Airlines challenge travel tax ruling in EU court

Aer Lingus and Ryanair will begin separate legal actions in the European Court of Justice this week over the controversial air travel tax which was discontinued by the Government in last year’s budget.

Airlines challenge travel tax ruling in EU court

The rival airlines are both taking a case against the European Commission over its ruling in 2012 that a lower tax rate for short-haul flights was unfair and that Ireland should seek to recover the €8 difference per passenger from Ryanair, Aer Lingus, and Aer Arann.

At stake for the airlines is a multimillion-euro tax bill which they claim can no longer be passed on to their customers.

The tax was introduced in March 2009 against strong opposition from airlines and the travel industry. A lower tax rate of €2 per passenger was initially applied to shorter flights of 300km or less. Passengers on flights above this distance incurred a tax of €10.

The Government bowed to pressure from Brussels in March 2011 and changed the tax to a flat rate of €3 per passenger for all flights after the European Commission opened an infringement procedure based on the freedom to provide services. Nevertheless, the commission continued with a formal investigation into whether the different tax rates in the first two years constituted illegal state aid.

In July 2012, it found the lower rate favoured short-distance flights giving airlines which operated such routes an economic advantage over their competitors and distorting competition in the internal market. It subsequently instructed the Government to recover the €8 difference from passengers on the short-haul routes from the airlines who collected the tax on behalf of the exchequer.

On Wednesday the ECJ will hear Aer Lingus’ challenge to the demand for repayment of the tax, with Ryanair’s case being held the following day. Both airlines are contesting the commission’s view that the “normal” air travel tax rate should be €10.

Aer Lingus is arguing it was airline passengers who benefited from the lower €2 rate and efforts to seek repayment from the airline represents an additional tax which cannot be recouped from their customers.

Ryanair is arguing that the corrected rate of €3 should be considered the “normal” tariff and not the €10 rate.

In a separate but related case before the ECJ last month, Ryanair claimed the tax represented illegal state aid which benefited its competitors, Aer Lingus and Aer Arann, as they had a higher proportion of transfer and transit passengers exempt from the air travel tax.

Finance Minister Michael Noonan confirmed last year that his department had sought payment of the beneficial aid amount plus interest from the airlines. Plenary summons had been lodged in the High Court for legal proceedings against Aer Lingus, Ryanair, and Aer Arann.

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