Airline's application for injunction and CJEU reference concerning tax legislation was based on insufficient facts

Mark Tottenham BL, 24 July 2019 (© Decisis)

August 13, 2019

Ryanair DAC v Minister for Finance [2019] IEHC 469


Judgment of Haughton J, delivered 28 June 2019:

High Court: (a) refuses to grant injunctive relief restraining the operation on an Irish-based airline of tax legislation concerning aircrew resident in other EU countries, pending the outcome of the litigation and a proposed preliminary reference to the Court of Justice of the European Union (CJEU), on the grounds that the airline had failed to establish a sufficient evidential basis for its claim, that there was a greater risk of injustice to the State if the injunction were granted, and that damages would be an adequate remedy; and (b) refuses to make a preliminary reference to the CJEU, on the grounds that there was an insufficient evidential basis for the proposed reference and that the application was premature in that the opinion would be based on hypothetical facts.

  • Relief sought in action: Declaration concerning compatibility of tax legislation with the constitution and EU law.
  • Application before the court: For a preliminary reference to the Court of Justice of the European Union; for an order restraining operation of legislation to the plaintiff pending the reference or the determination of the proceedings.
  • Outcome: Refusal of application
  • Grounds: Lack of evidential basis for application; application for reference premature.

Constitutionality of tax legislation - whether s 127B of the Taxes Consolidation Act 1997 compatible with constitution or EU law - preliminary reference - injunction restraining operation of legislation - income tax treatment of flight crew engaged in international traffic - s 16 of the Finance Act 2011 - company registered in Ireland with 'place of effective management' in Ireland - air crew resident in other EU states chargeable to tax in Ireland - double taxation - Article 15(3) of the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention on Income and Capital (“the OECD MTC”) - whether maintenance of tax position was justified - moves to local taxation - Germany - Italy - cabin crew - pilots - Spain - whether discriminatory treatment of aircrew or income tax disadvantage - locus standi - whether company entitled to pursue claims on behalf of aircrew - whether an arguable case established - evidential deficiencies - arguable case in law - risk of injustice - adequacy of damages - guidelines on a request for a preliminary ruling - whether application premature.


Quotation from judgment (courtesy of the Courts Service of Ireland):

'In respect of all other EU member states, insofar as those aircrew (whom the plaintiff describes as “non-IRL/UK/NL resident air-crew”) have earnings from international flights, the plaintiff is legally required by s 127B to deduct income tax from their earnings and remit it to the second named defendant. This applies to the bulk of salary earned by over 4000 air crew on international flights. However, where such employment is exercised in an aircraft operated domestically i.e. solely between places in another state, the plaintiff does not deduct the income tax in respect of the earnings from such flights. Thus, for example, insofar as the plaintiff’s aircrew resident in Italy or Spain operate on international flights, the plaintiff must under s 127B deduct income tax in respect of such emoluments and return it to the Irish Revenue Commissioners; but insofar as such aircrew have earnings from the plaintiff’s flights operating internally to Italy or Spain respectively, s 127B does not apply and those earnings are subject to local Italian or Spanish tax as the case may be. According to the plaintiff this applies to approximately 12% of flights operated by the plaintiff, although Italian based pilots typically pay 40% of their income tax locally. Thus the deduction of income tax in respect of aircrew operating some international flights and some internal flights is currently split between Irish taxation for the former and the EU state of residence for the latter.


Notwithstanding that these arguments may have some validity, I am satisfied, at least to the level required for the purposes of the claim for interlocutory relief, that it is arguable that the plaintiff has locus standi to mount the claims that it does based on alleged breach of the rights of its employees (or ‘would-be’ employees) under EU law. Such arguability is made out based on the room for a ‘common interest’ exception to the procedural rule suggested by Henchy J. in Cahill. It also follows from the decision of the CJEU in Cave Krier, particularly as the plaintiff does have the legal obligation to make the deductions and pay the income tax due to the Revenue Commissioners ... Such locus standi applies at this interlocutory stage to the claims variously particularised in respect of the aircrews under different provisions of EU law, because all of them are directed at establishing the invalidity of s127B.


The requirement that the claim based on financial discrimination of aircrew be supported by appropriate evidence is particularly important where the court is being asked effectively to suspend domestic legislation pending trial, albeit that in theory any order the court might make would not apply to the other two operators who might be affected. This is not to elevate the test for granting an interlocutory injunction to that of a ‘serious question to be tried’ such as might be required if a mandatory injunction was sought, but rather to emphasise the need for clear evidence where a tax provision would affect not just the plaintiff but also the plaintiff’s aircrew (who are not parties to the proceedings), and other operators and their aircrew. Nor is this a case where the court is deciding disputed questions of fact that fall to be dealt with at the trial. The plaintiff has not adduced prima facie evidence sufficient to enable the court to grant an injunction based on infringement of the EU rights of its aircrew.


It is not for the court to attempt to weigh or resolve these competing arguments. However, if the plaintiff had adduced the evidence that I have found to be lacking then I am of the view that the plaintiff would have made out an arguable case under this heading.


The plaintiff’s affidavits and submissions have raised complex questions of fact and law. In my view the plaintiff has reached the threshold of showing an arguable case that s 127B infringes its right of establishment under Article 49. Whether such infringement is to the primary right of establishment, or a secondary right, is an aspect which may be unclear at present, but is not one on which the court needs to express any view. Also while infringement of Article 56 is included, perhaps to buttress the claim under Article 49, it seems to me at this stage that the case made is more about the right of establishment rather that the freedom to provide services.


The plaintiff is a commercial undertaking, and its claim – if no interlocutory injunction is granted – if successful is fundamentally monetary in nature, whatever it decides to do. The plaintiff might well suffer financial loss in the period up to determination of the proceedings, but I am satisfied that it is a very large enterprise with substantial resources. If it takes the decision to relocate its place of effective management, it can probably reduce the suggested losses. The experience with German pilots already indicates that the plaintiff may be able to negotiate a degree of flexibility that would enable it to minimise its losses in the short term.


Moving to my reasons for declining to make a reference at this stage, firstly I have found that in relation to the claim based on financial disadvantage/discrimination of non-IRL/UK/NL resident aircrew there are evidential deficits such that the plaintiff has failed to show an arguable case, and it follows that there is not sufficient detail for this court to make appropriate findings of fact, or to make or frame a reference. Were the court to attempt to do so at this point it would be seeking the opinion of the CJEU based on hypothetical circumstance and without reference to relevant tax provisions/law of other Member States, and that is impermissible (see Case 244/80 Foglia v Novell II and Case C-406/06 Winner Wetten). This alone makes it unwise to attempt to make any reference in this case at this stage as it would not be a good use of court time – this court or the CJEU – to make a series of references at different times on different issues/arguments.'


Note: This is intended to be a fair and accurate report of a decision made public by a court of law. Any errors should be notified to the editor and will be dealt with accordingly.


Key Cases Cited:

Allied Irish Banks plc v Diamond [2012] 3 IR 549

Cahill v Sutton [1980] IR 269

Case 153/73 Sotgiu v Deutsche Bundespost [1974] ECR 153

Case 476/98 Commission v Germany, para 145. See also, Regulation (EC) 847/2004

Case C-204/90 Bachmann v Belgium [1992] ECR I-249

Case C-208/05 ITC Innovative Technology Center [2007] ECR I-181

Case C-350/96 Clean Car Autoservice [1998] ECR I-2521

Caves Krier Freres Sarl v Directeur de l’Administration de l’emploi Case C-379/11

Dowling & Ors v Minister for Finance [2013] 4 IR 576

Essent Energie Productie BV v Minister van Sociale Zaken en Werkgelegenheid Case C-91/13

Grace v An Bord Pleanala [2017] IESC 10

Okunade v The Minister for Justice [2012] IESC 49, [2012] 3 IR 152