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European Airlines Seek Tax Relief to Reduce Coronavirus Impact

Posted on Mar. 13, 2020

After a ban on air travel to the United States from 26 European countries because of the coronavirus, Europe’s largest airline association is calling on governments to waive or defer taxes on the struggling sector.

In a March 12 statement, Airlines for Europe (A4E), which represents airlines like Air France-KLM Group and Deutsche Lufthansa AG, among others, listed measures that it said require urgent implementation to minimize the financial burden of the coronavirus. The association, which has resisted an aviation tax, asked governments to postpone new fiscal burdens, including those stemming from the energy tax directive, until the industry is on “sound operational and financial footing.”

An A4E spokeswoman told Tax Notes in an email that although the statement was not in response to the recently announced U.S. travel ban, it has “taken the urgency on the need for these measures to a whole new level. . . . The bottom line is that with revenue losses for European carriers approaching €40 billion (and this was before the U.S. travel restrictions), now is definitely not the time for new taxes on aviation.”

The 30-day travel ban which was announced by President Trump March 11, was not well received by the European Commission. In a March 12 joint statement, Commission President Ursula von der Leyen and European Council President Charles Michel expressed disappointment that the United States is addressing the coronavirus pandemic with unilateral action.

A4E's statement came a day after members of the Netherlands House of Representatives met to discuss draft legislation submitted in May 2019 that would introduce a €7 national air passenger tax. According to a March 11 release from the chamber, opinions varied, with some members wanting the tax increased to €15 while others said it would not do enough to address climate change. State Secretary of Finance Hans Vijlbrief agreed with many representatives that a global consensus would make the tax more successful, but said a national measure is necessary until consensus can be reached throughout Europe. The government in May 2019 proposed a national aviation tax to take effect in January 2021.

U.K. Offers Airlines Too Little, Too Late

A4E is not the only group to voice concern about the financial and tax burdens on the aviation sector. Almost a week after the International Air Transport Association called for tax relief to ease the financial fallout from the coronavirus, the association’s regional vice president for Europe, Rafael Schvartzman, expressed disappointment with the United Kingdom’s lack of attention to the country’s air passenger duty in its 2020 budget, announced March 11 by U.K. Chancellor of the Exchequer Rishi Sunak.

“The COVID-19 crisis requires bold action from governments. The rise in long-haul [air passenger duty] rates and the failure of the U.K. government to immediately reform the tax is a missed opportunity to boost air transport and level up the U.K. regions," Schvartzman said in an IATA tweet March 11. "Air connectivity, both domestic and international, drives economic and productivity improvements across the U.K. every day.”

Schvartzman also referenced the recent collapse of British regional airline Flybe, noting that the government has acknowledged that double taxation of domestic air travel contributed to the company’s failure, but has failed to take swift action to make the necessary corrections. The U.K. government did step in to assist the company by reviewing the air passenger duty it still owed, but that wasn't enough to save the company.

Taxation of the aviation sector has been a hot topic in the EU. Finance ministers from nine European countries issued a joint statement November 7, 2019, urging the European Commission to introduce an EU-wide air passenger tax to help lower carbon emissions. The statement calls out the EU’s outdated energy tax directive and excise tax exemption on aircraft fuel, which Tax Commissioner Pierre Moscovici has said needs to be amended. Under the directive, international aviation and maritime transport are not taxed, but domestic aviation and navigation are taxed in some cases.

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