Brussels, 8th February 2007
State aid: Commission endorses German energy tax exemptions but orders partial recovery of energy tax breaks in France, Ireland and Italy
The European Commission has decided that Germany's exemptions from energy taxation for dual use of energy products (such as in steel production, where the energy product is also used as a raw material) and for use of energy products in processing minerals (such as cement and glass production) do not constitute aid under EC Treaty state aid rules since they are a consistent part of the overall national tax system. However the Commission has decided that tax exemptions from heavy fuel duty granted by France, Ireland and Italy for alumina production do constitute state aid because in all three Member States, these exemptions are highly selective and in practice benefit only one company per country and one sector (alumina production). The Commission concluded that 80% of the value of the tax exemptions for the period as of 1 January 2004 is compatible with the state aid rules. However, since the beneficiaries have not engaged in binding agreements to improve their environmental record, the Commission has, in accordance with the guidelines on state aid for environmental protection (see IP/00/1519), found the remaining 20% to be illegal state aid and ordered France, Ireland and Italy to recover this money from the beneficiary companies Alcan, Aughinish and Eurallumina. In December 2005, the Commission already ordered the recovery of part of the tax exemptions for alumina production in France, Ireland and Italy for the period 2002-2003 (see IP/05/1542). France, Ireland and Italy must now suspend the payment of the compatible aid to beneficiaries until they have paid back the aid found incompatible in the present and in the previous decision.
Taxation of the use of energy products as heating fuel or motor fuel has been harmonised by the Energy Tax Directive 2003/96/EC, which became applicable on 1 January 2004 (see IP/03/1456). The Directive provides that the use of energy products when used for non-fuel purposes, in dual use processes and in mineralogical processes fall outside the scope of the Directive. The use of energy products for chemical reduction and in electrolytic and metallurgical processes is regarded as "dual-use". The Directive leaves Member States free to choose whether or not to tax such uses.
The German Energy and Electricity Tax Laws apply to the use of energy products for heating and motor fuel purposes. Non-fuel uses of energy products are exempt from taxation. In Germany, 'dual use' of energy products and the use of energy products for mineralogical processes, and are considered equivalent to a non-fuel use and are therefore also exempted. The exemptions derive from and are consistent with the overall objectives of the national tax system and Germany applies them consistently to all mineralogical and dual use processes. The non-taxation of energy used in these processes therefore falls within the logic of the system and does not constitute state aid.
France, Ireland and Italy
From the 1990s onwards, France, Ireland and Italy fully exempted from excise duty mineral oils used as fuel for alumina production. Alumina is a white powder, produced from bauxite ore, used in smelters to produce aluminium. The use of energy in alumina production is considered a ‘dual use’ and therefore falls outside the scope of the Energy Tax Directive. In each of the Member States concerned, only one company benefits from the exemptions. The companies are Alcan for France, Aughinish for Ireland and Eurallumina for Italy.
On 7 December 2005, the Commission took a partially negative decision on these exemptions for the period up to 31.12.2003 (see IP/05/1542). The analysis of the exemptions for the period after 31.12.2003 has been the subject of an extended procedure, in view of the entry into force of the Energy Tax Directive on 01.01.2004.
The Commission has now concluded that continuing to apply the exemptions as they stand would result in further incompatible aid, which cannot be allowed. In line with the Guidelines on state aid for environmental protection (see IP/00/1519), full tax exemptions can be found compatible only when they are conditional on the conclusion of binding agreements between the Member State and the recipient firm on the achievement of environmental protection objectives. The beneficiaries have not concluded such agreements and should therefore pay at least a significant proportion (20%) of the tax in order to maintain an incentive and reduce fuel consumption. Therefore, the Commission has ordered the Member States to recover 20% of the tax exemptions granted as from 1 January 2004, and to suspend the payment of the compatible aid to beneficiaries until they have paid back the aid found incompatible in the present and in the previous decision.