Statement of International Air Transport Association
On behalf of the International Air Transport Association (IATA), I would like to take this opportunity to thank you for introducing HR 4195, the “Technical Corrections Act of 2007,” and for accepting public comment on this matter. The International Air Transport Association (IATA) represents the interests of approximately 270 international airlines, both US carriers and also foreign carriers.
Historically, foreign carriers have been exempt from US taxes while engaging in foreign trade at US airports. This exclusion has been based both on bilateral agreements and also on the interest in reciprocity, that US carriers will not be taxed while operating at foreign airports. To that end, under Bilateral Air Service Agreements (ASA’s) between the US and other National Governments, foreign airlines are exempt from US taxes levied on fuels intended for use in international air transportation or foreign trade. Reciprocally, US carriers do not pay taxes on fuel when operating at foreign airports. The International Civil Aviation Organization (ICAO) also defines such a provision in its Policies on Taxation in the Field of International Air Transport. Applicable language from the ASA’s and from the ICAO policies is attached.
However, since the October 2005 revisions to the US Internal Revenue Code of 1986 (as dictated by the Energy Policy Act of 2005), international airlines refueling at US airports have not been exempt from the Leaking Underground Storage Tank Trust Fund Tax, or “LUST Tax.” The LUST Tax is currently levied on diesel fuel and kerosene (including aviation grade) with exemption only for bulk fuel intended for export. This exemption does not include aviation-grade kerosene. Subsequently, when a foreign airline services and, therefore, refuels at a US airport, that fuel is taxed under the current tax code. Imposing this tax on foreign carriers is a direct violation of ASA’s and of ICAO provisions. Furthermore, foreign nations could begin to levy retaliatory taxes on US airlines operating at foreign airports. Such a tax will only add to the already enormous cost burden of fuel in aviation operation. It is imperative, therefore, that the LUST Tax exemption be extended to include Sec. 4041(g)(1) of IRC 1986 as it relates to vessels engaged in foreign trade. Such an amendment is included in HR 4195 and in its companion bill, S 2374.
On behalf of IATA and its members, I urge you to correct this inequity in the tax code and to pursue prompt passage of this legislation. As national industries continue to develop international partnerships, it is vital that we continue to create an environment of cooperation and reciprocity in policy. Thank you for your consideration of this matter and for your continued support of the airline industry.
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Attachment
Complete text related to:
A. Bilateral Air Services Agreements (ASA)
Based on a review of a number of ASA’s between the USA and other National
Governments it appears that the following Article on Custom Duties and Charges is a common feature.
Article on Custom Duties and Charges
(1) On arriving in the territory of one contracting party, aircraft operated in international air transportation by the designated airlines of the other contracting party, their regular equipment, ground equipment, fuel, lubricants, consumable technical supplies, spare parts (including engines), aircraft stores (including but not limited to such items as food, beverages and liquor, tobacco and other products destined for sale to or use by passengers in limited quantities during flight), and other items intended for or used solely in connection with the operation or servicing of their aircraft engaged in international air transportation shall be exempt, on the basis of reciprocity, from all import restrictions, property taxes and capital levies, value added taxes, customs duties, excise taxes, import charges and similar fees and charges that are
a) imposed by the national authorities, and
b) not based on the cost of services provided, provided that such equipment and supplies remain on board the aircraft.
(2) There shall also be exempt, on the basis of reciprocity, from the taxes, levies, duties, fees and charges referred to in paragraph (1) of this Article, with the exception of charges based on the cost of the service provided:
c) fuel, lubricants, and consumable technical supplies introduced into or supplied in the territory of a contracting party for use in an aircraft of an airline of the other contracting party engaged in international air transportation, even when these supplies are to be used on part of the journey performed over the territory of the contracting party in which they are taken on board; and
B. ICAO Policies On Taxation In The Field Of International Air Transport (ICAO Doc. 8632)
The Council resolves that:
1. With respect to taxes on fuel, lubricants or other consumable technical supplies:
a) when an aircraft registered in one Contracting State, or leased or chartered by an operator of that State, is engaged in international air transport to, from or through a customs territory of another Contracting State its fuel, lubricants and other consumable technical supplies shall be exempt from customs or other duties on a reciprocal basis, or alternatively, in the cases of fuel, lubricants and other consumable technical supplies taken on board in sub-paragraphs ii) or iii) such duties shall be refunded, when:
i. the fuel etc. is contained in the tanks or other receptacles on the aircraft on its arrival in the territory of the other State, provided that no quantity may be unloaded except temporarily and under customs control;
ii. the fuel etc. is taken on board for consumption during the flight when the aircraft departs from an international airport of that other State either for another customs territory of that State or for the territory of any other State, provided that the aircraft has complied, before its departure from the customs territory concerned, with all customs and other clearance regulations in force in that territory; or
iii. the fuel etc. is taken on board the aircraft at an international airport in one customs territory of another State and the aircraft makes successive stops at two or more international airports in that customs territory on its way to another customs territory of that State or to the territory of any other State;
The provisions of sub-paragraphs i), ii) and iii) above shall apply whether the aircraft is engaged in an individual flight or in the operation of an air service and whether or not it is operating for remuneration.
b) the foregoing exemption being based upon reciprocity, no Contracting State complying with this Resolution is obliged to grant to aircraft registered in another Contracting State or aircraft leased or chartered by an operator of that State any treatment more favourable than its own aircraft are entitled to receive in the territory of that other State;
c) notwithstanding the underlying principle of reciprocity, Contracting States are encouraged to apply the exemption, to the maximum extent possible, to all aircraft on their arrival from and departure for other States;
d) the expression “customs and other duties” shall include import, export, excise, sales, consumption and internal duties and taxes of all kinds levied upon the fuel, lubricants and other consumable technical supplies; and the duties and taxes described in d) above shall include those levied by any taxing authority within a Contracting State, whether national or local. These duties and taxes shall not be or continue to be imposed on the acquisition of fuel, lubricants or consumable technical supplies used by aircraft in connection with international air services except to the extent that they are based on the actual costs of providing airports or air navigation facilities and services and used to finance the costs of providing them;