A Senate tax proposal could pinch the Gulf carriers that US airports welcomed

Key Points
  • A provision buried in the Senate tax bill could tax income earned by foreign airlines in the U.S.
  • U.S. airlines have long complained that Gulf carriers receive unfair government subsidies.
  • Carriers have added more U.S. routes and cargo service in recent years.
Visitors watch as Airbus A350 wide-body aircraft, produced by Airbus Group NV in Qatar Airways Ltd. livery, prepares to land.
Paul Thomas | Bloomberg | Getty Images

A proposal buried in the Senate tax bill could cost some foreign carriers, including the Gulf airlines their large U.S. rivals have alleged receive billions of dollars worth of unfair government subsidies.

The provision would force certain airlines based outside the country to pay U.S. corporate taxes on money earned in the country if U.S. airlines do not have at least two weekly departures to or arrivals from the foreign carrier's home country, and if there is no reciprocal tax treaty between the U.S. and the carrier's country.

Sen. Johnny Isakson, R-Ga., who is based in Delta Air Lines' home state, introduced the proposal. In a press release earlier this month, he said it would "protect Georgia airline employees by ending a tax exemption for airlines based in countries that deny fair market access for U.S.-based airlines."

Delta, United Continental Holdings and American Airlines Group complained to the Trump administration earlier this year that the government-backed Gulf airlines have received $50 billion in subsidies from their governments.

In a letter in February to Secretary of State Rex Tillerson, the chief executives of the three carriers wrote that "the subsidies allow the Gulf carriers to operate without concern for turning a profit" and violate Open Skies agreements, which provide foreign airlines access to international routes.

Reuters earlier reported that the measure could hurt Middle East carriers such as Abu Dhabi-based Etihad, Dubai-based Emirates Airlines and Doha-based Qatar Airways because their home nations lack reciprocal tax agreements with the U.S.

"Etihad Airways is aware of the language in the Senate tax reform bill, which is widely agreed to be inappropriate under US law and contrary to several international agreements," an Etihad spokesperson told CNBC in an email. "We are working with a broad coalition of industry representatives to inform lawmakers on this issue, which appears to be the result of continued anticompetitive efforts by one or more of the Big 3 US legacy carriers."

For its part, the International Air Transport Association, a trade group representing many of the world's airlines, said the Senate tax provision would "upend decades of precedent" on foreign aviation taxation.

"Foreign governments — even those not directly affected by the proposed language — could be tempted to follow the U.S. example and impose reciprocal taxes," said IATA spokesman Perry Flint.

While U.S. carriers have alleged the airlines receive unfair government support, some U.S. airports have welcomed these airlines and in at least one case offered incentives.

Qatar Airways recently started flying cargo flights into Pittsburgh International Airport. The airline will receive $15,500 per flight, or about $728,500 for the first six months of its contract, the Pittsburgh Post-Gazette reported earlier this month. An airport spokeswoman confirmed the amount.

Gulf carriers are expanding elsewhere in the U.S. as well. Etihad launched a weekly cargo route to Miami International Airport earlier this month, joining Qatar Airways. A spokesman for the airport said the airlines did not apply for any subsidies or incentives.