Ryanair has won a victory in the European Union's General Court regarding its complaint against Ireland's air travel tax (ATT).
The Court has partially annulled a Commission Decision declaring that the exemption of transfer and transit passengers from payment of the Irish air travel tax did not constitute State aid. The court stated that the Commission should have initiated the formal examination procedure in order to verify that such an exemption did not constitute State aid.
Since 30 March 2009 airline operators must pay ATT in Ireland in respect of ‘every departure of a passenger on an aircraft from an airport’ located in Ireland.
Under the Irish Finance Act, on which the ATT is based, the definition of ‘passenger’ exempts transfer and transit passengers from payment of the tax.
When the ATT was introduced, it was levied on the basis of the distance between the departure airport and the arrival airport, at the rate of €2 in the case of a flight to a destination located no more than 300 km from Dublin (Ireland) airport and €10 in any other case. Following an investigation by the Commission, the Irish authorities altered the applicable rates as of 1 March 2011, creating a single rate of €3 applicable to all departures, regardless of the distance travelled.
In July 2009, Ryanair lodged a complaint with the Commission regarding several aspects of the ATT. Ryanair maintained, in particular, that the non-application of the ATT to transit and transfer passengers constituted illegal State aid for the benefit of the airlines Aer Lingus and Aer Arann: those undertakings had a relatively high proportion of such passengers and flights. Ryanair also referred to the fact that the flat-rate amount of the tax accounted for a higher proportion of the ticket price for low-cost carriers than for traditional airlines. Finally, Ryanair stated that the lower tax rate which applied depending on the distance travelled favoured Aer Arann, given that 50% of its passengers travelled to destinations located less than 300 km from Dublin airport.
By Decision of 13 July 2011 the Commission found in particular that the non-application of the ATT to transfer and transit passengers did not constitute State aid, as that measure was not selective. Ryanair took the view that the exemption at issue constituted State aid and brought an action before the General Court seeking its partial annulment.
Ryanair claimed that the Commission should have had ‘serious doubts’ regarding the compatibility of the ATT exemption for transit and transfer passengers, justifying the initiation of the formal investigation procedure. It submits that the Commission was wrong to find that the exemption was not selective. Lastly Ryanair submits that the objective of the exemption is extraneous to the nature of the tax system and favours traditional airlines.
By its judgment today, the Court annuls the Commission’s decision in so far as it finds that the non-application of the Irish air travel tax to transit and transfer passengers does not constitute State aid.
If, following the preliminary investigation of a State measure, the Commission encounters serious difficulties which raise doubts as to its compatibility with the internal market, it is required to initiate the formal investigation procedure.