The European Court of Justice (ECJ) has dismissed an appeal from Ryanair (FR, Dublin Int'l) and Aer Lingus (EI, Dublin Int'l) over controversial taxes imposed by the Irish government. The Air Travel Tax (ATT) was introduced on March 30, 2009, on a two-tier system and was subsequently found to be illegal by the European Commission. The ECJ has now ordered that Ryanair and Aer Lingus repay the difference between the two tiers of tax to the tune of EUR12 million (USD12.5 million) and EUR4 million (USD4.2 million) respectively.

The decision clears the way for the two Irish carriers to pursue damages against the Irish government for imposing the illegal tax.

The background to the dispute goes back to 2009 when the Irish government introduced the ATT. The tax was levied at EUR2 (USD2.10) for every passenger departing Ireland on a flight of less than 300 kilometres distance from Dublin. The levy for passengers travelling more than 300 kilometres from Dublin was EUR10 (USD10.50). The ATT was not payable for transit or transfer passengers.

In July the same year, Ryanair lodged two complaints with the European Commission (EC). In the first, they claimed that not imposing the tax on transit and transfer passengers resulted in a form of State aid, benefiting Aer Arann (RE, Dublin Int'l). In the second, Ryanair claimed that the tax was in breach of a European regulation on the freedom to provide services.

As a result of the EC’s investigation, the Irish government changed the ATT to a flat tax rate of EUR3 (USD3.15) on all departing passengers. The EC found that the original lower tax rate did indeed constitute a form of State aid, and that it directly benefited Ryanair and Aer Lingus as providers of primarily short-haul and domestic flights. The two airlines now have to pay the difference of EUR8 (USD8.40) for each customer that travelled on flights of less than 300 kilometres for the two year period that the ATT was in effect.

The case will now move back to Ireland as the two airlines take the case to the High Court. In a statement to the media, Ryanair said “This ruling now clears the way for Ryanair (and other airlines) to pursue our High Court action against the Irish Government to recover the 88 million euros of damages we suffered as a result of being forced to pay this illegal tax.”