• State aids: the General Court of the European Union clarifies the qualification and quantification of the advantage enjoyed in the case of differentiated tax rates
  • April 16, 2015
  • Law Firm: Dentons Canada LLP - Toronto Office
  • In a judgment of February 5, 2015, the General Court of the European Union challenged the Commission’s quantification of the aid obtained due to differentiated tax rates.
    In this case, Ireland had adopted an air travel tax (ATT) paid directly to airlines by each passenger leaving an airport situated in Ireland. The ATT was paid on the basis of the distance between the departure airport and the arrival airport at the rate of €2 for a destination no more than 300 km from Dublin airport and €10 in all other cases.

    A competitor of the airlines benefiting from a reduced tax rate filed a complaint with the European Commission on the grounds of State aids, denouncing the fact that the lower tax rate largely benefitted domestic airlines, the majority of their flights being to nearby destinations.

    The Commission pursued this line of reasoning by upholding that the application of a lower national rate constitutes a State aid as it unlawfully promotes national flights rather than international flights. According to the Commission, this aid, in the form of a reduced tax rate, must be recovered, and the amount corresponding to the difference between the reduced ATT rate and the standard rate of €10, i.e. €8, must be collected for each passenger.

    The Court did not call into question the existence of a State aid but condemned the method used to quantify the aid. As the ATT was designed to be reflected in the ticket price, the benefit effectively enjoyed by the airlines does not necessarily lie in the difference between the two rates, but in the possibility of offering customers more attractive prices and therefore increasing turnover. According to the Court, the Commission could not therefore presume that the benefit actually enjoyed and maintained by the airlines was, in every case, equal to €8 per passenger. The recovery of the aid from the beneficiaries, at an amount of €8 per passenger, was therefore annulled by the Court.

    The calculation of the amount of the aid in the case of differentiated tax rates is therefore much more complex than the simple difference between the high rate and the low rate. The Commission will have to better explain the competitive advantage secured by the beneficiaries of reduced rates.