In the parallel judgments T-473/12 and T-500/12 handed down on 5th February 2015, the EU General Court upheld the European’s Commission’s finding that the Irish airline tax constituted State aid.  The Court confirmed that the lower rate of excise duties for airline flights of up to 300 km from Ireland granted an advantage when compared with the higher rate of excise duties for flights travelling further, and therefore constituted State aid to the benefit of the short haul flight passengers and the corresponding carriers.  However, the General Court annulled the Commission’s decision relating to the recovery of the aid, on the grounds of inadequate assessment of the advantage to be recovered.

According to established case law, e.g., ECJ C-310/99, Italy/Commission, 2002, I-2289, paragraph 51, tax measures can constitute State aid if they grant a company or an industry sector a selective advantage when compared with other companies that are in a comparable legal and factual situation, unless the measure is justified by the nature or general scheme of the system of which it is part (C-143/99, Adria-Wien Pipeline, 2001, I-08365, paragraph 41-42).  In such cases, the Commission needs to establish that there is a reference system, show the exception to that system, and then look into whether or not this exception is justified by the nature or general scheme of the system.

In the last few years, the Commission has increasingly focused its State aid investigations on fiscal or parafiscal charges. See, for example, its recently opened investigations into tax rulings in Belgium, Ireland, Luxemburg and the Netherlands, amongst other Member States. 
According to the decisions handed down by the Commission, and paragraph 185 of its 2014 Draft Communication on the Notion of Aid, a reduced excise duty can be ruled as granting a selective advantage for the undertakings that benefit from it.  In line with these precedents, the Commission had found the Irish airline excise duty system, with its two different rates for airline tickets depending on the distance travelled, to be State aid.  This decision was appealed by Ryanair and Aer Lingus to the General Court.

The Existence of State Aid in This Case

The Commission had found that the taxable event, i.e., the departure from an Irish airport, was the same for both long and short haul flights, and the reference rate at the time of the decision was the higher excise duty rate. The lower rate was therefore an exception from that reference and accordingly formed a selective benefit for the short haul carriers (SA.29064, paragraph 45).

The Commission rejected the argument that the two different rates were intended to introduce an element of proportionality to the tax, and therefore rejected the argument that the lower rate was within the logic and general scheme of the air travel tax system.  The Commission countered that the tax system was not characterised by “an articulate” differentiation in the tax level in relation to the actual length of flights (SA.29064, paragraph 48), since the flight length was measured only by the relationship between Dublin and the destination, rather than the actual departure site in Ireland and the destination. It further denied the applicability of the proportionality principle on the basis that there were only two different rates.  The Commission did not however, elaborate on how many different rates would have to exist for the proportionality principle to apply, if the tax rate was based on the actual flight length.

The General Court stated that the higher rate for long haul flights was in itself lawful under Article 56 TFEU (T-500/12, paragraph 83; T-473/12, paragraph 58). It therefore found that the Commission was right to take the higher rate as a reference rate for the finding of a benefit in the application of a second, lower excise duty to certain short haul flights departing from Ireland (T-500/12, paragraph 90; T-473/12, paragraph 64).  The Court agreed that the lower excise duty was a selective benefit for short haul carriers in Ireland and therefore constituted State aid. Disappointingly, the Court did not discuss the arguments relating to proportionality and the justification of the system by its nature and the general scheme.

The Calculation of the Aid recovery

The Commission had ordered the recovery of the difference between the lower excise duty and the higher excise duty per passenger.

The General Court noted that, under existing case law, the Commission is not obliged to determine the exact amount that needs to be recovered.  It is only obliged to include information that enables the Member State to work out for itself, without too much difficulty, the amount that needs to be recovered (T-500/12, paragraph 113; T-473/12, paragraph 84; inter alia: C-415/03, Commission/Hellenic Republic 2005, I-03875, paragraph 39).

According to the Court, the Commission should have

Merely ordered the recovery of the amounts actually corresponding to that advantage or, if it proved impossible to determine those amounts accurately in the decision, to confer that task to the national authorities and provide the necessary information in that respect, in accordance with the case law cited in paragraph […] above. (T-500/12, paragraph 136; T-473/12, paragraph 105).

The Court found that, in defining the amount to be recovered as the difference between the high excise duty and the low excise duty, the Commission had actually determined the amount to be recovered.  In doing so, the Commission was then obliged to assess, as accurately as the circumstances of the case would allow, the actual value of the benefit received from the aid by the beneficiary (T-500/12, paragraph 114; T-473/12, paragraph 85).

The Court highlighted that the recovery of aid must be limited to the financial advantages to the beneficiary that actually arose, and be proportionate to those advantages (T-500/12, paragraph 135; T-473/12, paragraph 104; T‑308/00 RENV, Salzgitter/Commission, 2013, ECLI:EU:T:2013:30, paragraph 138). The Court found that the Commission had not taken into account the pass-on of the advantage to passengers and therefore the recovery order exceeded the actual advantage to the carriers. It is interesting to compare this to the situation in antitrust damages litigation where the defendant has the burden of proof for the pass on of any advantage to customers.

Practical Implications

Parallel judgments T-473/12 and T-500/12 show the willingness of the General Court to support the ever-closer scrutiny of Member States’ tax rules under EU State aid rules.  Not only individual tax measures, but whole tax laws and tax systems may be found to constitute State aid.

The problem with this is that every tax system is based on a variety of reasons for taxation and the setting of tax rates.  The Commission is very reluctant to recognise these (political) choices as being justified “by the nature and general scheme of the system in question.”  This is clear in the Irish airlines decision, in which the Commission and General Court agreed that two different reference objects in a newly introduced tax system, i) departures of flights for a distance of up to 300 km and ii) departures of flights for a distance of more than 300 km, each time measured from Dublin, and two corresponding tax rates, was unacceptable.

Judgments T-473/12 and T-500/12 confirm on one hand that the Commission does not have to itself determine the exact amount of the benefit to be retrieved.  On the other hand, the General Court has made it clear that it expects the Commission to come up with a more sophisticated calculation of the amount it wants recovered, paying close regard to the actual benefit incurred by the parties, if it decides to determine the amount to be recovered.