The recently passed Senate tax bill has a new proposal buried deep inside its words. The proposal calls for foreign carriers to pay the U.S. corporate tax on any money earned within the country.
The stipulation is that the carrier will owe the country taxes if U.S. airlines do not have at least two weekly departures or arrivals from the foreign carrier’s home country. Additionally, there won’t be a reciprocal tax treaty between the two countries.
The proposal was introduced by Senator Johnny Isakson. The Senator is a resident of the Delta Air Lines home state, Georgia and this seems to be his inspiration behind drafting the proposal.
In a press release earlier in the month Senator Isakson stated that the proposal 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”.
The move came after the heads of two major airline groups registered a complaint with the Trump administration regarding the $50 billion in subsidies pocketed by the government backed Gulf airlines.
The groups, Delta, United Continental Holdings, and American Airlines Group were livid over the kind of benefits being accorded to these airlines by their governments.
In a letter addressed to the Secretary of State, Rex Tillerson, the companies stated that the “subsidies allow the Gulf carriers to operate without concern for turning a profit”.
They pointed out that this in turn violated the Open Skies agreements which allow foreign airlines access to international routes. However, the new proposal means that the U.S. will soon be taking care of its own as well.
The new proposal is likely to affect major Middle Eastern carriers such as the Abu Dhabi based Etihad airlines, Dubai based Emirates airlines, and Doha based Qatar airways, all of which lack reciprocal tax agreements with the country.
A spokesperson for Etihad spoke out against the bill saying it was “inappropriate under U.S. law” and that it was “contrary to several international agreements”.
The spokesperson stated that the company was working with “a broad coalition of industry representatives to inform lawmakers on this issue”. The spokesperson also took a dig at the three U.S. companies that wrote the letters saying the bill seemed to be a result of the “continued anticompetitive efforts by one or more of the Big 3 U.S. legacy carriers”.
The International Air Transport Association seemed inclined to agree and stated the Senate tax provision would “upend decades of precedent” on all foreign aviation taxation.