By Lisa Barrington
DUBAI (Reuters) – The United Nations should not change a treaty on how global airlines are taxed, the International Air Transport Association (IATA) said on Monday, warning it would increase complexity and costs and could lead to routes are deleted.
A UN tax committee is considering taxing airlines in the countries where they generate revenue, instead of the current system, which taxes airlines where they are headquartered.
Some countries proposed this change – to “source-based” rather than “exclusive residence-based” taxation – out of concern that developing countries are not sufficiently benefiting from the revenues generated by aviation and shipping on their territories.
“The proposals would be incredibly complex and would not necessarily result in taxes in the developing countries that have been highlighted, as the complexities associated with the tax environment could well lead to airlines ceasing services to those areas,” said IATA director General Willie Walsh to a news agency. annual meeting of the trade association, which represents more than 80% of global air traffic.
“For governments it would only mean collecting less from their national airlines and spending enormous effort and money collecting taxes from foreign airlines. Only the battalions of accountants needed to manage the reporting mess will be happy if the change is being implemented,” Walsh said.
The UN Committee of Experts on International Cooperation in Tax Matters has discussed possible changes to Article 8 of the United Nations Model Double Taxation Convention between Developed and Developing Countries, most recently during a session in March.
“This move is driven by frustration at the way shipping, rather than aviation, uses flags of convenience to find friendly tax regimes. That is no reason to change the efficient way in which aviation pays its business taxes,” he said.
IATA has said that a provision for exclusive taxation by the state of residence on international travel income is critical for the aviation sector to reduce compliance burdens and the risks of multiple taxation.
Airline margins remain “paper thin; we’re still looking at a margin of just over 3%,” Walsh told airlines on Monday.
“Relief from the parade of burdensome regulations and ever-increasing tax proposals” would help airlines improve profitability, he added.
(Reporting by Lisa Barrington. Editing by Gerry Doyle)
