Ryanair fails to get Irish tax law referred to European court

Airline argues that wages to 4,000 are effectively taxed twice – in Ireland and in their home country

Ryanair has failed in High Court bid to have a tax law, which it claims effectively double taxes 4,000 of its 6,500 pilots, referred to the Court of Justice of the EU . Photograph: Gleb Garanich/Reuters

Ryanair has failed in High Court bid to have a tax law, which it claims effectively double taxes 4,000 of its 6,500 pilots, referred to the Court of Justice of the EU . Photograph: Gleb Garanich/Reuters

 

Ryanair has failed in its High Court bid to have a tax law, which it claims effectively double taxes 4,000 of its 6,500 pilots, referred to the Court of Justice of the EU (ECJ).

Ryanair had sought the referral to determine whether the law is compatible with EU law.

It also failed to get an injunction suspending the operation of the tax law pending determination of its case alleging that the measure is discriminatory.

Ryanair argues Section 127B of the Taxes Consolidation Act 1997 is unconstitutional because it imposes a discriminatory financial disadvantage on its aircrew based outside Ireland, Britain and the Netherlands.

It claims it costs the airline more than its foreign competitors to deliver the same net pay to crew based in other countries and can mean it will become commercially unviable to continue operating in certain countries, as has happened with its Timisoara base in Romania.

This, Ryanair said, was the case unless it “endures the uncompetitive measure” of inflating gross salaries to offset the negative impact of Section 127B, it claims.

If it were to deduct local taxes in a pilot’s country of residence, on top of what it is required to deduct in Ireland under Section 127B, Ryanair claims it would be faced with industrial action and/or resignations.

It would cost Ryanair €5 million a month or €60 million a year to bear the brunt of this double taxation, the airline said, and it would result in increases being passed on to passengers.

Ryanair also argued that Section 127B sends a negative message to aircrew, affects its reputation with the EU commissioner and other politicians and would have a negative impact on collective agreements reached with aircrew in some of its 12 EU centres.

It says it may be forced to switch its headquarters from Ireland to a more favourable tax jurisdiction if this situation is allowed continue.

Ryanair’s case is against the Minister for Finance and the Revenue Commissioners, who deny its claims.

The defendants argue, among other things, that Section 127B is not contrary to OECD principles or requirements. While there is provision in OECD’s “model tax convention” for restricting taxing rights in relation to employment aboard aircraft, this provision is not binding, it is argued.

It merely constitutes guidance which member EU states may have regard to when concluding or amending double taxation agreements, the defendants say.

On Friday, Mr Justice Robert Haughton ruled the least risk of injustice lay in refusing Ryanair an injunction suspending Section 127B pending determination of the main case.

Damages are an adequate remedy should Ryanair win and the balance of convenience lay in retaining the status quo, he said

He was not persuaded by Ryanair’s arguments in relation to financial loss and reputational damage from knock-on industrial unrest.

If Ryanair is forced to relocate its HQ to another country, while this would involve substantial cost, reversal of such a move would not necessarily be impossible, he said.

He was of the view there was an element of speculation in the claim about loss of reputation, particularly in relation to consumer confidence. Even if it was to become a source of significant loss, it was “surely” something Ryanair could prove later on through appropriate accounting or expert evidence.

The judge also rejected Ryanair’s application to ask the ECJ for a preliminary ruling on the compatibility of Section 127B with EU law, saying a referral at this stage would be “wholly premature”.

Ryanair had also failed to show an arguable case which meant there was not sufficient detail for the High Court to make appropriate findings of fact for use in framing a referral to the European court, he said.

The judge had expressed surprise during the hearing that, as a result of agreements reached between Ryanair and aircrew in recent times, there had been no engagement between other EU states and Ireland in relation to the continued operation of Section 127B.

While parties have a right to litigate, this was a dispute which should be “addressed collaboratively” by the appropriate parties – Ryanair, the State defendants, aircrew unions and other EU states. This should be done by “sitting round the table and negotiating”.

He added: “I again express the hope that course will be pursued”.