EU Regulators Take Heat Over Irish Airport Tax

(CN) - The European Commission should have formally examined Ryanair's claims that exemptions to an Irish air travel tax unfairly benefited other airlines and constituted state aid, the EU's general court ruled Tuesday.

When Ireland approved an air travel tax in 2009, it included exemptions for passengers who stopped over at Irish airports - but did not deplane - or who had layovers of less than six hours. In the beginning, authorities set the tax at 2 euros for flights under 300 kilometers from Dublin and 10 euros for longer flights, and in 2011 they created a single 3-euro tax for all departures.

Irish bargain carrier Ryanair complained to the commission that the exemptions for travelers just passing through Ireland's airports illegally favored Aer Lingus and Aer Arann, and disproportionately raised the ticket prices for low-cost airlines. In 2011, the commission dismissed Ryanair's complaint on grounds that the tax was not selective - at least once Ireland adopted the single fee regardless of distance traveled.

On appeal to the EU's general court, Ryanair argued that the commission should have had "serious doubts" about the exemption, which would have then required regulators to launch a formal investigation procedure. The airline justified its argument by noting that the commission took an unusually long time - nearly 24 months - to complete its preliminary investigation and issue what it called an incomplete and insufficient report.

In a ruling issued Tuesday, the EU's lower court agreed that there was evidence that the regulatory and administrative arm of the European Union had obviously encountered difficulties in its preliminary investigation, given the amount of time it took to decide Ryanair's initial complaint.

"The commission's argument that the length of the procedure was influenced by the fact that the applicant's complaint concerned a total of five related but separate measures, and that the contested decision in fact constitutes a collection of decisions relating to all of those measures cannot in itself justify the excessively long length of the investigation which has just been found," the court wrote. "Indeed, the commission has not stated what was the specific usefulness of carrying out an overall analysis of the five measures called in question and, in particular, of not separating the investigation of the measure which led to the initiation of the formal investigation procedure from the other measures if they raised no doubt, as the commission claims. There is nothing to suggest that the disputed measure is so complex as to require a preliminary investigation of around two years. Insofar as the commission essentially based its conclusion that the majority of the measures called in question did not classify as state aid, it does not appear that the commission was required to inquire extensively into the facts or to take other measures requiring a significant amount of time."

And besides being long in coming, the Luxembourg-based court also called the commission's examination "incomplete and insufficient."

"Whilst it is true that, as the commission claims, it had in principle no reason to doubt the information from the Irish authorities, the fact remains that even following those authorities' interpretation that any first leg of a journey including a stopover is exempt from payment of the tax, the commission's decision is not capable of supporting such an interpretation," the court wrote in its 11-page opinion. "Whilst this might be the case as regards the example relating to passengers going from Dublin to New York and making a stopover in Shannon, who were subject to payment of the 10-euro tax, it is not clear and the commission does not explain why passengers taking the opposite route, that is from New York to Dublin with the same stopover, are not subject to payment of the tax for the departure from the stopover airport of Shannon. The commission ought to have asked those authorities for further details by requiring the provision of specific examples of the application of the exemption in order to dispel any possible doubt."

And opening a formal investigation would have allowed interested third parties - like Ryanair - to make their case as to why they believed the tax constituted state aid, the court concluded.

The commission has 60 days to appeal the annulment of its decision to the European Court of Justice.

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