Thursday, February 21, 2008
Professor Brian Havel, Director of the International Aviation Law Institute at DePaul College of Law, was featured in the February 21, 2008 edition of the Chicago Tribune. Prof. Havel drew attention to the stringent foreign-ownership restrictions for U.S. air carriers in a story on German-based Lufthansa's interest in investing in a potential merger between United Airlines and Cotinental. Commenting on the current systems of global marketing alliances which serve as "rough proxies for cross-border mergers," Prof. Havel noted that they are "an inherently unstable, second-best subtitute for a merger."
Tuesday, February 5, 2008
From time to time, the Aviation Law Blog features guest postings from leading academics and practitioners in the international aviation law field. Today, the International Aviation Law Institute is pleased to present a critical analysis of the recent Dutch ticket tax by Frans Vreede. Mr. Vreede is a partner in the Dutch law firm Boekel De Nerée and practices in the area of transportation with an emphasis on aviation and logistics. An English translation of his most recent article on the Dutch ticket tax is available online at his firm’s website.
Effective July 1, 2008, a new Dutch tax law is to enter into force levying a €45 (U.S. $67) ticket tax for all passengers on board flights departing from the Netherlands for destinations outside the European Union, and €11.50 ($17) for destinations within the EU.
Initially quoting environmental issues as sugar to make the medicine go down, the Dutch have recently clarified that the new tax is not an environmental levy but a flat tax aiming to top up the exchequer by €350 million ($518 million) per year.
The impact of the new tax appears to be substantial. Low cost carriers have announced not to expand their activities in the Netherlands, and Dutch peripheral airports are seeing their (charter) passengers move to Belgian and German airports, where no ticket tax exists. A decline in flights of over 10% has been calculated.
In my view, the new tax inter alia clearly violates the last paragraph of Article 15 of the Chicago Convention. This article stipulates that no fees, dues or other charges may be imposed by any contracting state in respect of solely the right of transit over, or entry into or exit from, its territory of any aircraft of a contracting state or persons or property thereon.
In a recent article published in a Dutch aviation magazine, I concluded that the intention of Article 15 is not simply to act against discriminatory fees, but to altogether ban the setting of fees which have nothing to do with the use of airports and airport facilities.
Moreover, one can wonder whether the Dutch tax is contrary to the principles laid down in the U.S./EU Air Transport Agreement, notably the articles pertaining to environmental measures, user charges, pricing, and competition. If so, U.S. airlines could put forward an extra argument to challenge the Dutch tax.
Allow me to offer a few more observations.
First: I am afraid that the Dutch tax is only the first step. Soon there will be passenger arrival, overfly, and transit taxes being levied not only by national governments, but by local authorities as well. No doubt, the Dutch will be followed by others, resulting in EU-wide aviation taxation chaos which will seriously hamper the development of civil aviation, contrary to the principles of the Chicago Convention.
Second: The tax could lead to a reallocation of slots, returned to slot coordinators by foreign airlines, as a result of a decrease in their operations resulting from the tax. Consequently, such foreign airlines would lose their grandfather rights regarding those slots, which could certainly benefit incumbent EU carriers who can subsequently claim the free slots out of the slot pool. In an environment where the capacity crunch makes it likely that competition between airlines in the coming years will focus on slots, it can be argued that the ticket tax favors incumbent EU carriers via the slot angle. Unlike the U.S., secondary slot trading in the EU is oftentimes limited and reliant on legal loopholes.
Third: It could very well be that the legality of the ticket tax issue is closely connected to the legality of the proposed EU regulation regarding the Emission Trading Scheme (ETS). Indeed, the legality of the ETS appears to be focusing on the same questions as the ticket tax, namely:
- whether ETS is a tax in the sense of Article 15(3) of the Chicago Convention, and
- whether Article 15 of the U.S./EU Air Transport Agreement which establishes a set of rules regarding environmental measures prohibits imposing the ETS on U.S. carriers.
In my view the answer to both questions is affirmative. Regarding Article 15 of the U.S./EU Agreement, I would say that if the EU wished to exclude ETS from this article, it should have explicitly said so when signing the Agreement. Obviously, the EU proposal to extend the ETS to aviation goes back to before the Agreement was signed. Hence, for U.S. carriers, Article 15 could be a valid opt-out of the ETS.
Returning to the ticket tax itself, Schiphol Airport and the Board of Airline Representatives in the Netherlands (BARIN) have initiated summary proceedings against the Dutch State. The court session is to take place on March 5, 2008. Judgment is expected two weeks thereafter.
As follows from the above, the issues at stake could be of overriding importance for U.S. carriers: The interpretation of Article 15(3) of the Chicago Convention which will be given by the court may not only affect the obligation of U.S. Airlines to pay the ticket tax, but also the possibility to opt-out of the ETS at a later stage.