12 January 2008

Some airlines boosted by generous tax treatment

A 22 December 2007 article in the Australian reports on lobbying by TTF Australia (Tourism and Transport Forum) of the new Labor Government for quicker tax depreciation rates for aircraft on climate change grounds. It notes that "Australian airlines are forced to write off the value of their fleet over 10 years while Singapore has a three-year write-off period and Hong Kong can depreciate aircraft in five years."

The issue has been around for many years with Qantas, for example, making a submission that focuses on it to an Australian Government business taxation review a decade ago.

Some airlines receive even more generous tax treatment. Emirates, for example, being based in the oil rich United Arab Emirates reportedly pays no tax.

The issue of state aid to airlines and its competition implications has be of particular concern within the European Union. Does not such tax treatment raise similar concerns?

Helping to ensure that older, less efficient technology aircraft are replaced earlier may have a positive impact on reducing aviation emissions. If, however, those aircraft that are sold earlier than might be expected remain in service with other airlines in other countries the global benefit would have to be questioned. In any case the current price of Jet A1 is a powerful incentive to order new technology aircraft and this is being reflected in the record orders Boeing and Airbus have recently been enjoying.

I suspect that the tax residence of quite a few aircraft leasing companies has been driven by such tax depreciation rate considerations. In 2004 Air New Zealand was reported to be having issues with the Hong Kong tax authorities on related matters.

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