The United Nations should not change a convention on how global airlines are taxed, the International Air Transport Association (IATA) said on Monday, cautioning that doing so would add complexity and cost, and might cause routes to be scrapped.
A U.N. committee on tax is considering taxing airlines in
the countries where they generate revenue, rather than the current system,
which taxes airlines where they are headquartered.
Some countries proposed that change - to
"source-based" rather than "exclusive residence-based"
taxation - out of concern that developing countries do not sufficiently benefit
from revenue created by air travel and shipping in their territories.
"The proposals would be incredibly complex, would not
necessarily lead to taxes in the developing countries that have been
highlighted, because the complexity associated with the tax environment may
well lead to airlines stopping services to those areas," IATA Director
General Willie Walsh told an annual gathering of the industry body, which
represents more than 80% of global air traffic.
"For governments it would just mean collecting less
from their national airlines and spending huge effort and money collecting
taxes from foreign operators. Only the battalions of accountants needed to
manage the reporting mess will be happy if the change is made," Walsh
said.
The U.N. Committee of Experts on International Cooperation
in Tax Matters has been discussing potential changes to Article 8 of the United
Nations Model Double Taxation Convention between Developed and Developing
Countries, most recently at a session in March.
"The move is provoked by frustration with how shipping,
not aviation, uses flags of convenience to find friendly tax regimes. ... That
is no reason to change the efficient way aviation pays its corporate
taxes," he said.
IATA has said a provision for exclusive residence state
taxation of income from international traffic is vital to the airline industry
to mitigate compliance burdens and risks of multiple taxation.
Airline margins remain "wafer thin; we're still looking
at a margin of just over 3%", Walsh told airlines on Monday.
"Relief from the parade of onerous regulation and
ever-increasing tax proposals" would help airlines improve profitability,
he added. Re