Ryanair, Europe's biggest budget airline, is being investigated in Italy for allegedly dodging around €12 million of social security payments, a judicial source said.
Prosecutors in the northern Italian city of Bergamo, where Ryanair-operated airport Orio al Serio is based, allege the Irish carrier avoided heavier taxation in Italy by paying lower pension fees in Ireland for staff flying in and out of Bergamo.
The source, with direct knowledge of the investigation, said Ryanair chief executive Michael O'Leary had been under investigation since June 2010 for his role as legal representative of the group.
The airline's legal and regulatory affairs director Juliusz Komorek was also being investigated on the same grounds, the source added, confirming an earlier report by the Corriere della Sera newspaper.
The criminal case is part of a wider fiscal offensive led by Italian state pension fund INPS against Ryanair, which has often been criticised by domestic rivals for allegedly unfair competitive practices.
INPS has started similar legal actions in several Italian cities where Ryanair operates, a legal source familiar with the matter said.
Ryanair declined to comment on the specific case but said it respected EU fiscal regulations.
"Ryanair does not comment on rumour or speculation and will continue to observe EU tax laws," head of communications Stephen McNamara said.
INPS says Ryanair did not pay around €12 million, including fines, for social security taxes on its 220 employees based in Bergamo.
The airline has appealed against the INPS claim and a civil court hearing over the case is scheduled in February 2013, the judicial source said.
Ryanair says it followed EU regulations allowing budget airlines to apply the cheapest social security fees available, independent of where staff are based, the legal source said, adding that Ryanair's personnel work on Irish aircraft.
New EU rules approved earlier this year state that pilots, stewards and hostesses will pay taxes where their "home base" is, or where they start and finish their service, the legal source said. However carriers will have 10 years to comply with these new rules, the source added.
Ryanair has a lower cost base than many of its competitors, which are struggling with high fuel costs, weak consumer confidence and the euro zone debt crisis.
In August, loss-making Italian airline Meridiana-Air Italy axed two local flights to the southern Italian city of Bari in protest against what it called "unfair competition" by Ryanair. Ryanair rejected the accusation.
Reuters