The International Air Transport Association (IATA) warned against altering the current convention governing global airline taxation, stating that such changes would introduce complexity and expenses, potentially leading to route cancellations. The proposal under consideration by a U.N. tax committee suggests taxing airlines based on where they generate revenue, rather than their headquarters’ location.
Some nations advocate for this shift to ensure fair revenue distribution from air travel and shipping activities within their territories, especially in developing countries. However, IATA’s Director General, Willie Walsh, emphasized the potential drawbacks, expressing concerns about the intricate nature of the proposed changes and their impact on airline services, particularly in highlighted developing regions.
Walsh highlighted the bureaucratic challenges for governments, projecting reduced revenue collection from national airlines and increased efforts in taxing foreign operators. He emphasized that only accounting firms dealing with the resultant reporting complexities would benefit from such alterations.
The discussion stems from frustrations regarding shipping’s exploitation of favorable tax jurisdictions, but IATA argues that aviation’s existing tax system is efficient and should not be modified. They stress the importance of maintaining exclusive residence state taxation to alleviate compliance burdens and the risk of multiple taxation, which are critical for the airline industry’s sustainability.
Despite ongoing challenges, Walsh noted that airline profit margins remain slim, barely hovering over 3%. He called for relief from burdensome regulations and mounting tax proposals to help airlines bolster profitability.