News: Aer Lingus and Ryanair may face multi-million tax bill in Ireland

Ireland: Monday 2 Feb 2015 – Source: The Irish Examiner
Aer Lingus
and Ryanair will find out this week if they face a multimillion-euro tax bill
over the air travel tax which was scrapped by the Government in 2013.
The European Court of
Justice will issue its ruling on Thursday on separate but similar cases brought
by the airlines against the European Commission over its finding in 2012 that a
lower tax rate for short-haul flights was unfair.
If the rival carriers
are unsuccessful, they will face a large tax demand from the State, which they
are unlikely to be able to recoup from their passengers.
Finance Minister Michael
Noonan confirmed last year the State had already initiated High Court proceedings to seek repayment of the
beneficial aid plus interest.
The tax was introduced
in March 2009 as a budgetary measure to raise revenue for the exchequer,
despite opposition from the airlines and the tourism industry.
Airlines were required
to pay the tax for every passenger departing from an airport in the Republic,
although transfer and transit passengers were exempt from the tax.
The cost of the air
travel tax was passed on by all airlines to their customers — €2 for short-haul
flights under 300km and €10 for all other flights.
The Government abandoned
the two-rate system in March 2011 and introduced a flat tax of €3 on all flights,
regardless of distance, after the European Commission opened infringement
Nevertheless, the
European Commission decided to press ahead with a formal investigation.
Aer Lingus and Ryanair
took the European Court of Justice case to challenge the commission’s decision
to order Ireland to recover the difference between the two taxes — €8 per
passenger — from the airlines after it determined in July 2012 that the
two-tier tax did amount to illegal state aid.
In its action before the
Luxembourg-based court, Aer Lingus contested the determination by Brussels,
including the commission’s finding that the €10 rate was the “normal” rate.
The airline, the subject
of a takeover bid by British Airways owner IAG, argued at an earlier European
Court of Justice hearing that its passengers had benefited from the lower rate.
Aer Lingus lawyers said
the attempts to reclaim the money now would act like an
additional tax on the airline which could not be passed on to its customers.
In its case, Ryanair
claimed the flat rate of €3 must be considered the “normal” rate and not the
€10 rate, which was also unlawful under EU law.
Ryanair also complained
to the commission that the tax constituted illegal state aid because it was
benefitting its rivals, Aer Lingus and Aer Arann, as those airlines had a
higher proportion of transfer and transit passengers. Ryanair also argued that
the tax represented a higher proportion of the ticket price for its short-haul
The European Court of
Justice ruled last November that the commission should have opened a formal
examination procedure to examine this exemption.