I am posting this email I received.....FYI.
My fellow pilots,
The negotiating committee and the MEC have stated that the “tax equalization” formula is a mandatory requirement to opening new foreign domiciles. Please have them explain which governments or jurisdictions have such a prerequisite. I don’t believe they can answer that with any semblance of honesty. But if I’m wrong, please let me know, I will be glad to admit when I’m wrong. This tax equalization is a normal and “customary” practice amongst many corporations. However, the biggest difference being, those companies pay their ex-pats full benefits. In other words, their entire housing costs, tuition, roundtrip tickets for families, leased vehicles, all… paid in full. Yes, there are usually limits to the aforementioned. In other words, they don’t have eight children attending the most expensive schools, they don’t live in mansions with helipads, and they don’t drive Ferrari’s. They do however live commensurate to what they are accustomed to in the U.S.
A recent communication to the pilots from Jack Lewis states,”companies do ex/Pat packages to send people with unique skills to places they do not want to go. Unfortunately, we are not particularly unique (at least skill-wise) and we do a voluntary bid.” I respectfully disagree. They give them to people who want to go as well. And, those that don’t want to go don’t have to. They usually accept or even apply for the position because of the promotion, and subsequent pay increase associated with that promotion. In addition, they get full expatriate packages, just like Cathay and Dragonair. Also, since when is piloting not a unique skill?
In a simplistic explanation, tax equalization is a formula, whereby Fedex, and other companies, can offset the burden of paying foreign taxes, by withholding the employee’s foreign earned income exclusion benefit and the employee’s tax write-off for foreign taxes paid. Hong Kong taxes are about 17%. France is upwards of 40%. On a side note, mainland China taxes are roughly 51%, so if the negotiating committee in fact negotiated Hong Kong versus Guangzhou, they certainly didn’t have to use any strong-arm tactics. In addition to the extraordinary taxes, medical care problems, and legal ramifications, the company would have been compelled to provide car and bilingual driver.
So what does this mean? The foreign earned income exclusion allows U.S. taxpayers, who have met certain criteria in establishing a foreign residence, to be exempt from paying federal taxes on the first $82,400 they earn. Depending on the individual’s tax bracket, the amount you get to keep of your money is substantial. Do the math based on your income. It is the biggest reason I bid Subic. And this is not a Subic issue. The amount is well over $20,000 for me. The amount is the same regardless of whether the ex-pat lives in CDG, HKG, or SFS.
If I were to pay my own Hong Kong taxes, I would pay roughly $37,800 USD. With the foreign earned income exclusion and the write-off for the above foreign taxes paid, my U.S. federal tax liability would be zero. So please don’t readily buy into the idea that tax equalization is such a great deal! Obviously CDG would be different.
This LOA is concessionary in that we lose more than is readily apparent. Besides losing the foreign earned income exclusion, which equates to well over $20,000 USD per year, we also lose the relocation allowance of $10,000 or 79 CH (whichever is greater).This is both to and from the new domicile. For a 15 year captain in HKG, that equates to over $38,000(albeit for the current 3 year commitment). The difference in household goods moved is comical. The STV is akin to STD. The language is nebulous, at best. Ground transportation can be increased between HKG and CAN. Since the MD-11 flies to both those cities, will their crews be elgible for the transportation marathon as well? All these inadequacies in addition to what was previously explained in the Minority Opinion.
Finally, a negotiating committee member recently wrote, "The company sees China and Europe with dollar signs. Both are potential gold mines for the company and they will exploit that potential with us or without us." Sounds similar to the infamous red letter a few years back. I agree that both China and Europe are potential gold mines for the company. Likewise, I understand that the company needs this. What I don't understand is our need to accept a substandard LOA in order to facilitate their needs.