The European Commission has confirmed that it has taken formal action against the Government over what it sees as an abuse of VHI's dominant position in the health insurance market.
A statement said a letter of formal notice had been sent to the Government.
This is the first step in infringement proceedings against Ireland at the European Court of Justice. The Government must send its reply within one month.
The action has been triggered by a complaint to the commission from VIVAS, the private health insurance company which recently entered the Irish market.
The commission is arguing that by offering travel insurance, running online retail stores and operating a primary-care clinic, VHI is engaging in activities which have breached a condition laid down by Brussels in an earlier directive.
That condition allowed VHI to be exempt from the strict requirements faced by VHI's competitors, so long as VHI kept to its core health insurance activity.
VHI's competitors have to show they have sufficient capital to underwrite their business, but under the exemption granted to VHI, it does not.
