries that are not necessarily 100 percent friendly with the U.S.” Brotman said. “We’ll call it a handshake deal.”
The bill’s wording figures to intensify an already anxious standoff between U.S. airlines and Gulf carriers.
The addition was out in place by U.S. Senator Johnny Isakson of Georgia.
“This provision supports American jobs by providing a level playing field and mutual fairness in international passenger aviation,” said Isakson’s spokeswoman, Marie Gordon
“Foreign airlines should not receive preferential tax treatment if their countries choose not to open their markets to U.S. companies.”