When should the Commission open the formal investigation procedure in a State aid case?

On 25 November, the General (GC) partially annulled the Commission Decision C(2011) 4932 final of 13 July 2011 declaring that the exemption of transfer and transit passengers from payment of the Irish air travel tax did not constitute State aid.[1]

On 30 March 2009, Ireland introduced an excise duty, the ‘air travel tax’ (‘ATT’), which airline operators were liable to pay from that date forward in respect of ‘every departure of a passenger on an aircraft from an airport’ located in Ireland. Under the Irish Finance Act, on which the ATT is based, the definition of ‘passenger’ exempts transfer and transit passengers from payment of the tax.[2] At first, ATT was levied on the basis of the distance between the departure airport and the arrival airport, at the rate of €2 in the case of a flight to a destination located no more than 300 km from Dublin (Ireland) airport and €10 in any other case. Following an investigation by the Commission, the Irish authorities altered the applicable rates as of 1 March 2011, creating a single rate of €3 applicable to all departures.

In July 2009, Ryanair lodged a complaint with the Commission concerning the ATT. In its opinion, the non-application of the ATT to transit and transfer passengers amounted to unlawful aid for the benefit of the airlines Aer Lingus and Aer Arann as those had a relatively high proportion of such passengers and flights. Moreover, the flat-rate amount of the tax accounted for a higher proportion of the ticket price for low-cost carriers than for traditional airlines. Finally, the lower tax rate applicable to destinations located less than 300 km from Dublin favoured Aer Arann in case of which 50% of passengers travelled to such destinations.

On 13 July 2011, following a preliminary investigation procedure, the Commission found that the non-application of the ATT to transfer and transit passengers did not amount to aid as the measure was not selective. Ryanair brought an action before the GC seeking its partial annulment. In its opinion, the Commission should have had ‘serious doubts’ regarding the compatibility of the ATT exemption for transit and transfer passengers, justifying the initiation of the formal investigation procedure.

The GC partially annulled the 2011 Decision. As it recalled, if, following the preliminary investigation procedure, the Commission encounters serious difficulties as regards compatibility of the given measure with the internal market, it must initiate the formal investigation procedure. In the ATT case, the GC noted the following. First, the duration of the preliminary investigation phase was excessive, (almost 2 years), and there were no circumstances to justify it. This period exceeded what is normally entailed by an initial examination. This indicated that the Commission encountered serious difficulties.

Second, the Commission’s examination was incomplete and insufficient. In this respect, the GC drew attention to certain inconsistencies in the Decision itself and between that Decision and the content of the letter from the Irish authorities that prompted the examination of the exemption. Those inconsistencies indicated that when the Commission adopted the Decision, it did not have sufficient information to carry out a sufficiently complete analysis of the selectivity criterion.

The Commission thus should have initiated the formal investigation procedure in order to verify the selectivity criterion in examining the presence of aid. This would have allowed Ryanair and the other parties concerned to present their observations in connection with that procedure.

[1] Commission Decision C(2011) 4932 final of 13.7.2011 in so far as it finds that the non-application of the Irish air travel tax to transit and transfer passengers does not constitute State aid within the meaning of Article 107(1) TFEU (State aid SA.29064 (2011C ex 2011/NN)).

[2] Pursuant to that provision, a transfer passenger is ‘a passenger who arrives on a flight to an airport and who departs from the airport on a further flight, other than to the airport where the passenger’s journey originated, where both flights are part of a single booking and where the length of time between the scheduled time of arrival of the flight to the airport and the scheduled time of departure of the flight from that airport is not more than 6 hours’. Likewise, a transit passenger is ‘a passenger who is on board an aircraft which lands at an airport in the course of its journey and who continues his or her journey on that aircraft’.