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On Tuesday (25.11.2014) the General Court delighted the StateAidHub team by dishing out a shiny new ruling just in time for our launch date. Here’s a quick first look at the ruling.

 

Ryanair EI-EMC by Jens Cedlind, on FlickrThis post takes a preliminary look at Case T-512/11 Ryanair Ltd v Commission.This is only one of the appeals being brought against the Commission's dabblings with the Irish Air Travel Tax (ATT) and as such it is unlikely to be the last we hear of this issue. In what has no doubt been a wearisome week for the airline industry, albeit for clearly less interesting (read: not-State-aid) reasons Ryanair should be content - for now - with the GC’s findings in the case (for curious minds and frequent flyers: In Case C-394/14 Siewert and Others (21.11.2014) the CJEU ordered that a narrow interpretation of the scope for ‘extraordinary circumstances’ resulting in the non-payment of compensation for delayed flights).


Background


The ATT, a form of excise duty payable by airlines for ‘every departure of a passenger on an aircraft from an airport located in Ireland’, was introduced into Irish law through the Finance Act of 2009. The term ‘passengers’ for the purpose of that act excludes those in transit or transferring between flights in the country.

As originally enacted, rate levied depended on the distance travelled between the arrival and departure airports and the location of the destination airport in relation to Dublin (€2 if within 300km of the capital, and €10 if further afield). Following an investigation by the European Commission, this differentiation was found to be discriminatory and the provision of the Act was amended from the 1st of March 2011 to provide that a uniform €3 would be applicable to all departures whatever airport they were from. The exclusion of transit and transferring passengers remained the same. 

On the 21st of July 2009, Ryanair filed a Complaint with the European Commission, based on the Irish Finance Act prior to 2011. It argued:

(1) that by not applying the ATT to transit and transferring passengers there was illegal State aid to Aer Lingus and Aer Arann because these airlines had a high proportion of such passengers;

(2) that because it is levied at a flat rate, the tax is proportionately higher than the ticket price for low-cost carriers (and don’t we know Ryanair falls into that category) than is the case for traditional airlines;

(3) that Aer Arann benefitted from the differentiated rates based on the distance travelled because most of its flights are no further that 300km from Dublin.

The complaint was sent to the Irish authorities on 28th July 2009, and with a reasonably requested extension (well, Brussels in August…) the Irish authorities stated their reply. On the 13th July 2011 the Commission found as a result of the preliminary investigation (SA.29064) that because the exclusion of transit and transfer passengers from the ATT was not selective, the measure did not constitute State aid and as such no further (formal) investigation was necessary. In the judgment at hand (T-512/11), it is the Commission’s decision not to undertake a formal investigation in this regard which is contested.

Although not dealt with specifically in T-512/11, it is worth noting that the Commission did consider that the discriminatory rates in place between 2009 and 2011 (when the Finance Act was amended) based on the distance from Dublin appeared to constitute incompatible State aid because they ‘conferred an unlawful advantage on domestic flights over cross-border flights’. The Commission proceeded to a formal investigation on this issue, finding on 15th July 2012 that the measure indeed favoured short distance flights and ordered recovery of the unlawful aid from the companies that had benefitted from it. It named Ryanair, Aer Lingus and Aer Arann and both Aer Lingus (Case T-473/12) and Ryanair (Case T-500/12) chose to appeal this finding before the GC in two additional cases that are now pending before the Court. 

 

Case T-512/11 on the exclusion of transit and transfer passengers from the ATT

 

In the case, Ryanair alleged that:

(1) The Commission committed a manifest error of assessment and an error of law by finding that the exclusion of transfer and transit passengers was not State aid; (2) failed to open the formal investigation procedure under Article 108(2) TFEU; (3) infringed its obligation to state reasons.

 

Concluding after the preliminary investigation: Seriously, no difficulties?

 

The Court affirmed that it would examine all three pleas, but did so by running together the first and second to determine its response (the discussion on the obligation to state reasons muddled along in between). It recalled that at the preliminary stage under Article 108(3) ‘is intended merely to allow the Commission to form a prima facie opinion on the partial or complete conformity of the aid in question’ [57] but it is only if after this preliminary stage it is satisfied either that the measure in question is not aid under Article 107(1), or is compatible aid, that the Commission may stop its investigation at that point (citing T-46/97 SIC v Commission). Noting T-388/03 Deutsche Post, the critical question is whether the aid raises ‘serious difficulties’: if it does not, then the Commission can find it to exist or to be compatible with the Treaty upon the conclusion of the preliminary investigation procedure alone; if it does raise ‘serious difficulties’ then the Commission must initiate formal proceedings. However, the notion of serious difficulties is objective, to be determined by ‘comparing the grounds of the decision with the information available to the Commission when it took a decision’. It is for the applicant to provide evidence of such serious difficulties, but that burden may be ‘discharged by reference to a body of consistent evidence, concerning, first, the circumstances and the length of the preliminary investigation stage and, second, the content of the contested decision’ (citing T-73/98 Prayon-Rupel and T-36/06 Bundesverband deutscher Banken).

 

Length of the preliminary investigation: Let me get back to you on that…


Pondering whether the length of the preliminary investigation procedure was indicative of there being ‘serious difficulties’, the GC noted that in cases that develop from complaints of interested third parties, the Commission is obliged ‘to conduct a diligent and impartial examination of the complaints in the interests of sound administration of the fundamental rules of the Treaty relating to State aid’ [68]. Quite on point, the GC found that the period of 21 months from the time the Commission received observations from the Irish authorities (which happened to be the only observation and that which the Commission ‘exclusively based its analysis of the disputed measure’) ‘considerably exceed[ed] the period normally required for a preliminary investigation’. The Commission’s argument that the length of time was justified given that there were two complaints afoot (one on the distance and one on the transit/transfer passengers) was given short shift by the Court: The Commission failed to

‘[state] what […] the specific usefulness [was], in the present case, 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 those measures, including the disputed one, raised no doubt, as the Commission claims. All the same, even if such an argument were well founded, there is nothing to suggest that the disputed measure is so complex as to require a preliminary investigation of around two years.’ [72]

 

Selectivity: Normality, exception, justification!

 

However, other factors besides the timescale must also be considered for a finding that the Commission encountered serious difficulties necessitating initiation of a formal investigation to hold. The content of the initial investigation - in particular the consideration of whether the measure was selective, ‘favouring certain undertakings or the production of certain goods’ therefore distorting or threatening to distort competition - becomes critical at this point. Selectivity is determined with reference to the common or ‘normal’ tax regime applicable in the Member State concerned. A measure is selective if it ‘differentiates between economic operators who, in light of the objective assigned to the tax system of the Member State concerned, are in comparable factual and legal situations.’ If this exception to the norm is ‘justified by the nature or general scheme of the system of which it is part’ then the measure is not selective: ‘a measure which constitutes an exception to the application of the general tax system may be justified if it is shown that that measure results directly from the basic or guiding principles of the tax system of the Member State concerned.’

Did the Commission consider the norm, the exception and the justification? In a sharp critique, the resounding answer of the Court was: no, it did not.

Although the Commission did look at the objective and structure of the ATT system in question, most resolutely the GC condemned it for over-reliance on the letter from the Irish authorities. Without undertaking to establish the validity of the comparisons made with other countries’ systems and for taking as fact the assertion that the legislation must be taken as meaning that the first leg of the journey is exempt, although no such definitive conclusion could be deciphered from the legislation itself (and even providing tabular examples that were not actually capable of supporting that statement). What’s more, the given justification for the exception to the ATT was to avoid double taxation; this objective is invoked by the Commission in paragraph 30 of its decision, but was not actually given by the Irish Authority in its letter. The Court concludes therefore that the most likely source for this reasoning comes from a staff working document of the Commission itself and that it had chosen to put the blinkers on regards the actual content of the Authority's letter; this conclusion, it finds, is supported by the Irish Authority’s own jitters - evident from its letter - about the framework for applying the ATT, which the Commission conveniently chose to ignore.

In short, the GC did not like what it saw: a lengthy, but ultimately under-informed preliminary investigation permitting the “inference that the Commission was not able, at the date of adoption of the contested decision, to resolve all the serious difficulties identified concerning the question whether the disputed measure submitted for its appraisal was selective and therefore constituted State aid”.

As such, the CG annuled the Commission Decision of 13 July 2011 in so far as it found that the non-application of the Irish air travel tax to transit and transfer passengers does not constitute State aid.

 

Quick Stats for Case T-512/11 Ryanair v Commission, 25.11.2014

Paragraphs: 109
State allegedly giving aid: Ireland
Sector: Airlines
Complaint to Decision: 21 months
Complaint to GC: 61 months
Application to GC: 40 months
Appeal to CJEU?: You'll hear it first on the StateAidHub!
   

 



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