With the Senate Republicans passing their US$1.4 trillion tax bill and Democrats calling the process a sham and the policy a disaster this week, several foreign carriers are eagerly waiting for the final version of the bill to see if an amendment introduced by Republican senator Jonathan Isakson of Georgia will make it to the final version of the bill.
According to an update from the Business Travel Coalition (BTC), the bill includes a provision that would result in certain non-U.S. airlines paying corporate taxes on the money they earn from
U.S. business, ending an existing exemption for certain international airlines that fly into the U.S.
The proposal by Isakson, who represents the state where Delta is headquartered, would require certain airlines to pay U.S. corporate tax under two conditions: if the country where the foreign airline is headquartered doesn’t have a tax treaty with the U.S., and if major U.S. airlines make fewer than two weekly trips to that foreign country.
Tax lawyers and lobbyists cited by the BTC said the provision could impact Gulf airlines, including Etihad, Emirates and Qatar Airways, who major U.S. airlines allege have been unfairly subsidised by Qatar and the United Arab Emirates.
But Saudi Arabia, whose airline has not been the focus of the U.S. majors’ attention - probably because it is, like Delta, a member of the SkyTeam Alliance - could also be affected by the amendment.
Will the reciprocal tax exemption valid for many carriers be nullified?
In a statement, Kevin Mitchell, the founder of the Business Travel Coalition said the Isakson provision - which not surprisingly has been put together with the full support of Ed Bastian, CEO of Delta Air Lines - "is yet another sad display by Delta to attempt to feed its obsession to harm Gulf Carriers and eliminate the important competitive choice they offer to passengers."
If included in the final reading of the bill, the provision would arbitrarily and selectively nullify the current reciprocal tax exemption of at least 15 airlines from 14 jurisdictions (12 countries and two territories).
Among those countries subject to the sweeping impact are some of the most important U.S. geopolitical allies - Saudi Arabia, Singapore and Jordan, not to mention the UAE and Qatar. The cascading impact will not be limited to Middle East countries with others negatively impacted as well, including Kuwait, Malaysia and Ethiopia.
In its statement, BTC also noted that Senator Isakson’s office "swallowed Delta’s claim" that the Middle East markets are closed to U.S. carriers. "If they checked the facts and asked UPS - another important Georgia constituent - they would have learned that UPS, like every U.S. cargo and passenger airline, has full Open Skies rights to fly to and beyond the UAE and Qatar. UPS currently flies to Dubai. What’s more, FedEx, another important Georgia constituent with 10,000 employees in Senator Isakson's state, has a hub in Dubai that is vital to its global network," BTC said.
In a reaction to the amendment, the Arab Air Carriers organisation (AACO) slammed the proposed Bastian/Isakson provision with its Secretary-General, Abdul Wahab Teffaha describing the amendment "a dangerous move" and calling on IATA to take action.
In a reaction, IATA said 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," said an IATA spokesman.
Nol van Fenema