General Court overturns State aid decision ordering recovery of aid from airlines

05/02/15

The General Court today delivered a ground-breaking judgment upholding an appeal brought by Aer Lingus Ltd against a decision of the European Commission that had found a tax paid by airlines for each departing passenger from an airport located in Ireland constituted unlawful State aid. The General Court agreed with Aer Lingus that the Commission had erred in setting the amount of aid to be recovered from Aer Lingus and the other airlines subject to the decision.

The case concerned the imposition of the Irish “Air Travel Tax” from 2009 to 2011. The Air Travel Tax was intended to be passed on to passengers via the flight ticket price, and consisted of two different tax rates: €2 for destinations located within 300 km of Dublin airport and €10 for all other destinations. All domestic flights fell within the lower rate, whereas almost all international flights were subject to the higher rate.

In July 2012 the European Commission decided that the lower rate tax was unlawful State aid and ordered the aid – quantified at €8 per passenger – to be recovered from the airlines operating flights to which the lower rate applied, in particular Aer Lingus, Aer Arann and Ryanair.

Aer Lingus appealed the Commission decision to the General Court, arguing in particular that the Commission had manifestly erred by requiring the Irish authorities to recover the amount of €8 per passenger from airlines that were subject to the lower rate tax, such as Aer Lingus.

The General Court agreed with Aer Lingus that, in the circumstances of this case, the Commission was not entitled to assume that the advantage actually obtained and retained by the airlines amounted in all cases to €8 per passenger. Even if there were some consequential benefit to airlines in respect of the flights taxed at the lower rate, it was wrong for the Commission to assume that that benefit was in the amount of €8 per passenger. The Court also held that the Commission had failed to show that recovery of €8 per passenger was necessary to restore the previous situation in circumstances where airlines like Aer Lingus could not retrospectively charge its passengers a higher rate of tax.

The judgment is here.