IATA slams 'catastrophic' tax haven ruling in Brazil

September 22, 2016 2:29 PM EDT

Airplanes are seen through a window at the new terminal at the international airport Galeao, which is expected to receive 1.5 million passengers during the 2016 Rio Olympics, during its opening ceremony in Rio de Janeiro, Brazil, May 19, 2016. REUTERS/Pil


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(Story corrects name of IATA official to Cerda from Cerba in paragraphs 4, 11, 13)

BRASILIA (Reuters) - The International Air Transport Association urged Brazil on Thursday not to list Ireland as a tax haven, a decision that would increase taxes on aircraft leases for Brazilian carriers struggling to regain profitability.

In an effort to dissuade Brazilian companies from moving to tax havens, Brazil's government announced a week ago it would add Ireland, Austria, CuraƧao and Saint Martin to its list of countries denominated as such, as of Oct. 1. Brazilian law requires companies registered in listed tax havens to pay a 25 percent tax rate on their contracts.

IATA, a trade association of the world's airlines, said Brazil was already a very expensive place for carriers to do business and the tax ruling would undermine efforts to compete with rivals in nearby Chile and Argentina.

"It will cause havoc and have a catastrophic impact on the ability of Brazilian airlines to become financially sound," Peter Cerda, IATA vice president for the Americas, said by telephone from Miami.

Brazilian airlines lease 60 percent of the 520 aircraft flying commercially in Brazil from companies registered in Ireland, where they enjoy favorable tax rules.

Listing Ireland as a tax haven would add 1 billion reais ($306 million) a year to the cost of leasing the aircraft, according to the Brazilian airline association ABEAR.

ABEAR is hoping to convince Brazil to reverse its decision or make an exception for aircraft leases, which have been tax exempt since 1996.

Association President Eduardo Sanovicz met on Wednesday with tax authorities. He gave them data projecting the costs the ruling would cause Brazilian carriers, hurting their competitiveness, he told Reuters by telephone.

Brazilian officials promised to come back with an answer in one week, Sanovicz said, adding that the industry was hopeful for an exemption because the rule change was not deliberately meant to target the business.

Brazil is already a difficult market for airlines. In addition to high taxes, it has one of the world's highest fuel charges, about 14 percent higher on average than other countries, according to IATA.

Cerda said Brazilian airports are not cheap and that doing business in the country was not easy. Generous consumer rights provisions, such as having to reimburse travelers when bad weather cancels flights, also push up costs.

Brazil's aviation market has expanded rapidly in the last decade, from 30 million to 100 million passengers a year.

"If the government wants to stimulate a strong economy and boost business they should be using aviation as an enabler," Cerda said. "Implementing this kind of regulation is going in the opposite direction."

(Reporting by Anthony Boadle; Editing by Richard Chang)



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