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Press Release No.: 8

Date: 22 March 2005

(Washington) The International Air Transport Association (IATA) strongly opposes the U.S. Internal Revenue Service's (IRS) attempt to impose U.S. federal income withholding requirements and related taxes against non-US air carriers and their non-US based crew members.

IATA understands that the IRS has conducted audits of certain Latin American based carriers for their alleged failure to withhold U.S. federal income taxes on the wages of non-U.S. flight crew members for time spent working in the U.S., including flight time over the U.S.  The IRS is seeking to hold these carriers responsible for amounts not withheld from their employees' paychecks.

"This initiative is not fair and it does not pass the common-sense test.  It will adversely impact international trade and wrongfully discriminates against the airline industry," stated Giovanni Bisignani, IATA's Director General and CEO.

There is specific language in the U.S. tax code that should be read to exempt air carriers from these withholding taxes.  In 1997, the U.S. Internal Revenue Code was amended specifically to provide that income earned by the crew of a foreign "vessel" engaged in transportation between the United States and a foreign country for services performed in the United States does not constitute U.S.-source income and is not subject to U.S. federal income tax withholding requirements. 

These audits also violate the express terms and intent of various treaties agreements between the U.S. and these countries.  The application of U.S. federal income taxes against the Latin American airlines and residents will also place undue administrative burdens on these airlines and create economic hardship for their non-U.S. flight crews who will be forced to pay taxes in the U.S., as well as their home countries.

"We believe the IRS's actions threaten to create a significant barrier to doing business in the United States that may deter these air carriers from servicing U.S. destinations.  If continued, this policy could result in retaliatory actions against US carriers by foreign governments. At a time when we should be focused on reviving the air transport industry, this would not serve anybody's interest," said Bisignani.

Corporate Communications
Tel:  +41 22 770 29 67
Fax: +41 22 770 26 41
E-Mail: corpcomms@iata.org
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