Ryanair claims it could lose €5 million a year because of a "peculiar" Irish taxation provision which means its non-Ireland-based staff are effectively taxed on the double.
It also says the punitive nature of the provision was a factor in its decision to close its base in Romania after aircrew there found themselves paying 70 per cent of their earnings in tax and resignations followed. A Romanian pilot on a €150,000 annual salary would come out with just €38,700 after he/she had paid tax/social insurance locally while also having to pay PAYE tax plus the Universal Social Charge here, the airline said.
The claims are made in Ryanair's High Court action against the Minister for Finance and Revenue seeking the striking down of the taxation provision, section 127B of the Taxes Consolidation Act 1997.
It was first applied in 2011 but, Ryanair says it has had the effect of singling out its aircrew due to changes to their taxation treatment in their home countries.
Section 127B makes the income of any individual “whether resident in the State or not” taxable from any employment aboard an aircraft and where the aircraft is operated by an enterprise whose management is in this State.
Ryanair wants this provision struck down or disapplied because it says it is contrary to EU law.
Double taxation agreements
It says Revenue was wrong to refuse Ryanair's requests last month to release the airline from its obligations to withhold PAYE and USC from non-Irish tax resident crew who are paid from Ireland.
Although there are double taxation agreements (DTAs) between Ireland and other EU countries, section 127B is the method Revenue uses to gives effect to those DTAs.
Section 127B is a "peculiarity" of the Irish system and contrary to normal international principles, Ryanair says. Normally, a person can claim an exemption from tax here on income broadly derived from duties performed in a country with which Ireland has DTAs. The UK and the Netherlands are the only two countries not affected.
Ryanair says in states where social insurance are very high, often to compensate for lower income tax rates, its aircrew are subjected to “sometimes punitive” taxes.
Using an illustrative gross salary of €150,000 for all pilots, Ryanair gives examples of what pilots in the following countries receive after tax: Hungary €63,400; Italy €79,300; Poland €71,200; Lithuania (from next year) €83,100 and Ireland €85,200. Romania has the most punitive marginal rate of 83 per cent in tax and social insurance.
Discriminatory
If section 127B did not operate, those pilots would see their take-home pay substantially increase from between €82,500 (Romania) to €120,000 (Lithuania).
Ryanair also says it is being put at a competitive disadvantage to Aer Lingus as its main competitor’s only foreign bases are in the UK.
It says section127B is, among other things, discriminatory and conflicts with equal treatment rights under the Treaty on the Functioning of the EU.
It also deprives aircrew of a real and effective right to engage in or pursue freely their chosen occupation in contravention of their EU fundamental rights.
It also distorts the market and confers an advantage on its competitors, it says.
On the application of Martin Hayden SC, the case was admitted to the Commercial Court list.
Mr Justice Robert Haughton rejected opposition to its admission by Noel Travers SC, for the State, who argued it was a constitutional rather than a commercial matter.
The judge said it was a matter which clearly affects 1,000 Ryanair employees across the EU and the airline had said it has a potential to cause potential losses of €5 million a year.
He adjourned a separate application by Ryanair to have the matter referred to the Court of Justice of the EU. Mr Travers, for the State, said his clients may appeal the decision to admit the case to the Commercial Court.