The European Commission has ruled that the air travel tax introduced by the government in 2009 gave an unfair advantage to certain airlines.
It found that the low rate favoured flights within Ireland and to nearby parts of the UK, and gave the airlines concerned an economic advantage over their competitors.
The Commission has ordered the Government to recover money from Ryanair, Aer Lingus and Aer Arann.
The tax was set at €2 for destinations no further than 300km from Dublin, and at €10 for all others.
The Commission said this distorted competition in the EU's internal market, and ordered the Government to recover the advantage from the airlines in order to ensure a level playing field.
The Air Travel Tax was reduced to €3 for all passengers in March 2011.
The Government has said it will consider the impact of the ruling.
In a statement, the Department of Finance said: "It should be noted that there is no issue with the current flat rate travel tax of €3 introduced in 2009.”
Ryanair said it welcomed the ruling, saying it was the original complainant in the case.
In a statement, the airline said that since it operated very few flights to, from, or within Ireland at the lower €2 rate, it had no material exposure to any recovery.
Aer Lingus said it had always opposed the tax and that any revenue raised by it went to the Government, not to Aer Lingus.
The airline said that far from giving it an advantage, the tax was damaging to its business and to air transport generally.
Aer Lingus said it would not be commenting further as it had not seen the European Commission ruling in detail.
An Aer Arann spokesperson said the airline is "waiting for the full report to be published in order to fully understand and evaluate the details of this decision".
In a separate ruling, the Commission also found that the financial arrangements between Finland's Tampere Pirkkala airport and Ryanair do not constitute state aid as they are in line with market terms.
It said the agreements are based on "an ex-ante business plan showing profitability expectations and therefore confer no advantage to Ryanair".