01 November 2008

Are Airlines Courting Tax Investigation?

At the ALTA (Latin American and Caribbean Airlines Association) Legal Conference held in Miami this week, I posed a question to a panel on Taxes and Fees. My question was essentially to ask whether the panel of legal experts thought the airlines were creating a legal liability through unbundled pricing of the ticket. The answer was - a strong possibility.

As regular readers know - this is my concern - that the unbundling of the airline product is opening up the possibility of airlines who charge for things like baggage or other essential parts of the airline transportation product are indeed avoiding taxes such as the US domestic airline tax.

On further investigation it would appear that there are other elements that they could be avoiding. For example without collecting a tax on the value of the ticket and selling the product without any form of tax - the airlines open themselves out (at least in the USA market) for local sales taxes.

I just hope that their accountants and auditors are paying attention to this process because clearly their lawyers are now aware. It will be interesting to see if any auditors qualify the US accounts of any airline which has not set aside a provision for tax liability.

With certain airlines claiming that there are many hundreds of millions of dollars in extra revenues to be had - and as one senior airline exec confided - its a real gravy train - the IRS is sure going to get interested.

Local, State and Federal indeed International tax authorities are going to be hunting for many forms of revenue to help pay for some of the bailouts. Airlines are always an easy target. The Chicago Convention has already been raped and pillaged so now it would seem to be open season for airlines to pay taxes.


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