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EC Probes Aviation Taxes, Subsidies

by Ulrika Lomas,, Brussels

19 July 2011

The European Commission has opened three separate in-depth state aid investigations regarding the Marseille and Frankfurt Hahn airports as well as lower taxes for air passengers in Ireland that benefit almost exclusively domestic flights.

Joaquín Almunia, Vice-President of the Commission in charge of competition policy, explained: "State aid may, under certain conditions and circumstances, constitute an appropriate instrument to develop small regional airports and air transport services. However, the Commission also has a duty to avoid distortions of competition within the EU's single market and some of the regional airports in Europe are no longer so new or small."

On March 30, 2009, Ireland introduced a tax to be paid by airlines for each departing passenger. Until March 1, 2011, two different tax rates applied: EUR2 for destinations located within 300 km of Dublin airport and EUR10 for all other destinations. With the exception of a few airports in western UK, the lower rate applied only to domestic destinations.

Following an internal market infringement procedure concerning the free provision of services, the Irish authorities modified the tax so that, as of March 2011, a single rate of EUR3 applied to all destinations. However, the Commission has also received a complaint alleging the subsidies during the period distorted the conditions of competition. The Commission has therefore launched an investigation, and has invited comment from industry stakeholders in this regard.

Upon concluding the investigation into the Dutch Air Passenger Tax, the Commission noted that the case related to the tax in force between July 1, 2008, and June 30, 2009 – when it was repealed. The tax comprised two rates: EUR11.25 for final destinations within the EU and a maximum 3,500 km from the airport of departure (and for certain locations outside of the EU), and EUR40 for all other final destinations.

In its investigation, now concluded, the Commission found that the exclusion of other means of transport and cargo traffic from the tax did not result in state aid since the operators of such traffic were not in a situation which is legally and factually comparable to the one of air passenger transport operators. Furthermore, the exclusion of transfer and transit passengers did not constitute state aid because its purpose was to be neutral with regard to the route selected for reaching the final destination and to avoid double taxation.

The Commission therefore has concluded that these provisions were in the logic of the Dutch air passenger tax system. Moreover, the Commission found that the fixed tax rates, irrespective of the ticket price, conferred no advantage to classic airlines, as opposed to low-cost airlines, because the same tax rate applied to all destinations in the EU, and has therefore closed its investigation.

The Commission will also investigate public support received by Marseille airport for its low-cost terminal "mp2" and fee reductions awarded to airlines, both low cost and incumbent companies. Between 2005 and 2007, the operator of the Marseille airport (the local Chamber of Commerce, CoC), received a subsidy of around EUR7.6m for the construction of the "mp2" terminal.

The Commission said it had doubts about whether the subsidy was necessary to carry out the investment and whether the aid was proportionate to the objectives pursued. Moreover, the Commission has doubts whether lower fees for airlines using the "mp2" terminal and discounts for the start-up of new routes did not procure a selective advantage to the beneficiaries, in breach of EU state aid rules.

In the second case, in respect of Frankfurt-Hahn Airport, Germany, the Commission will investigate whether the following measures were granted under market conditions: a credit line provided to the airport by the cash-pooling facility of the Land Rheinland-Pfalz; the re-financing of loans granted to the airport by the publicly-owned Investitions-und Strukturbank and; an underlying guarantee provided by the Land.

At this stage, the Commission has taken the preliminary view that these measures merely contributed towards the operating costs of the airport. Therefore, the Commission is concerned that the aid may be giving the airport an unfair advantage vis à vis its competitors.

Alongside these new investigations, the Commission is also currently investigating other cases in the air transport sector, such as the aid to Wizz Air at Timisoara Airport in Romania, aid to infrastructure at the Leipzig-Halle airport in Germany, aid to Dortmund airport and the airlines using it.

TAGS: tax | business | European Commission | air passenger duty (APD) | Ireland | Netherlands | law | aviation | Romania | fees | France | Germany | Europe

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