Laura Pierallini May 23 2012 Ryanair and the meaning of 'permanent establishment' in the aviation sector Pierallini Studio Legale | Aviation - Italy Laura Pierallini Aviation The Italian press recently reported that in 2011, Irish low-cost carrier Ryanair carried more passengers in Italy than the national airline Alitalia, thereby overtaking it as the largest carrier in Italy. The statistics have been denied by ENAC, the Italian civil aviation authority, and by Ryanair itself, which claims a figure of under 22 million passengers, compared with Alitalia's 25 million. Irrespective of whether Ryanair occupies the number one position, the statistics are particularly significant for the air transportation market.Given the number of passengers that it carries on Italian domestic flights, some analysts believe that Ryanair - despite not having formally established an operating office, management office or subsidiary in Italy - has a de facto permanent business establishment within the Italian territory and is therefore subject to certain provisions of Italian law on tax obligations, treatment of employees, passenger rights and regulatory issues. In putting the case for a finding of permanent establishment, air industry commentators point to the thousands of flights that Ryanair operates within Italy and the Italian airports at which aircraft from Ryanair's fleet are based, as well as the airline's relationships with Italian handling companies, tour operators, suppliers and public entities.On this basis, it is arguable that certain aspects of Italian employment law and social security obligations might apply to Ryanair in respect of issues such as limitations on the dismissal of employees, the right to take industrial action and employer contributions to healthcare and retirement plans.The position of an air carrier that is established in an EU member state, but regularly operates in another member state raises a number of issues. On April 18 2012 the European Parliament took a first step towards clarifying the applicable rules. In total, 540 votes were received in favour of a proposal to amend EU Regulation 883/2004, which coordinates the social security systems of EU member states. Pursuant to the proposed change, pilots and crew members on passenger and freight services - together with the air carrier that employs them - will be subject to the national social security provisions of the member state in which they perform their activities. The proposal clarifies this as "the place where pilots and crew members start and finish their duty period" and where the air carrier is not responsible for "providing accommodation for them".A related point was recently raised at a conference organised by Assaereo, the Italian association of air carriers, to consider competition issues in the Italian air transportation market. The fact that an airline has not established a representative office in Italy, despite operating a considerable number of domestic flights there, creates a distinction between it and the majority of EU and non-EU carriers operating to and from Italy. Moreover, the absence of an Italian representative office implies that under certain regulations, including the EU Denied Boarding Regulation (261/2004/EC), passenger claims must be served at the carrier's foreign registered office, having first been translated. This would raise a number of procedural issues, as well as increasing the cost and length of proceedings.For further information on this topic please contact Laura Pierallini at Studio Legale Pierallini e Associati by telephone (+39 06 88 41 713), fax (+39 06 88 40 249) or email ([email protected]).