Fuel Taxation in Aviation
Pathways for reform among COFFIS member states
This report examines 32 Air Service Agreements (ASAs) concluded between COFFIS member states to determine the necessary steps before implementing a tax on the uptake of aviation fuel.
Recommendations
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For international air transportation, most countries already have several options to introduce a fuel tax for airlines operating under ASAs, which do not include definite legal barriers.
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Countries bound by ASAs containing either full fuel tax prohibitions or non-discrimination provisions need to reform their ASAs to introduce taxation.
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To clarify the intent behind reciprocal fuel tax exemptions, countries may issue memorandums of understanding stating that these do not create a legal barrier to introducing a fuel tax.
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While bilateral reform can be achieved, a swifter way is a global or multilateral Joint Agreement that allows for the bulk reform of tax provisions present in different ASAs.
Although international aviation contributes approximately 2.4% of global annual carbon dioxide emissions, fuel used in this sector is rarely taxed. A tax on aviation fuel could support the sector’s climate targets by promoting greater fuel efficiency, encouraging the uptake of sustainable aviation fuels, and ensuring fairer competition with less emission-intensive transport modes.
The 1944 Convention on International Civil Aviation (Chicago Convention), applicable to all International Civil Aviation Organization member states, does not prohibit the introduction of aviation fuel taxes. However, legal barriers may arise from bilateral and multilateral ASAs.
This report examines 32 ASAs concluded between COFFIS member states to determine the necessary steps before implementing a tax on the uptake of aviation fuel. None of the reviewed ASAs restricts the taxation of fuel for domestic aviation. The ASAs are categorized into four groups based on their treatment of fuel taxation. Only two categories require reform prior to implementing a tax for international flights: (i) agreements containing a full tax prohibition and (ii) those imposing non-discrimination or similar clauses.
For European Union (EU) member states, legal barriers primarily stem from the EU Energy Taxation Directive (ETD). However, if the EU enters an international agreement that introduces different fuel tax rules, such an agreement would prevail over the ETD, opening the door for aviation fuel taxation across all EU member states.
The most effective way to overcome these legal barriers, for EU and non-EU states, is through a Joint Agreement among a coalition of the willing. States have used similar approaches to successfully amend large numbers of bilateral treaties in other areas, such as investment and tax law.
This report also quantifies emissions associated with three ASAs concluded by the United Kingdom and estimates the tax revenue potential if a fuel tax were implemented for these routes.
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