The Arab Air Carriers Organization (AACO) has hailed the removal of the much talked about United States proposal to levy corporation tax on Arabian Gulf airlines.
AACO’s Secretary-General Abdul Teffaha expressed his satisfaction with the news that the amendment – tabled last month by US Senator Johnny Isakson of Georgia – was pulled from the bill.
“Reason prevailed,” he said.
The amendment, put in by Isakson, called for airlines headquartered in foreign nations to pay corporation tax if the carrier’s home country has less 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.
Reports claim that the provision was one of three that was removed from the bill under the US Senate’s Byrd Rule, which directs that all legislation going through budget reconciliation must have an impact on the budget.
The proposal introduced by Isakson, whose Georgia constituency is home to Delta Air Lines, was strongly lambasted by the AACO – whose membership includes Emirates, Etihad Airways and Gulf Air – who cautioned the move could incite retaliatory measures from other nations, that could possibly result in more costs for both carriers and air travellers.
The International Air Transport Association (IATA) also made their displeasure with the bill amendment known.
“Reciprocity between governments on taxation is a vitally important part of this cooperation,” the industry body said last month.
“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.”
The decision to shelve the proposal was not at all surprising, given the significant role Arabian Gulf carriers have for the US aircraft manufacturing industry, remarked Saj Ahmad, Chief Analyst at Strategic Aero Research.
“The reality is that GCC airlines are regularly placing orders worth billions of dollars in Boeing airplanes and engines from GE which support well over 270,000 aerospace jobs within the United States alone, not to mention the countless others in the extended supply chain,” said Ahmad.
“The US President is aware of job creation initiatives as part of his election pledge remain a priority.”
The move was seen as the latest shot fired in a contentious row between the three largest US airlines – United, Delta and American Airlines – and their Arabian Gulf counterparts, Emirates, Etihad Airways and Qatar Airways.
For some time now, the US carriers have urged the federal government to put a stop to Gulf carriers’ expansion in the states, which they say represents “unfair competition” and is in violation of Open Skies agreements. The Gulf airlines have denied the claims and responded by saying that their rivals simply cannot compete with their superior service.
But the Isakson proposal was condemned by US Airlines for Open Skies, a US body consisting of Atlas Air Worldwide, FedEx, Hawaiian Airlines, and JetBlue Airways.
“This special interest ploy was designed to hurt the Gulf carriers but would actually impact airlines from as many as 14 countries and territories, such as Jordan, Ethiopia, and Malaysia,” the group said.
“In addition, the provision opens the door to retaliatory taxes that would harm US airlines, particularly US cargo carriers,” the group added.
The US Senate Tax Cuts and Jobs Act was approved recently, bringing what would be the first major legislative accomplishment of Donald Trump’s presidency a step closer.
The act is made to usher in the largest tax revamp of the US tax system in decades, permanently dropping the corporate tax rate to 20% from its current level of 35%.
Senate Democrats, who overwhelmingly voted against the act, warn that it primarily aids the wealthy and large businesses, while the non-partisan Senate Joint Committee on Taxation warned it would significantly deepen the US budget deficit.