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 procedures.

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 passengers.

The European Court of Justice ruled last November that the commission should have opened a formal examination procedure to examine this exemption.

Source : The Irish Examiner