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United States: Senate tax proposal could prove costly for foreign carriers

A proposal included in the Senate tax bill could prove costly to foreign airlines, including Gulf-based airlines that have been accused of receiving billions of dollars in unfair state subsidies.

The provision would compel specific carriers that are based outside of the country to United States corporate taxes on money earned in the country if U.S. airlines do not have at least two weekly departures to or arrivals from the foreign carrier’s home country, and if there is no reciprocal tax treaty between the U.S. and the carrier’s country.

Sen. Johnny Isakson, R-Ga., who considers Atlanta – Delta Air Lines’ home state – his home as well, initiated the proposal.

He has publicly said that the amendment would “protect Georgia airline employees by ending a tax exemption for airlines based in countries that deny fair market access for U.S.-based airlines.”

Delta, United Continental Holdings and American Airlines Group aired their grievances to the Trump administration earlier this year that the government-supported Gulf airlines have received $50 billion in subsidies from their governments.

In a letter penned to Secretary of State Rex Tillerson back in February, the chief executives of the three carriers jointly wrote that “the subsidies allow the Gulf carriers to operate without concern for turning a profit” and violate Open Skies agreements, which give foreign airlines access to international routes.

The proposed measure could put a dent into Middle East airlines such as Abu Dhabi-based Etihad, Dubai-based Emirates Airlines and Doha-based Qatar Airways because they don’t have reciprocal tax agreements with the U.S.

“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,” an Etihad spokesperson said.

“We are working with a broad coalition of industry representatives to inform lawmakers on this issue, which appears to be the result of continued anticompetitive efforts by one or more of the Big 3 US legacy carriers.”

Meanwhile, the International Air Transport Association (IATA), a trade group representing many of the world’s airlines, argued that the Senate tax provision would “upend decades of precedent” on foreign aviation taxation.

“Foreign governments — even those not directly affected by the proposed language — could be tempted to follow the U.S. example and impose reciprocal taxes,” remarked IATA spokesman Perry Flint.

While U.S. carriers have accused the airlines of receiving unfair government support, some U.S. airports have lauded these airlines and in at least one case gave incentives.

Qatar Airways recently started operating cargo flights into Pittsburgh International Airport. Reports have indicated that the airline would receive $15,500 per flight, or about $728,500 for the first six months of its contract.

Gulf carriers are expanded their operations to other locales in North America as well. Etihad launched a weekly cargo route to Miami International Airport earlier this month, joining Qatar Airways. A spokesman for the airport revealed that the airlines did not apply for any subsidies or incentives.

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