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Etihad has accused US airlines of turning Donald Trump’s tax overhaul into a weapon in their war against Gulf carriers, after a provision was inserted into the proposed reforms that they say is specifically designed to punish them.
The Middle Eastern airlines are threatened by language in the Senate tax bill that would abruptly end the exemption from tax that Etihad, Emirates and Qatar Airways enjoy on income derived from flights to and from the US — but the carriers say it could have much wider impact, and wreak havoc on international travel.
People close to the companies say the tax hit is the latest episode in a campaign US airlines have run against Gulf carriers in recent years over allegations of unfair competition, which the Middle Eastern airlines deny.
Most big non-US airlines are currently exempt from tax on aviation-related income earned in the US under reciprocal tax deals with other countries. The Isakson measure is written in a way that would withdraw the benefit from Middle Eastern carriers and a few other airlines, but allow their big European peers to retain the exemption.
The proposal calls for foreign airlines to pay US corporate tax if their home country has fewer than two arrivals and departures per week operated by US airlines, and if the home country does not have a full income tax treaty with the US.
One person close to the Gulf airlines said it would also affect carriers flying to the US from Saudi Arabia, Serbia, Suriname and Fiji as well as other countries.
An Etihad spokesman told the Financial Times: “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.”
Tensions between the Gulf carriers and Delta, United and American Airlines have grown in the past decade as Etihad, Emirates and Qatar Airways expanded from being relatively small players to global challengers on many routes.
Delta has been one of the most vociferous in its complaints. This summer, it released a 15-minute video highlighting the danger it said the Middle Eastern airlines pose to the US industry.
People close to the Gulf carriers say the tax measure would threaten the financial viability of their flights to the US. Abdul Wahab Teffaha, head of the Arab Air Carriers’ Organisation, a trade group, described the tax provision this week as “an extremely bad turn of events”.
“This will hurt global aviation in a major way like nothing else,” Mr Teffaha told Air Transport World magazine.
“There is a real danger it will suppress aviation and it will be bad for the consumer. And there is also the danger of proliferation. I am afraid that many countries will see what the US is doing and will follow suit.”
The International Air Transport Association echoed that view. “If enacted, the Isakson provision would upend decades of precedent — which the US has long supported — on the taxation of international aviation,” it said. “Foreign governments — even those not directly affected by the proposed language — could be tempted to follow the US example and impose reciprocal taxes in return.”
Mr Isakson’s office did not respond to a request for comment, but a spokeswoman told Reuters last week: “This provision supports American jobs by providing a level playing field and mutual fairness in international passenger aviation. Foreign airlines should not receive preferential tax treatment if their countries choose not to open their markets to US companies.”
The Gulf airlines dispute the notion that their home markets are closed. They also deny a charge from US airlines that they are not holding up their end of Open Skies agreements because they accept billions of dollars in government subsidies.
Their lobbying clout in Washington, however, is limited by their status as foreigners. They also have little time to push for changes because Republicans are rushing to meet Mr Trump’s demand for a bill to sign into law by the end of the year.
Mr Isakson’s measure was included in a tax bill that was passed by Republicans on the Senate finance committee last week and will be debated by the full chamber next week. If it passes the Senate it would then need to be merged with separate tax legislation in the House of Representatives before being sent to the president.
Emirates and Qatar Airways declined to comment. Delta, United and American Airlines did not respond to requests for comment.