Another Measure that Cannot Be Justified by the Logic of the Tax System

airplanes on the airport
The granting of a tax exception is often found to constitute State aid. But the non-levying of a tax may also fall within the scope of Article 107(1). Competitors have more rights when the Commission does not open the formal investigation procedure.
IntroductionOn 25 November 2014, the Court of Justice, in case T-512/11, Ryanair v European Commission, annulled Commission Decision C(2011) 4932 final of 13 July 2011 [SA.29064].[1] This is an intriguing case. Ryanair succeeded in its application for annulment of that Commission decision because it had declared an Irish measure to be free of State aid.

Normally undertakings object to decisions that conclude that measures contain either compatible aid [when the aid is received by their competitors] or incompatible aid [when the aid is received by themselves]. The Commission was rather certain that the Irish measure in question did not contain any State aid and for this reason it did not proceed to investigate it in detail by opening the formal procedure.

Ryanair was successful in its appeal because as a competitor it had more rights at the stage where the Commission examined whether the measure constituted State aid and before it reached a final decision on the compatibility of the aid with the internal market.

As explained in several past articles on this site, competitors have very little chance to have a final Commission decision quashed. This is because they have to demonstrate that they are “directly and individually concerned”. They rarely manage to persuade EU courts that they are such a special situation vis-à-vis the aid recipient so that they can be considered to be “directly and individually concerned”.


In March 2009, the Irish authorities introduced an excise duty – air travel tax [ATT] – which airline operators had to pay for every departure of a passenger on an aircraft from an airport located in Ireland. The tax exempted transfer and transit passengers.

When the ATT was introduced, it was levied on the basis of the distance between the departure airport and the arrival airport, at the rate of EUR2 in the case of a flight to a destination located no more than 300 km from the Dublin airport and EUR10 in any other case.

In July 2009, Ryanair submitted a complaint to the Commission regarding several aspects of the ATT. Ryanair argued, in particular, that the non-application of the ATT to transit and transfer passengers constituted illegal State aid for the benefit of the airlines Aer Lingus and Aer Arann. Those two airlines had a relatively high proportion of such passengers and flights. It was also alleged that the flat-rate of the tax accounted for a higher proportion of the ticket price for low-cost carriers than for traditional airlines. Moreover, the lower tax rate which applied depending on the distance travelled favoured Aer Arann, given that 50% of its passengers travelled to destinations located less than 300 km from Dublin airport.

In July 2011, by Decision C(2011) 4932 final, the Commission found that the non-application of the ATT to transfer and transit passengers did not constitute State aid. However, it found that the use of a lower domestic rate between March 2009 and March 2011 appeared to constitute State aid. The Commission therefore opened the formal investigation procedure in respect of that measure. It concluded it investigation with Decision 2013/199 in July 2012 with a finding of incompatible State aid.[2]

By contrast, in its July 2011 Decision, the Commission found that the non-application of the ATT to transfer and transit passengers formed part of the system of reference, which was the taxation of air passengers departing from an airport situated in Ireland. The exemption was consistent with the logic of the tax system of reference due to reasons of “neutrality” from the perspective of the passengers, who could not always determine for themselves the route to their final destination. Consequently, the non-application of the ATT was not selective and did not constitute State aid.

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The objectives of the judgment

About half of the judgment examined whether Ryanair had standing and whether the Commission should have opened the formal investigation procedure also in relation to the non-application of the ATT to transfer and transit passengers. With respect to whether Ryanair had standing, the Court found that it did because it was a competitor whose rights were affected by the fact that the Commission did not formally investigate the non-application of the ATT and therefore did not allow Ryanair to submit comments.

With respect to whether the Commission should have opened the formal procedure, the Court held that the long time it took the Commission to reach its Decision was a significant indicator of the serious doubts it should have had. Then it went on to examine whether indeed the Commission should have had doubts about the claimed absence of State aid from the non-application of the ATT. In order to do that, it considered whether the non-application of ATT could be justified by the nature or general scheme of the ATT system.

The exemption of transit and transfer passengers

The Court recalled the standard method for classifying a tax measure as selective. According to this method, it is, first, necessary to identify the common or normal tax system. Second, it is in relation to this common or normal tax system that is determined whether any advantage granted by the tax measure in question [in this case, the ATT exemption] is selective. If the measure is selective it can be demonstrated that it derogates from that common system by differentiating between economic operators who, in light of the objective of the tax system, are in comparable factual and legal situation. Third, a measure which, although conferring an advantage on its recipient, is justified by the nature or general scheme of the system of which it is part does not fulfil the condition of selectivity.

The Commission considered that the objective of the ATT system was to tax passengers departing from an airport located in Ireland in order to raise revenue. According to the Commission, if the ATT had been applied to transit and transfer passengers, the airline might have had to pay that tax twice for a journey with a stopover. Therefore, the Commission took the view that the ATT exemption for transit and transfer passengers, which resulted in passengers being taxed the same way independently of the route travelled, fell within the nature and logic of the relevant tax system.

The Court observed in paragraph 83 of the judgment that the Commission considered that the exemption of transit and transfer passengers was aimed at tax neutrality reasons in order to avoid the risk of double taxation in the event that the airport of departure was situated in another Member State applying a similar air travel tax. The Court noted that the ATT could be applied either to the first or second leg of a journey. It went on to criticise the Commission for assuming that the non-application of the ATT applied to the first leg, but then failing to take into account that the ATT could be applied on the first leg of a journey in the opposite direction. For example, passengers flying from New York to Dublin via Shannon did not pay the tax on the New York – Shannon leg, but passengers flying from Dublin to New York via Shannon, did pay the tax on the Dublin – Shannon leg.

More decisively, the Court also addressed the way the Commission took into account the need for tax neutrality and the avoidance of double taxation by non-applying the ATT on the first leg of a journey. “93 […] since the ATT applies to any departure from an airport in Ireland, the exemption must relate, in the case of transit and transfer passengers coming from an airport located outside of Ireland and making a stopover in that country, to the payment of the ATT for the second flight, that is the flight departing from an Irish airport. […] That is not consistent, however, with the other situation, namely that of a journey from Dublin to New York with the same stopover, according to which the exemption relates to the first flight and not the second.”

The Court also examined other aspects of the measure and the inadequate, in its view, explanations provided by the Irish authorities, in order to conclude that the Commission should have entertained serious doubts about the alleged absence of State aid and, in case of the non-application of the ATT being aid, its compatibility with the internal market. The General Court, therefore, annulled the Commission Decision. This negative outcome entails that the Commission will have to re-open the case and carry out a more detailed assessment.


The moral of this story is rather simple. When Member States claim that an exemption follows from the logic of the tax system they have to make absolutely sure that they treat equally and consistently all similar cases.

In this connection, it should be recalled that the Commission has already found in its Decision 2013/199 that the levying of a rate of EUR 2 on flights terminating at an airport situated less than 500 km from Dublin was incompatible State aid. This is because the distance of the final airport from Dublin bore no systematic relationship with actual distance travelled or with the fact that similar flights were taxed differently simply depending on the location of the final airport. The Irish measure was not treating equally all similar flights and the criterion of distance of 500 km from Dublin was arbitrary and irrelevant to the purpose of taxing departing passengers.

It follows that now the Commission will have to re-open the case and re-consider the logic of the exemption for transit and transfer passengers. Given the remarks of the General Court, it will be difficult for the Irish authorities to prove that the ATT exemption could follow from the internal logic of the reference tax system.


[1] The text of the judgment can be accessed at:

[2] The text of the 2011 decision can be accessed at:

The text of the 2012 decision can be accessed at:

[Photo by Dean Morley from flickr]




Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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