The 'anti-Ryanair rule': government has Irish airline in its sights

On October 18 2012 the government approved the provisional Decree Law 179/2012 - finally converted into law by Parliament on December 13 2012 - which provides urgent measures for economic growth in Italy.

The law amends financial regulations for the aviation sector. Article 38 sets forth:

• a precise definition of the term 'air base' (as the premises and facilities used by an air carrier to conduct a permanent, usual and continuative air transport activity, where the employed pilots and crew members have their professional activities centre); and
• conditions under which an air carrier, possessing a licence granted by an EU member state and regularly operating through an air base within Italian territory, shall be considered established in Italy.

The government's intervention aims to extend domestic tax, social security obligations and labour laws to those air carriers that, although established in another EU member state, regularly operate within Italian territory.

The local media has named this new provision the 'anti-Ryanair rule' due to its main – but unnamed – target. This is mainly because, despite operating an important part of the Italian transportation market within Italian territory, Irish airline Ryanair does not formally have an operating office, management office or a subsidiary in the country. Consequently, Ryanair is not subject to Italian laws and regulations on tax obligations, treatment of employees, social security, passenger rights and regulatory issues.

Although Ryanair operates in nearly 10 Italian airports and ranks among the top airlines in the domestic market according to number of passengers each year (approximately 22 million in 2011), it has always stated that it does not have an office in Italy and that none of its employees are based in the country, even when they are formally registered as residents within Italian territory.

The Italian authorities have finally challenged Ryanair's position, as prosecutors recently opened an investigation against the airline's chief executive and legal affairs director for alleged tax evasion. It is reported that the investigation concerns Ryanair's hiring of 220 staff members at its Bergamo hub (near Milan) while registering them in Dublin, where tax rates are far lower. Although the airline's Bergamo staff is required to live near the airport, Ryanair claims that they work on board.

The low-cost airline's peculiar situation raises several issues related to tax, labour laws and social security obligations to which the Irish airline claims not to be subject. In addition, it presents competition issues in the Italian air transportation market, due to the potential discriminatory treatment between Ryanair and the majority of EU and non-EU carriers operating to and from Italy.

Thus, government intervention in this field has been welcomed in the national aviation sector. On the other hand, several management companies of the airports where Ryanair regularly operates are worried that, due to the expected implementation of the law's provisions, the Irish company could reduce or – worse – withdraw its business premises in the country. There is a precedent for this: Ryanair withdrew its service at Verona airport when the management company asked to renegotiate the incentives that had previously been granted to the airline.

For further information on this topic please contact Laura Pierallini at Studio Legale Pierallini e Associati by telephone (+39 06 88 41 713), fax (+39 06 88 40 249) or email (l.pierallini@pierallini.it).