Ryanair: Way clear to sue Government over tax

Ryanair and Aer Lingus are facing an estimated €16m tax bill after the European Court of Justice (ECJ) ruled that Ireland must recoup the proceeds of an illegal tax from the airlines.

The EU’s top court ruled the difference between the lower and normal rates of air travel tax constituted unlawful state aid.

Ryanair said yesterday it had been expecting the ruling and it cleared the way for the airline to take a High Court action against the Government to recover €88m in damages which it claims it suffered as a result of being forced to pay the illegal tax.

The tax was introduced in March 2009 as a budgetary measure to raise much-needed revenue for the exchequer, despite strong 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 exempted. The cost of the air travel tax was passed on by all airlines to 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.

The case was prompted by a complaint lodged by Ryanair, in July 2009, when the airline claimed the tax conferred an unfair advantage on some of its competitors as they operated a significant number of flights to destinations under 300km.

The commission subsequently ruled the Government should recover the difference between the two taxes — €8 per passenger.

In February, the ECJ partially annulled that decision following separate cases taken by Ryanair and Aer Lingus on the basis that Brussels had failed to show that the advantage enjoyed by the airlines was in all cases €8 per passenger.

Yesterday’s ruling was the result of a challenge by the commission to that decision and restored the original finding that the sum of €8 per passenger must be recouped.

The ECJ said the unfair advantage arose simply from the fact airlines had to pay a lower amount than they would have had to pay if their flights had been subject to the standard €10 rate.

Ryanair and Aer Lingus have claimed the obligation to repay €8 per passenger now was the equivalent of having to pay an additional tax or discriminatory penalty as they were no longer in a position to recover the money from their customers.

The Luxembourg-based court said there was nothing that had prevented airlines from increasing fares on shorter flights by €8 to enjoy the economic benefits corresponding to the difference between the two rates.

It stated the commission was not required to examine whether, and to what extent, the beneficiaries of the illegal state aid had actually utilised their economic advantage arising from the application of the lower €2 rate. The Government supported the commission’s appeal and had asked the ECJ to dismiss the cross-appeals by the two airlines.

It is estimated Ryanair will face a bill for €12m and Aer Lingus will be asked to refund €4m. Both airlines were also ordered to pay all costs of the legal battle including those of the commission with the exception of the Government which must pay its own costs in the case.

Aer Lingus said it was studying the judgment.