Gulf carriers may be in crosshairs under foreign airline US tax exemption cut

Qatar Airways, Emirates and Etihad Airways have for years been accused by US competitors of being illegally subsidized by their governments. (Reuters)
Updated 17 November 2017
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Gulf carriers may be in crosshairs under foreign airline US tax exemption cut

CHICAGO: A US congressional proposal that would eliminate income tax exemptions for certain airlines could affect major Gulf carriers, potentially worsening an international spat between US airlines and their Middle East rivals.
US airlines have been petitioning the federal government for years to intervene in what they see as unfair competition by the three major Gulf carriers.
The proposal, tucked deep in the Senate tax-cut plan, calls for airlines headquartered in foreign countries to pay the US incorporate tax rate if: 1) the carrier’s home country does not have an income tax treaty with the United States and 2) the carrier’s country of origin has fewer than two arrivals and departures, per week, operated by major US airlines.
Qatar Airways, Emirates and Etihad Airways have for years been accused by US competitors of being illegally subsidized by their governments. The Gulf carriers deny the accusation.
They could not immediately be reached for comment on Thursday.
If the proposal passes, it could leave the Gulf carriers more vulnerable because their home countries – the UAE and Qatar – do not have income tax treaties with the US, according to the Internal Revenue Service website.
A number of nations could possibly also be affected at a time when perceived discrepancies in US trade agreements are facing a critical eye from US corporations and the federal government.
The language in the Senate proposal sets the stage for a crackdown in tax leniency for these and other airlines. This would likely be well-received by American carriers, which have for years petitioned the US government to intervene in the dispute.
Under US tax treaties, entities of foreign countries are either exempt or pay a reduced rate on their income, and vice versa for US entities abroad. Reciprocity agreements, however, are less formal deals that fall short of an official accord, according to tax attorney Sam Brotman of Brotman Law.
“Reciprocity agreements are usually with countries that are not necessarily 100 percent friendly with the US” Brotman said on Thursday. “We’ll call it a handshake deal.”
The bill’s wording stands to ramp up an already tense battle between US airlines and Gulf carriers.
The addition was introduced by US Senator Johnny Isakson of Georgia. Delta Air Lines, one of the most vocal critics of Gulf carrier practices, is headquartered in Atlanta.
A spokeswoman for Isakson did not mention the Gulf airlines. “This provision supports American jobs by providing a level playing field and mutual fairness in international passenger aviation,” Isakson spokeswoman Marie Gordon said in an email on Thursday.
“Foreign airlines should not receive preferential tax treatment if their countries choose not to open their markets to US companies.”
Delta declined to comment.


Oil prices drop on potential increase in OPEC output

Updated 9 min 30 sec ago
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Oil prices drop on potential increase in OPEC output

SEOUL: Oil prices fell on Thursday on expectations that OPEC members will step up production in the face of worries over supply from both Venezuela and Iran.
A surprise build up in crude oil inventories in the United States also weighed on prices, driving the spread between Brent crude and US West Texas Intermediate (WTI) close to its widest in three years.
International benchmark Brent futures were down 27 cents, or 0.34 percent, at $79.53 per barrel at 0300 GMT.
US West Texas Intermediate (WTI) crude futures were down 17 cents, or 0.24 percent, at $71.67 a barrel.
The Organization of Petroleum Exporting Countries (OPEC) may decide to increase oil output to make up reduced supply from Iran and Venezuela in response to concerns from Washington over a rally in oil prices, OPEC and oil industry sources told Reuters.
Supply concerns in Iran and Venezuela following new US sanctions had pushed both Brent and WTI to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.
“The chat is still that OPEC will do something at its June meeting in reaction to the looming prospect of a fall in crude production and exports from both Iran and Venezuela as the year progresses,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
OPEC and some non-OPEC major oil producers are scheduled to meet in Vienna on June 22. The group previously agreed to curb their output by about 1.8 million barrels per day to boost oil prices and clear a supply glut.
“Any signs that the group may be heading toward an early exit from the production cut agreement would weigh on prices,” ANZ bank said in a note.
Meanwhile, commercial US crude inventories rose by 5.8 million barrels in the week to May 18, beating analyst expectations for a decrease of 1.6 million barrels, the Energy Information Administration (EIA) said on Wednesday.
Elsewhere, Libya, which is an OPEC member, cut its oil production by about 120,000 barrels per day as unusually hot weather prompted power problems, an official from the National Oil Corp. said on Wednesday.
Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA in Singapore, said that prices were getting some support from talk that Sinopec, Asia’s largest refiner, would increase US crude oil imports to a record high.
“Recent flow is suggesting short-term traders are looking to sell the $80 per barrel chart-toppers anticipating a possible compliance shift within the OPEC-Non Opec supply agreement,” he added in a note on Thursday.