EU rules Alumina may face huge tax bill

One of the Republic's biggest manufacturing plants faces a multimillion euro tax bill as a result of two European Commission rulings.

Brussels yesterday ordered the Government to claw back excise exemptions from Aughinish Alumina in Co Limerick, as the tax relief was an illegal state aid.

The company was exempted from paying excise on the fuel oil it uses to power the manufacturing plant, which produces alumina, a substance used to make aluminium.

Alumina is manufactured from bauxite ore and the process requires heavy fuel oil.

The commission wants the Government to claw back 20 per cent of the VAT Aughinish should have paid since January 1st, 2004.

It was not possible to establish yesterday what the final bill could be, as the ruling follows a similar order made in December 2005 covering the period up to the end of 2003. It is understood the total liability will be several million, although it is not likely to be more than €10 million.

The Government is already appealing the 2005 order. A Department of Finance spokesman said yesterday that it was considering the order handed down yesterday before deciding on its response.

However, a commission spokesman pointed out yesterday that appeals against such rulings do not relieve the Government of its obligation to claw back the tax.

Ireland was not the only member state to be hit. The ruling also applies to Alcan in France and Euroallumina in Italy.

EU law bans state aid, either directly in form of grants or other payments or indirect through tax breaks or other incentives, where it can distort competition between member countries.

It recently ordered the Government to end the tax break for profits earned on horse and greyhound stud fees. This incentive will end in August next year.

It is also investigating the business expansion and seed capital schemes, which allow investors to write off the money they place in these funds against their tax.

A complaint from the Irish Congress of Trade Unions sparked these investigations. However, Minister for Finance Brian Cowen noted last week that the EU had spoken highly of both schemes in the past.

Aughinish Alumina employs around 500 workers. In 2005, the last year for which figures are available, it had a turnover of over €35 million and made profits of €19 million.