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ECJ Rules Against Commission On Irish Travel Tax

by Jason Gorringe, Tax-News.com, London

12 February 2015


While agreeing that Ireland's air travel tax (ATT) conferred an unfair advantage on certain undertakings in breach of EU state aid rules, the European Court of Justice (ECJ) has challenged calculations from the European Commission on the tax benefit that should be recovered from certain airlines.

Ireland introduced an air travel tax with effect from March 30, 2009, on "every departure of a passenger on an aircraft from an airport" situated in Ireland, which was not applicable to transit and transfer passengers. When it was introduced there was a two-tier system; a EUR2 (USD2.25) rate applied to departures to destinations no more than 300km from Dublin airport, and a rate of EUR10 applied to flights farther afield. Following a Commission investigation, a single rate of EUR3 was introduced from March 1, 2011, for all departures.

In July 2009, Ryanair had filed a complaint with the Commission, criticizing several aspects of the ATT implemented by Ireland, claiming, among other things, that:

  • The non-application of the ATT to transit and transfer passengers constituted unlawful state aid to the advantage of the airlines Aer Lingus and Aer Arann, because those companies had a relatively high proportion of passengers and flights in those categories;
  • The flat-rate amount of the tax represented a significantly higher proportion of the ticket price for low-fares airlines than for traditional airlines; and
  • The lower tax rate that applied depending on the distance travelled favored Aer Arann, since 50 percent of its passengers travelled to destinations no more than 300 km from Dublin airport.

In its decision of July 25, 2012, the Commission said the application of a lower rate for short-distance flights, for the period that it was in place, constituted state aid incompatible with the internal market. The Commission therefore ordered the recovery of that aid from the beneficiaries, indicating that the amount of the aid corresponded to the difference between the lower rate of the ATT (EUR2) and the standard rate of EUR10 – that is to say, an additional EUR8 from each departing passenger.

Aer Lingus and Ryanair were listed among the beneficiaries of that state aid. They brought an action before the General Court against that decision. They claimed, in essence, that the Commission had erred in finding that the EUR10 rate of the ATT was the 'normal' rate in order to establish the existence of a selective advantage in favor of the airlines subject to the lower rate of EUR2; and the Commission had made errors in the recovery decision.

In a judgment on February 5, 2015, in Aer Lingus Ltd v. Commission (Case T-473/12) and Ryanair Ltd v. Commission (Case T-500/12), the General Court of the ECJ annulled the Commission's decision to order the recovery of the aid from the beneficiaries for an amount set at EUR8 per passenger.

It said the Commission had not erred in characterizing the higher rate of EUR10 as the reference rate, or in determining that there was illegitimate state aid. However, the Court said the Commission erred in quantifying the amount of aid to be recovered at EUR8 per passenger. It said: "Inasmuch as the economic advantage resulting from the application of that reduced rate could have been, even only partially, passed on to the passengers, the Commission was not entitled to consider that the advantage enjoyed by the airlines amounted automatically, in all cases, to EUR8 per passenger."

"[That] could be the case only if the airlines which paid the ATT at the lower rate had systematically increased the price of their tickets excluding tax by EUR8 per ticket," it said. "The General Court notes that the Commission did not explain why that situation would be the normal one, rather than a situation in which the airlines passed on the advantage to their passengers." It added that "the Commission could not presume that the economic advantage resulting from the application of the reduced rate of ATT had not been passed on to the passengers at all," which would have caused a lesser distortion to competition between the airlines.

It concluded: "In order to be able to quantify precisely the advantage actually enjoyed by the airlines that paid the ATT at the lower rate, the Commission should have determined the extent to which they had actually passed on to their passengers the economic benefit resulting from the application of the ATT at the lower rate. It should also have ordered the recovery of only the amounts actually corresponding to that advantage. If it proved impossible to determine those amounts accurately, the Commission could have conferred that task to the national authorities, providing them with the necessary information in that respect."

The Court also noted that it would be impossible for the Commission to take action that effectively remedies its competition concerns, as it will be impossible for airlines to retrospectively add the tax burden of EUR8 to fares. "The recovery of such an amount would be liable to create additional distortions of competition since it could lead to the recovery of more from the airlines than the advantage they actually enjoyed," the Court said.

TAGS: tax | European Commission | Ireland | law | aviation | tax rates | Europe

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