Doc 8632-C/968

ICAO'S POLICIES
ON TAXATION
IN THE FIELD OF
INTERNATIONAL AIR TRANSPORT

SECOND EDITION

Approved by the Council on 14 December 1993

Published by direction of the Council

January 1994

INTERNATIONAL CIVIL AVIATION ORGANIZATION

 ICAO'S POLICIES
ON TAXATION
IN THE FIELD OF
INTERNATIONAL AIR TRANSPORT

Doc 8632-C/968

Second Edition — 1994

 FOREWORD

After a comprehensive study of the various existing iv) taxes related to the sale or use of
and anticipated problems related to taxation in the international air transport.
field of international air transport, the Council in
1951 adopted three Resolutions and one Rec- The Assembly, at its 26th Session in 1986, adopted
ommendation on the subject which were published Resolution A26-15 which instructed the Council to
in Doc 7145. In response to Assembly Resolution review compliance with these Resolutions and
A15-16 which explored the possibility of a new Recommendation and to consider the need for new
initiative in this field, the Council undertook a practical measures to reaffirm and strengthen the
comprehensive review of all aspects related to this principles underlying its policies in this field. After
subject matter and, at the Fourth Meeting of its consultation with States the Council reported the
59th Session, on 14 November 1966, decided to results of its review to the 29th Session of the
recast the Resolutions and the Recommendation, Assembly which agreed with the Council's
taking into account developments since 1951, while approach to the revision of the 1966 Resolutions
reaffirming at the same time their underlying and Recommendation, the results of which are
principles. Council further decided to publish them presented in this policy document. The revision
in the policy document, Doc 8632, for action by maintains the previous format but, in view of the
Contracting States and to provide certain explana- evidence of increased acceptance by States of the
tory material for guidance to States and inter- policy therein, upgrades the Recommendation in
national operators. Section II to a Resolution. It also incorporates
certain enhancements to the first three sections
The 1966 Resolutions/Recommendation dealt with:
described above and a more substantive revision of
i) taxation of fuel, lubricants and other con- the last section dealing with taxes related to the sale
sumable technical supplies when an aircraft or use of international air transport. These changes
registered in one State arrives in or departs take into account the realities of the current
from a customs territory of another State; situation in civil aviation, while reaffirming the
underlying principles of ICAO's policies in this field.
ii) taxation of fuel, lubricants and other
consumable technical supplies when an
The 29th Session of the Assembly also reinforced
aircraft registered in one State makes
the importance of this policy statement by adopting
successive stops at two or more airports in
Resolution A29-18 which calls upon States to
one customs territory of another State;
follow the Resolutions of the Council as contained
iii) taxation of the income and aircraft of in this document.
international air transport enterprises; and

(iii)
 TABLE OF CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION I — Council Resolution of 14 December 1993 on taxation of fuel, lubricants and

other consumable technical supplies when an aircraft registered in one State
or leased or chartered by an operator of that State arrives in or departs from
a customs territory of another State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Commentary on Council Resolution in Section I . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SECTION II — Council Resolution of 14 December 1993 on taxation of fuel, lubricants and

other consumable technical supplies when an aircraft registered in one State
or leased or chartered by an operator of that State makes successive stops
at two or more airports in one customs territory of another State . . . . . . . . . . . . . . . . 7

Commentary on Council Resolution in Section II . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

SECTION III — Council Resolution of 14 December 1993 on taxation of the income of

international air transport enterprises and on taxation of aircraft and
other movable property associated with the operation of aircraft in
international air transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Commentary on Council Resolution in Section III . . . . . . . . . . . . . . . . . . . . . . . . . . 10

SECTION IV — Council Resolution of 14 December 1993 on taxes related to the sale or use
of international air transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Commentary on Council Resolution in Section IV . . . . . . . . . . . . . . . . . . . . . . . . . . 13

 INTRODUCTION

1. It has long been recognized that international 3. Tax problems connected with aircraft
air transport creates a number of special or unique equipment, spare parts, ground equipment and
problems in the field of taxation. Unlike other types stores have also been pursued on a multilateral
of enterprises of one State doing business in basis through the development, by the Facilitation
another State, the earnings of international air Division, of International Standards and Rec-
transport are based upon the use of aircraft ommended Practices for inclusion in Annex 9
requiring large amounts of fuel in operations (cf. Chapter 4, section G of the Annex). The
between various tax jurisdictions, and a Council in 1951 adopted a Resolution and
considerable percentage of these operations is Recommendation on the taxation of fuel, a
conducted outside any tax jurisdiction, i.e. over the Resolution on the taxation of income and of
high seas. Taxation in the field of international air aircraft, and a Resolution on taxes related to the
transport is a complex subject and covers many sale or use of international air transport (cf. Doc
aspects, considering the variety of items which may 7145) which were further amended and amplified
be subject to taxes and the types of taxes that may by the policy statements in Doc 8632 published in
be levied. Amongst the items which are usually 1966. The Resolutions and Recommendation
taxable and have been considered in the past in concerned were designed to recognize the
connexion with avoidance of multiple taxation are uniqueness of civil aviation and the need to accord
those pertaining to fuels, lubricants and other tax exempt status to certain aspects of the
consumable technical supplies used by aircraft operations of international air transport and were
during flight, the income derived from operating adopted because multiple taxation on the aircraft,
aircraft, the aircraft itself and its components, spare fuel, technical supplies and the income of
parts and ground equipment necessary for its international air transport, as well as taxes on its
operation. The taxes levied may include income sale and use, were considered as major obstacles to
taxes, import, export, excise, sales, consumption or the further development of international air
internal duties or taxes. transport. Non-observance of the principle of
reciprocal exemption envisaged in these policies
2. The Chicago Convention on International was also seen as risking retaliatory action with
Civil Aviation of 1944 did not attempt to deal adverse repercussions on international air transport
comprehensively with tax matters. The Convention which plays a major role in the development and
simply provides (cf. Article 24 (a)) that fuel and expansion of international trade and travel.
lubricating oils on board an aircraft of a Contracting
State, on arrival in the territory of another 4. In 1986, in view of the significant changes
Contracting State and retained on board on leaving which international civil aviation had undergone, the
the territory of that State, shall be exempt from 26th Session of the Assembly expressed concern
customs duty, inspection fees or similar national or over certain taxes that were being imposed by some
local duties and charges. The same Article of the States and considered there was a need for new
Chicago Convention also refers to the temporary practical measures to reaffirm and strengthen the
admittance, free of duty, of aircraft on a flight to, principles underlying ICAO's policies in this field.
from or across the territory of another Contracting Subsequent deliberations finally led to the adoption
State and to the exemption from customs duty, etc., by Council of the revised policy statements as
of spare parts, regular equipment and aircraft shown on the following pages, which are more
stores. responsive to the practicalities of present-day
2 ICAO's Policies on Taxation

governmental requirements while preserving and designed to furnish the reader with some
enhancing the basic thrust of the previous explanatory text. As in the previous edition, it is the
statements. intention to publish and keep up to date a
Supplement to this document, similar to the
5. This document is presented in four sections, procedure used for the Supplement to Annex 9,
each one starting out with the text of the relevant whenever a sufficient amount of information has
Council Resolution, followed by commentaries been received from Contracting States concerning
their status of compliance with the Resolutions
contained in this document.
 SECTION I
COUNCIL RESOLUTION OF 14 DECEMBER 1993 ON TAXATION OF
FUEL, LUBRICANTS AND OTHER CONSUMABLE TECHNICAL SUPPLIES
WHEN AN AIRCRAFT REGISTERED IN ONE STATE OR LEASED OR CHARTERED
BY AN OPERATOR OF THAT STATE ARRIVES IN OR DEPARTS FROM
A CUSTOMS TERRITORY OF ANOTHER STATE

WHEREAS international air transport plays a major role in the development and expansion of
international trade and travel pursuant to the objectives of ICAO;

WHEREAS the imposition of national or local taxes on the acquisition of fuel, lubricants and
consumable technical supplies for use by aircraft in connexion with international air
transport is an impediment to the sound, economical and orderly development of
international air transport operations;

WHEREAS Article 24 (a) of the Convention on International Civil Aviation provides, inter alia, that
fuel and lubricating oils on board an aircraft of a Contracting State, on arrival in the
territory of another Contracting State and retained on board on leaving the territory of
that State, shall be exempt from various duties and charges;

WHEREAS it is the common practice of many States with respect to ships and aircraft engaged
in international navigation generally to exempt from taxation all fuel and lubricants on
board on arrival in each customs territory and, on a basis of reciprocity, to exempt
from or refund taxes on fuel and lubricants taken on board at the final port of call in
that customs territory; and

WHEREAS it is practicable and desirable to extend such exemptions or refunds to other

consumable technical supplies*, which, like fuel and lubricants, are filled into
receptacles forming part of the aircraft, are consumed during flight and are essential
for that purpose, so that all the exemptions applicable to fuels and lubricants will apply
also to such supplies;

THE COUNCIL RESOLVES THAT:

(1) When an aircraft registered in one State or an aircraft leased or chartered by an

operator of that State arrives in the territory of another State, the fuel, lubricants and
other consumable technical supplies contained in the tanks or other receptacles on
the aircraft shall be exempt from customs and other duties provided that no quantity
may be unloaded except temporarily and under customs control;

*e.g. de-icing fluid, hydraulic fluid, cooling fluid, etc.

4 ICAO's Policies on Taxation

(2) When an aircraft registered in one State or an aircraft leased or chartered by an

operator of that State departs from an international airport of another State either for
another customs territory of that latter State or for the territory of any other State, the
fuel, lubricants and other consumable technical supplies taken on board for
consumption during the flight shall be furnished exempt from all customs and other
duties or, alternatively, any such duties levied shall be refunded, provided that the
aircraft has complied, before its departure from the customs territory concerned, with
all customs and other clearance regulations in force in that territory;

(3) The provisions of paragraphs (1) and (2) above shall apply whether the aircraft is
engaged in an individual flight or in the operation of an air service and whether or not
it is operating for remuneration;

(4) The expression “customs and other duties” shall include import, export, excise, sales,
consumption and internal duties and taxes of all kinds levied upon the fuel, lubricants
and other consumable technical supplies;

(5) The duties and taxes described in (4) above shall include those levied by any taxing
authority within a State, whether national or local. These duties and taxes shall not be
or continue to be imposed on the acquisition of fuel, lubricants or consumable
technical supplies used by aircraft in connexion with international air services except
to the extent that they are based on the actual costs of providing airports or air
navigation facilities and services and used to finance the costs of providing them;

(6) Each Contracting State shall notify the Organization of the extent to which it is
prepared to take action in accordance with the principles of this Resolution and
thereafter keep the Organization informed of any subsequent changes in its position
vis-à-vis the Resolution;

(7) The information thus received shall be published and transmitted to all Contracting
States.

COMPLIANCE WITH THIS RESOLUTION BEING SUBJECT TO THE TERMS AND CONDITIONS
HEREINAFTER SPECIFIED:

(i) the Resolution being based upon reciprocity, no State complying with the Resolution
is obliged to grant to aircraft registered in another State or aircraft leased or chartered
by an operator of that State any treatment more favourable than its own aircraft are
entitled to receive in the territory of that other State;

(ii) notwithstanding the principle of reciprocity underlying this Resolution, Contracting

States are encouraged to apply the Resolution, to the maximum extent possible, to
all aircraft on their arrival from and departure for other States.

----------------
ICAO's Policies on Taxation 5

COMMENTARY ON COUNCIL RESOLUTION IN SECTION I

6. In adopting this Resolution the Council aircraft leased or chartered by an operator of

endorsed the policy of reciprocal exemption from, another State even though the aircraft concerned
or refund of, customs and other duties on certain may be registered in the State from which the
fuel, lubricants and other consumable technical exemption is sought. The Council concluded that all
supplies used in international air transport. It did so types of operations were entitled to equal treatment
upon the bases of, inter alia, long-standing in this respect and this had been the basis upon
maritime practice and the established policy of which Article 24 of the Chicago Convention was
many States. The Council recognized the obvious drafted. Those Contracting States which, thus far,
practical difficulties inherent in adopting any other have granted exemption from duties on fuel, etc., to
course of action and pointed out that its policy as one type of operation only, e.g. scheduled
set forth in the Resolution appeared to be the only international flights, are therefore invited to make
one available in the foreseeable future which would, special efforts in bringing their national practices in
in a simple and effective manner, assure equitable line with this clause of the Resolution.
treatment for international aviation throughout the
many jurisdictions into which it operated. 9. Resolving Clause (4) makes it clear that fuel,
lubricants, etc., should be exempt from any kind of
duties and taxes regardless of the names attached to
7. The Resolution includes (Resolving Clauses
such levies in different countries.
(1) and (2)), in addition to fuel and lubricants,
consumable technical supplies such as de-icing
10. With respect to Resolving Clause (5), the term
fluid, hydraulic fluid and cooling fluid which, in
“local” relates to political subdivisions of a State
their usage, furnish a precise parallel with fuel and
such as states, provinces and municipalities, and the
lubricants. It is noted that Resolving Clause (1) of
Council is aware of the difficulties which might
the Resolution goes somewhat further than Article
arise in some States where such entities have the
24 of the Convention in that the fuel, lubricants and
constitutional right to levy duties and taxes on their
other consumable technical supplies on board upon
own behalf. The inclusion of this clause is intended
arrival of the aircraft, so long as they are not
to encourage such States to seek the necessary
offloaded, remain exempt from customs and other
internal arrangements for the benefit of international
duties and can be consumed without any obligation
air transport. If such arrangements cannot reach
that they or their equivalent be “retained on board
complete fruition, the other State concerned can
on leaving the territory” of the State granting the
still determine whether sufficient reciprocity is
exemption. More importantly, it is also noted that
available to warrant its entry into an agreement.
Resolving Clause (2) of the Resolution provides for
exemption or refund for the fuel, lubricants and
11. Also in relation to Clause (5), Council
other consumable technical supplies taken on board
recognized that throughput charges imposed by
at the final international airport of call in a customs
government or airport authorities on fuel companies
territory of a State, whether or not such airport is
in return for facilities or services provided can in
located at the border of the customs territory.
certain circumstances become, in practical effect to
those engaged in international air navigation, the
8. Special attention is drawn to Resolving equivalent of another tax payable by them.
Clauses (1), (2) and (3) which make the Resolution However, taxes and customs or excise duties on
applicable to all aircraft engaged in international fuel differ in essence from charges (however they
operations, i.e. those performing scheduled, non- may be levied) for the use of certain facilities and
scheduled and private flights, and including those the Council has recommended in its Statement on
Airport Charges in Doc 9082 (Statements by the
Council to Contracting States on Charges for
6 ICAO's Policies on Taxation

Airports and Air Navigation Services) that “where 12. As is implied in Resolving Clauses (6) and (7),
fuel `throughput' charges are imposed they should it is the intention to present to the reader of this
be recognized by airport authorities as being document as complete a picture as possible of the
concession charges of an aeronautical nature. actual status of implementation by Contracting
(`Concession charges' are fees for the right to States of the Resolution. In order to accomplish
operate a commercial activity at an airport.)” In this, it is essential that each State, and particularly
general, to clarify what is a charge and what is a those which have not as yet communicated with
tax, it should be generally recognized that, when ICAO on this subject matter, submits to this
any levy on consumption of fuel: (a) falls on Organization the desired information in the briefest
aircraft operators of other States engaged in possible manner, preferably in the form of short
international air navigation, (b) is in the form of a comments on each of the resolving clauses, suitable
compulsory contribution to the support of the for publication in a Supplement hereto. It is equally
government, and (c) is not then used for airports or important, of course, that the Organization be kept
air navigation facilities and services, it is in reality informed of any changes in the position of a State
an excise tax and comes within the terms of the so that such changes may be reflected in
Resolutions of Council set forth in Sections I and II amendments to the Supplement, to be published
of this document. from time to time.
 SECTION II
COUNCIL RESOLUTION OF 14 DECEMBER 1993 ON TAXATION OF
FUEL, LUBRICANTS AND OTHER CONSUMABLE TECHNICAL SUPPLIES
WHEN AN AIRCRAFT REGISTERED IN ONE STATE OR LEASED OR CHARTERED
BY AN OPERATOR OF THAT STATE MAKES SUCCESSIVE STOPS
AT TWO OR MORE AIRPORTS IN ONE CUSTOMS TERRITORY OF ANOTHER STATE

WHEREAS international air transport plays a major role in the development and expansion of
international trade and travel pursuant to the objectives of ICAO;

WHEREAS the imposition of national or local taxes on the acquisition of fuel, lubricants and
consumable technical supplies for use by aircraft in connexion with international air
transport is an impediment to sound, economical and orderly development of
international air transport operations;

WHEREAS the Council Resolution on Taxation of Fuel, Lubricants and Other Consumable
Technical Supplies adopted by the ICAO Council on 14 December 1993 provides that
exemption from all customs and other duties be granted for all fuel in the tanks of an
aircraft engaged in international air navigation when it arrives in the territory of a State
and for all fuel taken on board in that State on departure from the final international
airport of call for another customs territory of that State or for the territory of any other
State; and

WHEREAS it appears practicable and desirable to extend such exemption to fuel, lubricants and
other consumable technical supplies* taken on board an aircraft engaged in
international air navigation when it makes successive stops at two or more
international airports in a single customs territory;

THE COUNCIL RESOLVES THAT:

(1) When an aircraft registered in one State or leased or chartered by an operator of that
State engaged in international air navigation makes successive stops at two or more
international airports in one customs territory of another State on its way to another
customs territory of that State or to the territory of any other State, the fuel, lubricants
and other consumable technical supplies taken on board at any of the airports
referred to above shall be exempt from customs and other duties on a reciprocal
basis;

*e.g. de-icing fluid, hydraulic fluid, cooling fluid, etc.

8 ICAO's Policies on Taxation

(2) The expression “customs and other duties” shall include import, export, excise, sales,
consumption and internal duties and taxes of all kinds levied upon the fuel, lubricants
and other consumable technical supplies;

(3) The duties and taxes described in (2) above shall include those levied by any taxing
authority within a State, whether national or local. These duties and taxes shall not be
or continue to be imposed on the acquisition of fuel, lubricants or consumable
technical supplies used by aircraft in connexion with international air services except
to the extent that they are based on the actual costs of providing airports or air
navigation facilities and services and used to finance the costs of providing them;

(4) Each Contracting State shall notify the Organization of the extent to which it is
prepared to take action in accordance with the principles of this Resolution and
thereafter keep the Organization informed of any subsequent changes in its position
vis-à-vis this Resolution;

(5) The information thus received shall be published and transmitted to all Contracting
States.

----------------

COMMENTARY ON COUNCIL RESOLUTION IN SECTION II

13. The Resolution in the preceding Section deals international air transport for this fuel. Taking this
with the exemption from duties and taxes on the into account, the Council decided to upgrade the
fuel, etc., in the tanks of an aircraft when it arrived original Recommendation to a Resolution as it is
in another State and on the fuel taken on board in convinced that compliance with its terms will result
that State prior to departure for another customs in a considerable amount of facilitation to inter-
territory of the same or the territory of another national aircraft operations with, in most cases, little
State. Council's Resolution in this Section goes one loss of revenue to States. This Resolution, like the
step further, calling on States to grant such Resolution reproduced in Section I, is based on
exemptions also for the fuel and other consumable reciprocity.
technical supplies taken on board an aircraft
engaged in international air navigation when it
15. Clauses (2) and (3) are parallels to Resolving
makes successive stops at two or more international
Clauses (4) and (5) of the preceding Resolution and
airports in a single customs territory. Council has
paragraphs 9 to 11 of this document apply equally
endeavoured to make it clear in the above
to this Resolution. Clauses (4) and (5) are parallels
Resolution that the fuel in question is that taken on
to Resolving Clauses (6) and (7) of the preceding
board at international airports in the State
Resolution and paragraph 12 of this document
concerned prior to the last international airport of
applies equally to this Resolution. In particular,
call.
States should comment, in brief, on their existing
14. Based on information supplied by States practices with regard to Clause (1) and keep the
concerning their practices, the Council noted that Organization informed of any changes which may
there was evidence of a more general acceptance in occur in the future so as to enable ICAO to keep
recent years for granting exemption from duties to the Supplement to this document up to date through
publication of amendments from time to time.
 SECTION III
COUNCIL RESOLUTION OF 14 DECEMBER 1993 ON TAXATION OF
THE INCOME OF INTERNATIONAL AIR TRANSPORT ENTERPRISES
AND ON TAXATION OF AIRCRAFT AND OTHER MOVABLE PROPERTY
ASSOCIATED WITH THE OPERATION OF AIRCRAFT
IN INTERNATIONAL AIR TRANSPORT

WHEREAS multiple taxation of the earnings of international air transport enterprises and of
aircraft and other movable property associated with the operation of aircraft engaged
in international air transport can be effectively prevented by the reciprocal agreement
of States to limit taxation in these two fields to the State in which any such enterprise
has its fiscal domicile;

WHEREAS for international air transport enterprises lack of implementation of this rule of
reciprocal exemption involves either multiple taxation or considerable difficulties of
income allocation in a very large number of taxing jurisdictions; and

WHEREAS such exemptions have already been widely obtained, for example, through the
inclusion of appropriate provisions in bilateral agreements aimed at avoidance of
multiple taxation generally or in those dealing with the exchange of commercial air
transport rights or through individual States adopting legislation which grants the
exemption to any other State that provides reciprocity;

THE COUNCIL RESOLVES THAT:

(1) Each Contracting State shall, to the fullest possible extent, grant reciprocally

(a) exemption from taxation on the income of air transport enterprises of other
Contracting States derived in that State from the operation of aircraft in
international air transport; and

(b) exemption of air transport enterprises of other Contracting States from property
taxes, and capital levies or other similar taxes, on aircraft and other movable
property associated with the operation of aircraft in international air transport.

(2) The “taxation” and “taxes” referred to in (1) (a) and (b) shall include taxes levied by
any national or local taxing authority within a State;

(3) Each Contracting State shall endeavour to give effect to Clause (1) above, by the
bilateral negotiation of agreements relating to double taxation generally, or by such
other methods as the inclusion of appropriate provisions in bilateral agreements for
the exchange of commercial air transport rights, or by legislation granting such
exemption to any other State that provides reciprocity;
10 ICAO's Policies on Taxation

(4) Each Contracting State shall take all feasible measures to avoid delays in any
bilateral negotiations found necessary to achieve implementation of Clause (1) above;

(5) Each Contracting State shall notify the Organization of the extent to which it is
prepared to take action in accordance with the principles of this Resolution and
thereafter keep the Organization informed of any subsequent changes in its position
vis-à-vis the Resolution;

(6) The information thus received shall be published and transmitted to all Contracting
States.

----------------

COMMENTARY ON COUNCIL RESOLUTION IN SECTION III

16. This Resolution aims at the avoidance of between Developed and Developing Countries
multiple taxation on the income of air transport (1980) also stresses the reciprocal approach and has
enterprises, as well as multiple taxation of aircraft many articles in common with the OECD
and other movable property associated with the Convention.
operation of aircraft in international air transport.
The Council, for reasons similar to those given in 18. Resolving Clause (2) parallels the principle in
the foregoing Resolutions on taxation of fuel, Resolving Clause (5) of the Resolution in Section I
lubricants and other consumable technical supplies, and Clause (3) of the Resolution in Section II and
based the Resolution upon the principle of the comments in paragraphs 9 and 10 apply equally
reciprocity. This approach appeared to offer the to this Resolution. The Resolution, when fully
best prospect of general acceptance, has been implemented by all Contracting States, would mean
widely applied to international shipping for many that taxes on the earnings, aircraft and other
years, and has already been put into effect in many movable property associated with the operation of
instances either through appropriate legislation in aircraft of an international air transport enterprise
individual States or through bilateral agreements of would be levied solely by the State where the place
one sort or another between States. of effective management of the enterprise is
located. In the absence of reciprocal exemptions, an
17. It will be noted in this connexion that the international air transport enterprise is subject either
conclusion of such agreements is consistent with to multiple taxation — a situation which this
the recommendation of the Economic and Social Resolution endeavours to prevent — or to
Council of the United Nations and the Organization assessments on the basis of one or the other
for Economic Co-operation and Development allocation formula to be negotiated between the
(OECD) to the effect that governments should operator and the State concerned. The only
actively pursue a policy of negotiating agreements possible alternative, i.e. allocation on a multilateral
with each other for the avoidance of multiple basis, in Council's view, remains a theory which
taxation. Furthermore, both this reciprocal approach conceivably might be more equitable provided
and the method used for avoidance of multiple every State in the world would agree to commit
taxation for the items referred to in this Section are itself to the formula devised. This appears
reinforced by the OECD Model Convention (1992) precluded in the foreseeable future by: (a)
for the Avoidance of Double Taxation with respect fundamental differences between jurisdictions, in
to Taxes on Income and on Capital. The United tax structure, revenue needs and economic
Nations Model Double Taxation Convention conditions, as well as by differences in language,
ICAO's Policies on Taxation 11

business and accounting practices and fiscal and between certain States to this end are known to
commercial legislation, and (b) the freely admitted have encountered numerous formal difficulties and
desire of the operators of international flights, in delays, as a result of which Council has invited (cf.
cases where the rule of reciprocal exemption is not third resolving clause) negotiating governments to
followed, to maintain flexibility by utilizing different take all feasible measures to achieve rapid im-
formulae in different circumstances. plementation. In this connexion, the attention of
governments is drawn to a method of implemen-
19. In giving effect to the terms of this tation that has been utilized between certain States.
Resolution, various courses of action, as mentioned Having decided, in principle, to apply the rule of
in the third WHEREAS clause, are open to reciprocal exemption to each other's air transport
Contracting States. Of these, the adoption of enterprises, the States concerned have completed
legislation granting exemption on a reciprocal basis action on the matter by means of a simple exchange
is undoubtedly the most simple and least time- of diplomatic notes. A wider application of this type
consuming method of achieving the aims of this of action, where possible and appropriate, might
Resolution, provided that such legislation can be assist in the early achievement of more universal
enacted without undue delays. Some States, on the application of the rule of reciprocal exemption.
other hand, find it more practicable to deal with the
problem of relief from multiple taxation of air 20. As in the previous Resolutions on fuel and
transport enterprises through formal bilateral lubricants, the Council again has urged States (cf.
negotiations of agreements relating to taxation Resolving Clauses (5) and (6)) to notify the
generally or in the context of agreements for the Organization of their position vis-à-vis items (a) and
exchange of commercial air transport rights. In (b) of the first resolving clause so that an up-to-date
some instances, however, negotiations conducted record may be maintained in a Supplement to this
document.
 SECTION IV
COUNCIL RESOLUTION OF 14 DECEMBER 1993 ON TAXES
RELATED TO THE SALE OR USE OF INTERNATIONAL AIR TRANSPORT

WHEREAS the further development and expansion of international travel and trade in pursuance
of the principles of the Convention is accepted as an objective by the Contracting
States of ICAO; and

WHEREAS the imposition of taxes on the sale or use of international air transport tends to retard
its further development by increasing its cost to the operator (as in the case of taxes
on gross receipts or turnover), to the shipper (as in the case of taxes on cargo air
waybills) and to the traveller (as in the case of taxes on tickets), and moreover,
subjects the traveller to considerable inconvenience (as in the case of head taxes,
and embarkation and disembarkation taxes);

THE COUNCIL RESOLVES THAT:

(1) Each Contracting State shall reduce to the fullest practicable extent and make plans
to eliminate as soon as its economic conditions permit all forms of taxation on the sale
or use of international transport by air, including taxes on gross receipts of operators
and taxes levied directly on passengers or shippers;

(2) In the context of this Resolution, a tax is defined as a levy to raise revenue for the
national or local treasury which will be used for general or specific public (i.e. non-
aviation) purposes, and charges levied to cover the cost of services and functions not
required for civil aviation also represent taxes for the purposes of this Resolution;

(3) Each Contracting State shall notify the Organization of the extent to which it currently
levies taxes on the sale or use of international transport by air and of the extent to
which it is prepared to take action in accordance with the principles of this Resolution,
and thereafter keep the Organization informed of any subsequent changes in its
position vis-à-vis the Resolution;

(4) The information thus received shall be published and transmitted to all Contracting
States.

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ICAO's Policies on Taxation 13

COMMENTARY ON COUNCIL RESOLUTION IN SECTION IV

21. The development and expansion of international air travellers at times of embarkation
international travel and trade has become an and disembarkation. In addition to raising the cost
important objective of all ICAO Contracting States, of travelling by air, these latter taxes, when
and international civil aviation has played an ever- collected at the last moment, have the added
increasing role in this expansion each year since the disadvantage of causing inconvenience to the
signing of the Chicago Convention. At the same traveller by requiring him, for example, to check in
time it has been generally recognized that taxes on earlier for his embarkation, to obtain additional local
the sale or use of international air transport are a currency, etc.
relatively inequitable form of taxation and can
create a considerable obstacle to the further 25. The definition of a tax as contained in
development of this form of transport, mainly Resolving Clause (2) differs from that generally
because they cause increased prices as well as accepted by the OECD and the United Nations,
delays and inconvenience to the travellers and the where revenue paid into consolidated revenue, but
trading community using the product. subsequently dedicated to the civil aviation budget,
would generally be characterized as a tax.
22. Taxes levied on gross receipts of international However, all taxes or charges levied by States that
air transport enterprises, i.e. on the revenue derived are directly or indirectly intended to finance the cost
from the sale of transport by air of passengers and of aviation facilities would be considered acceptable
cargo, add to the over-all cost to operators of and not falling within the scope of this Resolution.
maintaining their international air services and must,
like other costs, be passed on to their consumers. It 26. In its Statements to Contracting States on
is widely appreciated that one of the main ways to Charges for Airports and Air Navigation Services
obtain increased public use of air transport, and (Doc 9082), the Council has made two important
thus further its development, is to reduce fares so recommendations in relation to charges. The first is
that more and more people can take advantage of that States should impose charges only for services
its speed and convenience. Taxes of the kind and functions which are required for international
mentioned above, however, can be a deterrent in civil aviation; and the second is that States refrain
this respect. from imposing charges which discriminate against
international civil aviation in relation to other modes
23. Taxes levied on each shipment of air cargo of international transportation. Where charges are
laden or unladen from international flights dis- imposed for services and functions which are not
courage trade in high value merchandise and per- required for international civil aviation, these
ishable products where speed of transportation is of charges are in effect taxes and come within the
prime importance. Taxes of this nature, however, purview of this Resolution.
should not be confused with customs duties on the
importation of goods from abroad, which constitute 27. The comments concerning “local” taxes in
a commonly used source of revenue for States and, paragraph 10 apply equally to taxes levied by a
when applicable, are collected regardless of the “local” treasury as mentioned in Resolving
mode of transport employed. Clause (2).

24. Sales taxes on tickets purchased for 28. Analogous to the Resolutions in Sections I, II
international air transport, where levied, increase and III, States are again in Clauses (3) and (4)
the cost of air travel. The same effect can be urged to inform the Organization of their position in
ascribed to other taxes, sometimes levied upon this respect for the purpose of publishing the
information in a Supplement thereto.

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