The latest concern is the United Nations Tax Committee’s proposal to change Article 8 of the UN Model Tax Convention. As it stands, airlines pay income tax on a “residence” basis, meaning an airline head office bears full responsibility for airline operations and pays income tax to the country in which that head office is located.
The proposed change to Article 8 would see aviation included in a source state approach. The justification is that a country that provides an opportunity for income should have the right to tax that income.
“The location of an airline’s headquarters is not a tax-driven decision but based on legal and regulatory requirements,” notes Willie Walsh, IATA’s Director General. “This approach does not provide a concessionary or preferential regime. In fact, it is the single most accurate means of achieving the basic goal of avoiding multiple taxation risks and unnecessary tax compliance burdens for airlines.”
Governments worldwide have agreed with this approach through ICAO, which calls on governments, “to the fullest possible extent, grant reciprocally exemption from taxation on the income of air transport enterprises of other contracting states derived in that contracting state from the operation of aircraft in international air transport.”
This is besides the already significant indirect taxes, such as fees paid for overflight rights, ticket taxes, and freight taxes, that airline companies pay in the countries where they operate, on top of landing/take-off fees and other airport charges for the use of infrastructure. The assumption that airline operations are inadequately taxed, under-taxed, or not taxed at all in source countries doesn’t hold water.
Moreover, aviation is subject to Pillar 2 of the Organisation for Economic Co-operation and Development’s (OECD) global tax policy, which ensures that companies with global revenues above €750 million pay a minimum effective tax rate on income .
Although this policy was…
