US tax threat to Gulf airlines may be ‘discriminatory’

A late amendment to the US Senate tax bill would scrap the exemption from tax that Gulf airlines such as Emirates have enjoyed. (Reuters)

LONDON: A threatened US tax hit on Gulf carriers Emirates, Etihad and Qatar Airlines could be deemed as discriminatory if not applied to other airlines serving the US, warned a leading London airlines analyst.
Additionally, the move would potentially amount to “a double whammy” as the airlines were already cutting costs to offset some of the toughest trading in years, Tim Coombs, head of UK-based Aviation Economics, told Arab News.
A late amendment to the US Senate tax bill would scrap the exemption from tax that Etihad, Emirates and Qatar Airways have enjoyed on income generated from flights to and from the US.
The amendment is supported by US airlines such as Delta that have campaigned for years for retaliation against state-owned Gulf flag carriers which they claim receive government subsidies that they view as anti-competitive. The carriers deny receiving unfair aid, and point out it was US Chapter 11 bankruptcy protection that helped big US carriers restructure after years of losses.
Coombs said the US is a very important market for the three airlines and, if enacted, the removal of the tax exemption would have a “significant” impact. “They may want to look at legal recourse,” he added, as the amendment could be interpreted as “discriminating” against certain airlines and not others.
The finances of Gulf airlines have already been hammered amid heightened fears of terrorism, weak trading as a result of the lower oil price and US security curbs that have hurt business to US destinations. Now, possibly galvanized by President Donald Trump’s championing of an “America First” policy, US carriers have seen a chance to land a punch on their Middle Eastern rivals, suggested Coombs.
He likened the move to Boeing’s battle with Canadian group Bombardier. In September, the US Department of Commence announced its intention to impose trade tariffs of 220 percent on Bombardier’s C Series jets, after Boeing claimed the firm had received excessive government support which gave an unfair business advantage in breach of trading regulations.
The US tax measure was added to the bill last week by Johnny Isakson, a Republican senator from Georgia, whose state is home to Delta Air Lines and its main hub, Atlanta airport.
An Ethiad spokesperson said: “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. We are working with a broad coalition of industry representatives to inform lawmakers on this issue, which appears to be the result of continued anti-competitive efforts by one or more of the big three US legacy carriers.”
The Gulf airlines are backed by the International Air Transport Association (IATA), which has come out against the amendment and warned that “foreign governments — even those not directly affected by the proposed language (in the bill) — could be tempted to follow the US example and impose reciprocal taxes in return.”
IATA added: “If enacted, the (tax) provision would upend decades of precedent — which the US has long supported — on the taxation of international aviation.”
Years of rapid growth for Gulf airlines have led to concerns about over-capacity, which comes just as competition from lower-cost carriers — both long and short-haul — has intensified.
The tough trading was underlined in a recent report by IATA which forecast that the three Middle East carriers would post a collective $400 million profit this year, down from $1.1 billion in 2016.
For the first six months of 2017, trading conditions “sharply declined” and “some business models have come under pressure,” IATA said.
IATA said in September that Middle East operators saw their slowest rate of monthly international growth for eight years with demand up just 3.7 percent.
David Oxley, its senior economist, told the BBC that business from the Middle East to America was still suffering despite the lifting of the cabin ban on large portable devices.
The Middle East-US “is the only international market not to have grown in annual terms over the first eight months of the year,” he said.