Brussels, 27th October 2003
Energy taxation: Commission welcomes Council adoption of new EU rules
The European Commission has welcomed the unanimous adoption by the EU's Council of Ministers of a Directive which widens the scope of the EU's minimum rate system, previously limited to mineral oils, to all energy products including coal, natural gas and electricity. In particular, the Directive will reduce distortions of competition that currently exist between Member States as a result of divergent rates of tax; reduce distortions of competition between mineral oils and the other energy products that have not been subject to Community tax legislation up to now; increase the incentive to use energy more efficiently (so as to reduce dependency on imported energy and cut carbon dioxide emissions); and allow Member States to offer companies tax incentives in return for specific undertakings to reduce emissions. The Commission will propose appropriate transitional arrangements for acceding Member States in the coming weeks. The Directive will enter into force on 1st January 2004.
"This important Directive provides for a more realistic system of minimum tax levels on all competing sources of energy" commented European Commissioner for Taxation Frits Bolkestein. "The Directive will improve the functioning of the Internal Market and help to meet the environmental objectives of the Community and the Kyoto Protocol. Although there are a number of derogations and transitional periods before the Directive will come fully into force, the Directive nevertheless marks a major step forward".
Most important elements of the Directive
The Directive will widen the scope of the Community minimum rate system, currently limited to mineral oils, to all energy products, chiefly coal, gas and electricity, as well as updating the minimum rates for mineral oils which have not been revised since 1992.
Energy products are taxed only when used as fuel or for heating, and not when used as raw materials, or in chemical reductions or in electrolytic or metallurgical processes. Furthermore, energy products used in particular in stationary engines and for agricultural purposes will normally be taxed at lower levels than the levels applicable to fuel used in motor cars.
The Directive includes specific provisions concerning the taxation of commercial diesel in order to limit the distortions of competition with which road hauliers are confronted.
Member States will be allowed to differentiate between commercial and non-commercial diesel, which will allow them, for example, to provide for a lower rate of duty on commercial diesel, as long as the minimum levels set by the Directive are observed and as long as the rate for commercial diesel does not fall below the national level of taxation in force on 1 January 2003. This possibility to differentiate will also enable Member States to reduce the gap in excise duty levels between non-commercial diesel used in cars and petrol since there are no environmental or other reasons to justify the present lower minimum rate on diesel in these circumstances.
As far as commercial diesel is concerned, the Commission considers that it is necessary for Member States to continue working on the Commission proposal for a directive for the harmonisation of taxation of commercial diesel fuel (see IP/02/1134). The energy tax directive only provides for minimum rates of taxation, and minimum rates do not remedy the problem of distortion of competition on road haulage markets, which stems from the significant differences in the rates of diesel taxation in the Member States. Only enhanced approximation, or harmonisation, of commercial diesel taxation will put an end to these distortions of competition.
Member States will be able to tax business use of energy products at a lower rate than non-business use.
Member States will also be allowed to apply other exemptions or reduced levels of taxation where this will not be detrimental to the proper functioning of the Internal Market and will not result in distortions of competition.
Member States will be free to apply differentiated rates to similar products, provided that these rates are higher than the Community minimum levels and Internal Market and competition rules are respected. This tax technique is already widely used by Member States to guide consumers towards more environmentally-friendly products.
Member States will be obliged to exempt energy products used for the purpose of international air transport (until such time as their international commitments permit them to tax them), and products used for maritime transport within Community waters.
Member States will also be able to choose to exempt renewable energy sources including biofuels as well as energy used for the carriage of goods and passengers by train, metro, tram or trolleybus.
The Directive also takes into account the competitiveness of Community firms by providing for measures to reduce the tax burden on energy intensive firms, which are those that have put the greatest effort into reducing their consumption.
Lastly, there is provision for Member States to refund part of the taxes paid by firms which have invested in their efficient use of energy. The tax reduction in the case of firms that have entered into such energy efficiency commitments would be down to zero in the case of energy-intensive businesses and down to 50% in the case of non-energy-intensive businesses.
For two products of general consumption, unleaded petrol and diesel, the proposal will lead to only a limited increase in consumer prices in a small number of Member States. The limited increase is an inevitable consequence of the approximation of the national rates needed to put an end to the present shortcomings in the smooth functioning of the Internal Market. The benefits expected for the environment and transport as a result of the improvement in the price structure are, on the other hand, very substantial.
The Directive includes transitional periods for some Member States during which the Member States in question are required to progressively reduce their gap with respect to the new minimum levels of taxation. However, when the difference between the national level and the minimum level does not exceed 3% of the minimum level, the Member State concerned may wait until the end of the period to adjust its national level.
In addition to these transitional periods, Member States are allowed to continue to apply various derogations until 31 December 2006, subject to a prior review by the Council on the basis of a proposal by the Commission.
Furthermore, notwithstanding any of the specific transitional arrangements, Member States with difficulties in implementing the new minimum levels of taxation will be allowed a transitional period of until 1 January 2007, in order to avoid jeopardising price stability.
Following requests from the Member States that will become part of the EU from 1 May 2005, the Commission will propose appropriate transitional arrangements for these countries in the coming weeks.
The EU's Council of Ministers had been debating for some years the Commission's 1997 proposal for a Community framework, including minimum tax levels, for the taxation of all competing sources of energy (see IP/97/211). The proposal was aimed at improving the functioning of the Internal Market and ensuring greater respect for the environment, while at the same time combating unemployment by allowing Member States to compensate increased revenues from energy taxation by lower taxation of labour. The Council gave its political agreement to the proposal in March 2003 (see MEMO/03/64) but formal agreement had to await re-consultation of the Parliament given that, since the Parliament first gave its Opinion, the proposal had been modified substantially during the course of negotiations in the Council.
The full text of the Directive will soon be available on the Europa internet site:
Minimum levels of excise duty on energy products at present and as agreed (to enter into force on 1 January 2004) Note 1 2 3
Motor fuels 4
|Current minimum rate||Minimum rate from 1/1/2004||Minimum rate from 1/1/2010|
|Petrol (€/1000 l.)||337||421 5||421|
|Unleaded petrol (€/1000 l.)||287||359||359|
|Diesel (€/1000 l.)||245||302 6||330 7|
|Kerosene (€/1000 l.)||245||302||330|
|LPG (€/1000 kg.)||100||125||125|
|Natural gas||100 (€/1000 kg)||2.6 (€/gigajoule)||2.6 (€/gigajoule)|
Fuels used for industrial or commercial purposes
|Current minimum rate||Minimum rate from 1/1/2004|
|Diesel (€/1000 l.)||18||21|
|Kerosene (€/1000 l.)||18||21|
|LPG (€/1000 kg.)||36||41|
|Natural gas||36 (€/1000 kg)||0.3(€/gigajoule)|
Heating fuels and electricity 8, 9, 10
|Current minimum rate||Minimum rate from 1/1/2004 (business)||Minimum rate from 1/1/2004 (non-business)|
|Diesel (€/1000 l.)||18||21 11||21|
|Heavy fuel oil (€/1000 kg.)||13||15||15|
|Kerosene (€/1000 l.)||0||0||0|
|LPG (€/1000 kg.)||0||0||0|
|Natural gas (€/gigajoule)||N/A||0.15||0.3|
|Coal and coke (€/gigajoule)||N/A||0.15||0.3|
Notwithstanding any of the specific transitional arrangements outlined below, Member States with difficulties in implementing the new minimum levels of taxation will be allowed a transitional period of until 1 January 2007, in order to avoid jeopardising price stability.
Portugal may apply levels of taxation on energy products and electricity consumed in the Azores and Madeira lower than the minimum levels of taxation laid down in this Directive in order to compensate for the transport costs incurred as a result of the insular and dispersed nature of these regions.
2 The French Republic may apply total or partial exemptions or reductions for energy products and electricity used by the State, regional and local government authorities or other bodies governed by public law, in respect of the activities or transactions in which they engage as public authorities until 1 January 2009.
3 For energy products and electricity used for agricultural, horticultural or piscicultural works, and in forestry, Member States may apply a level of taxation down to zero.
4 Greece may apply levels of taxation up to 22 euros per 1000 litres lower than the minimum rates laid down in this Directive on gas oil used as propellant and on petrol consumed in the departments of Lesbos, Chios, Samos, the Dodecanese and the Cyclades and on the following islands in the Aegean : Thasos, North Sporades, Samothrace and Skiros.
5 Greece has until 1 January 2010 to reach the new minimum level for petrol.
6 Member States may differentiate between commercial and non-commercial use of diesel oil, provided that the new Community minimum levels are observed and that the rate for commercial diesel does not pass below the national level of taxation in force on 1 January 2003, notwithstanding any derogations for this use laid down in the Directive.
Tax differentiation may also apply for low sulphur fuels.
France may, until 1 January 2005, apply a rate of tax on diesel used in commercial vehicles that is below the national level of taxation on diesel but which cannot be less than 380€ per 1000 l. as from 1 March 2003.
Italy may apply a reduction in the rate of excise duty used as fuel used by road transport operators, until 1 January 2005, that is lower than the national level of taxation on diesel but which cannot be less than €360 per 1000 litres for vehicles of between 3.5 tonnes and 11.5 tonnes and €343 per 1000 l. for vehicles above 11.5 tonnes as from 1 January 2003 and €370 as from 1 January 2004 for all vehicles above 3.5 tons.
Spain, Austria and Belgium have until 1 January 2007 to adjust to the rate of €302 and until 1 January 2012 to reach €330. Luxembourg and Portugal have until 1 January 2009 and Greece until 1 January 2010 to adjust to the rate of €302; all three have until 1 January 2012 to reach €330. They are all authorised to apply a special reduced rate on commercial use of gas oil used as propellant until 31 December 2009, provided it does not result at taxation below €287 per 1000 litres (€272 in the case of Luxembourg and Portugal and €264 in the case of Greece) and that the national levels of taxation in force on 1 January 2003 are not reduced.
From 1 January 2010 to 1 January 2012, they may apply a differentiated on commercial use of diesel used as propellant, provided it does not result in taxation at below €302 per 1000 litres and that the national levels of taxation in force at 1 January 2010 are not reduced. For Spain, Portugal and Greece, the special differentiated rate for commercial use of gas oil used as propellant may also be applied to taxis until 1 January 2012.
7 No later than 1 January 2012, the Council shall, on the basis of a report and a proposal from the Commission, decide upon the minimum levels of taxation for a further period beginning on 1 January 2013.
8 Portugal may apply total or partial exemptions in the level of taxation of electricity until 1 January 2010. Greece may apply a transitional period until 1 January 2010 to convert is current input electricity taxation system into an output taxation system.
9 Ireland may apply total or partial exemptions or reductions in the level of taxation of electricity until 1 January 2008
10 The French Republic may apply a transitional period until 1 January 2009 to adapt its current electricity taxation system to the provisions set out in the present Directive. During this period, the global average level of the current local electricity taxation is taken into account to assess the respect of the minimum rates set out in the Directive.
11 Member States which on 1 January 2003 are authorised to apply a monitoring charge for heating gas oil may continue to apply a reduced rate of €10 per 1000 litres for that product. This authorisation shall be repealed on 1 January 2007 if the Council so decides on the basis that the rate is too low to avoid distortions of competition.