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Brussels, 4 July 2006

Energy Taxation: The European Commission reviews derogations expiring by the end of 2006

The European Commission has adopted a Communication in which it reviews more than one hundred derogations in the Energy Tax Directive (IP/03/1546) that are due to expire by the end of 2006. The review concludes that most of the derogations are no longer needed as the tax measure can continue to be applied on the basis of the optional provisions foreseen for such purpose by the Energy Tax Directive. For those that after 2006 cannot be applied unless a new derogation is granted by the Council, the Communication indicates the Commission's view. Any request to the Council by individual Member States will be assessed according to its own merits and on the basis of the criteria contained in the Directive and taking into account the proper functioning of the Internal Market, the need to ensure fair competition as well as Community environment, energy and transport policies.

"The expiry of the derogations is an important step towards the effective implementation of the Energy Tax Directive" said László Kovács, Commissioner responsible for Taxation and Customs Union. "I invite the Member States to take today's Communication into consideration when assessing their interest in renewing any of the derogations".

Tax measures that can be applied according to the Energy Tax Directive

Before the adoption of the Energy Tax Directive (2003/96/EC), Member States could apply certain tax measures on the basis of the specific Council derogation. Some of those measures were justified, for example, for environmental or energy policy objectives. Such policy objectives have been afterwards integrated into the Energy Tax Directive.

The Communication provides an overview of the wide range of flexible options offered by the Directive that can allow Member States to continue to apply this kind of tax measures after the expiry of the derogation. In particular Member States can apply more favourable tax treatment to certain products (more environmental-friendly fuels) or to certain uses (public transport, some business uses).

Derogations referring to tax treatment not foreseen in the Energy Tax Directive

Certain tax measures of those applied by Member States upon derogation approved by the Council cannot be applied after 2006 unless a new derogation is granted. The Communication provides the Commission’s view on these derogations and summarises the main policy considerations related to them. The Commission's view is that these derogations should no longer be renewed for reasons of their incompatibility with Community policies.

It is up to Member States to consider under their own responsibility whether, despite the arguments presented by the Commission, they wish to apply for a renewal of any of these derogations. Any such request will be assessed taking into account the proper functioning of the Internal Market, the need to ensure fair competition as well as Community environment, energy and transport policies.

The most typical examples are derogations allowing Member States to apply tax reduction or tax exemptions are:

  • Fuel used for private air pleasure navigation and for navigation in private pleasure craft. In both cases the derogations go clearly against the objective of the Energy Tax Directive which requires that such uses are taxable.
  • Waste oils reused as fuel, either directly after recovery or following recycling, and where the reuse is subject to duty. The derogation contradicts the fiscal policy that requires that waste oils used as fuel are taxable (in the same way as other mineral oils). The environmental policy does not justify more favourable fiscal treatment.
  • Consumption in certain geographical areas. In these cases other instruments then excise duty are more suitable for achieving the objectives of the derogations.


Since 2004, the taxation of energy products and electricity in the EU is governed by Council Directive 2003/96/EC (“the Energy Tax Directive”). The directive sets the general framework for taxation of these products and at the same time offers Member States a wide range of flexibility allowing them to apply more favourable fiscal treatment to some products and uses for specific policy purposes. Contained in its Annexes II ad III, there are more then one hundred derogations further authorising Member States to apply reduced rates of taxation or exemptions from taxation for specific policy considerations. Most of these derogations date back to the 1990s when they were authorised on the basis of the previous legal framework. They were extended for the last time in 2001 and later incorporated (only with minor amendments) into the Energy Tax Directive at Annex II. A similar scheme has been put into place for some of the new Member States who joined the EU in 2004 (Annex III).
Further information on the Energy Directive and the Communication can be found at:

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