# EUR-Lex - 52013PC0022 - EN

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# 52013PC0022

**Proposal for a COUNCIL DECISION authorising France to apply reduced levels of taxation to petrol and gas oil used as motor fuels in accordance with Article 19 of Directive 2003/96/EC /* COM/2013/022 final - 2013/0018 (NLE) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

Taxation of energy products and electricity
in the EU is governed by Council Directive 2003/96/EC[1] (hereafter referred to as the
“Energy Taxation Directive” or the “Directive”).

Pursuant to Article 19(1) of the Directive,
in addition to the provisions foreseen in particular in its Articles 5, 15 and
17, the Council, acting unanimously on a proposal from the Commission, may
authorise any Member State to introduce further exemptions or reductions in the
level of taxation for specific policy considerations.

The objective of this proposal is to allow France to continue to apply, within defined limits, differentiated levels of taxation to
unleaded petrol and gas oil, with the exclusion of commercially used gas oil.
This differentiation is meant to reflect the decentralisation of certain
specific powers previously exercised by central government.

The
request and its general context

Council Implementing Decision 2011/38/EU[2] (hereafter "Decision
2011/38/EU"), following up on Council Decision 2005/767/EC[3] (hereafter "Decision
2005/767/EC"), authorised France to apply, until 31 December 2012, reduced
levels of taxation to unleaded petrol and gas oil at regional level for the
purposes of an administrative reform involving the decentralisation of certain
specific powers previously exercised by central government.

Based on that Decision, France is currently applying a scheme that allows the French administrative regions to apply a
reduced level of taxation to unleaded petrol and gas oil with the exception of
commercially used gas oil. The tax in question is the Taxe Intérieure sur
les Produits Pétroliers – Domestic Tax on Petroleum Products (TIPP), which
is an excise duty.

By letter dated 10 February 2012, under
Article 19 of the Directive, the French authorities requested the renewal of
this scheme on identical terms, but for a period of six years from
1 January 2013 to 31 December 2018. Additional information and
clarifications were provided by the French authorities on 24 May 2012 and 5
October 2012.

Operation
of the measure

The French Customs Code fixes single
maximum tax rates for unleaded petrol and gas oil.

The regions are allowed to reduce these
rates with an amount that, as before, cannot exceed EUR 35,4 per 1 000
litres of unleaded petrol, including E10 fuel, and EUR 23,0 per 1 000
litres of gas oil throughout the derogation period. These amounts constitute
the maximum revenue per 1 000 litres that accrues directly to the regions.
Every year, the regional Councils decide the amount of the reduction by vote,
proving the decision making autonomy of the regions and giving an incentive to
improve the quality of their administration which cannot be achieved by a
transfer from the national budget to the local budgets.

The level of taxation after reductions can
never be lower than the EU minima set in Directive 2003/96/EC and no reduction
would apply to gas oil for commercial use.

Control
and movement measures for the products concerned

Central government would retain responsibility
for collecting and controlling excise duty on gas oil and unleaded petrol,
irrespective of the reductions adopted by the regions.

The products would be moved under duty-paid
arrangements and the fuels would be taxed when released for consumption at the
rate of duty in force in the region to which they are supplied.

To respond to the specific fraud risk
identified (diversion of deliveries to benefit from tax differentials between
two regions), the logistical chain would be supervised by means of prior
identification of recipients by suppliers and notification of this information
to the customs administration. The risk analysis indicates that recipients
should be divided into three categories: end users with the capacity for bulk
storage, service stations and distributors of duty-paid fuel. In the case of a
domestic movement of fuel duty-paid, customs could verify the origin of the
product and its region of destination. In cases of atypical routes or
inexplicably long transport times, customs could investigate whether
consignments had been diverted from the regional destination initially
declared.

Arguments
of France concerning the impact on the internal market and state aid aspects

The French authorities indicate that the
measure would not affect the proper functioning of the internal market, in
particular since the scope of the measure is confined to fuels for non‑commercial
use. Moreover, the variations between distribution networks in the retail price
of fuel for non‑commercial use are greater than the amount of variations
that can result from the measure. According to the French authorities, no
complaints about distortive effects of the measure have been received during
its application.

As regards the exclusion from the scope of
the measure of gas oil for commercial use, French or EU road hauliers who meet
the conditions for partial refund of excise on gas oil for commercial use would
be subject to the same rate of excise duty, irrespective of the region in which
they bought the fuel. The planned arrangements would maintain the current
refund procedure, completely offsetting the effects of the rate reductions
decided on by the regions through equivalent reductions in the amount of the
refund on gas oil for commercial use. The arrangements would not therefore
distort competition in the transport sector or affect trade within the EU. They
would not constitute a state aid, the French authorities submit, since road
haulage companies would be subject to the same rate of excise duty on gas oil
for commercial use irrespective of the region in which they bought it.

Arguments
of France concerning the period of application of the measure

With regard to the duration of the
arrangement, France stresses that to allow the policies pursued by the regions
to apply for a certain length of time the derogation should be renewed for a
period of six years. The three-year period set by Decision 2011/38/EU has
proven particularly short and was justified only by the unusual nature of the
measure and the concerns of Member States which feared that it might distort
competition. Initially the measure in question was to accompany the move
towards decentralisation in France. In this context, a period of application of
three years is particularly short and unsuited to the objective pursued since
such a timescale does not provide any clarity to the regions. Since none of the
supposed difficulties associated with the measure has materialised, the French
authorities therefore request a period of application of six years for the renewal
of this derogation.

Assessment
of the measure under Article 19 of Directive 2003/96/EC

Specific policy considerations

Article 19(1), first subparagraph, of the
Directive reads as follows:

In addition to the provisions set out in the
previous Articles, in particular in Articles 5, 15 and 17, the Council, acting
unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions for specific policy
considerations.

According to Decision 2011/38/EU, the
national measure in question fulfils this requirement. It follows from the
Decision that the regional differentiation of rates, as part of a wider
decentralisation policy, aims at the specific policy objective of increasing
administrative effectiveness. It was considered that the possibility of
regional differentiation offers regions an additional incentive to improve the
quality of their administration in a transparent fashion. The same decision
requires that the reductions be linked to the socio-economic conditions of the
regions in which they were applied.

In this regard, the information supplied by
  France confirmed that a link can indeed be established between application of
a regional rate below the national rate and the socio-economic conditions of the
regions concerned.

During the period of application of
Decision 2011/38/EU (2010, 2011 and 2012), respectively two (Poitou-Charentes
and Corse), five (Ile-de-France, Poitou-Charentes, Rhone-Alps,
Provence-Alps-Cote d'Azur and Corse) and three regions (Poitou-Charentes,
Rhone-Alps and Corse) applied a downward tax differentiation.

Most of the regions which applied the
downward adjustment reported GDP per capita below the national average. One of
the regions in addition reported a higher unemployment rate compared to the
average national level of unemployment.

It can therefore be concluded that the
possibility to modulate the national rate downward seems to have offered the
regional authorities the possibility to use the tax in question in a way
adapted to the socio-economic circumstances prevalent in their territory.

Consistency with the other policies and
objectives of the Union.

According to Article 19(1), third
subparagraph, of the Directive, each request shall be examined taking into account, inter alia, the proper functioning of the internal
market, the need to ensure fair competition and Community health, environment,
energy and transport policies.

This examination has already been conducted
at the occasion of the previous requests by France and which has led to the
adoption of Decision 2005/767/EC and Decision 2011/38/EU. As stated in these
Decisions, the general mechanics of the measure were found not to create any
obstacles to intra-EU trade; at the same time a number of conditions were fixed
in order to ensure that the application of the derogation would not lead to any
problem with the functioning of the internal market and would not counteract
the achievement of the EU's policy objectives especially in the fields of
energy, climate change and environment.

For a possible renewal of the scheme as
requested by France, the Commission therefore has to assess whether, in light
of the conditions laid down in Article 1(2) and (3) of the previous decision,
compliance with the objectives and policies set out in Article 19(1), third
subparagraph, of the Directive, has been achieved during its application, so
that the same can be predicted, in principle, for the period from 1 January 2013.

In this context, it has also to be verified
whether the EU policy context has undergone a relevant change since the
adoption of Decision 2011/38/EU or risks to undergo a future change material to
the assessment.

Internal market and fair competition

The risk of competitive distortions was
considered low as Decision 2005/767/EC and Decision 2011/38/EU set low maximum
amounts for the reductions. Hence, the differentiation of duty rates between
regions remains small and might not even exceed price differences between
distribution networks. Moreover, commercially used gas oil is excluded from the
application of the measure.

As for the levels of differentiation, a
strict limit was set namely that the reductions are no greater than €35.4 per
1000 litres of unleaded petrol or €23.0 per 1000 litres of gas oil. This
condition has been respected by France.

The experience gathered with the
application of the derogation does not seem to raise doubts as to the
assessment reached in 2005 and 2011. The Commission is not aware of any
complaints about distortive effects of the measure on intra-EU trade.

No obstacles to the proper functioning of
the internal market have been reported either as regards more particularly the
circulation of the products in question in their capacity as products subject
to excise duty.

As regards the State aid aspect, it should
first be repeated that commercially used gas oil is excluded from the measure.
However, as far as other business users not falling under the definition of
Article 7(3) of the Energy Taxation Directive benefiting from the reduced rates
are concerned, or to the extent that competition on the level of producers of
oil products is affected, the measure might constitute State aid in accordance with
Article 107(1) of the TFEU. Provided that the reduced rates are above the EU
minima, to the extent the measure would constitute State aid, it would be
covered by Article 25 of Regulation 800/2008/EC[4]
(the "General Block Exemption Regulation") and would thus be
considered compatible with the internal market. However, as the period of
validity of the General Block Exemption Regulation ends on 31 December 2013 any
aid inherent in the measure would need to be notified to the Commission under
State aid rules, in case the Commission would not have adopted a new Regulation
comparable to the General Block Exemption Regulation or in case such new
Regulation would not contain a rule equivalent to the present Article 25.

Union energy, climate change and
environment policies

Taxes on energy products have the effect of
lowering the demand for these products and therefore also reduce emissions
related to their consumption. The Commission therefore has to assess whether
the reduction of rates applied in certain regions does not lead to an increase
in fuel consumption (and thus related emissions) that would be in contradiction
with the objectives quoted above.

Decision 2011/38/EC noted that the
introduction of the possibility for a downward adjustment of rates was
accompanied by an increase in the underlying national rate in France. It concluded that it was unlikely that the overall effect of the new scheme would
be a reduced incentive for fuel efficiency since the application of the
derogation did not allow regions to go below the rate in force on national
level before the introduction of the scheme. Decision 2011/38/EC also concluded
that there was little risk that the regional variations would lead to
differences in retail prices that would induce traffic detours as the level of
differentiation was low and these were superseded by differences in retail
prices among distribution networks. It was therefore expected that the measure
would not, in principle, come into contradiction with EU energy, climate change
and environment policy.

No new elements regarding these matters
have come to the Commission's attention, and the assessment referred to remains
valid.

Period of
application of the measure and development of the EU framework on Energy
Taxation

The Commission proposal of 13 April 2011
for a revision of the Energy Taxation Directive[5]
provides for a permanent derogation that would allow France, within certain
limits, to apply differentiated levels of taxation at the level of the French
regions. Hence, the Commission is of the view that the period of application of
a new Council Decision should be limited to three years and shall, in any case,
expire on the day on which those modified rules become applicable.

Independently from the above, it should als
be recalled that, according to the above mentioned proposal energy taxation
would be split into two components. This system would be different from the one
of Directive 2003/96/EC as it currently stands and on which the present
authorisation is based. It is important not to undermine such future general
developments of the existing legal framework. Consequently, it is also appropriate
to provide that, should the Council, acting on the basis of Article 113 of the
Treaty, introduce a modified general system for the taxation of energy products
to which the present authorisation would not be adapted, this Decision shall
expire on the day on which those modified rules become applicable.

2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation of interested
parties

This
proposal is based on a request made by France and concerns only this Member State.

Collection and use of expertise

There was
no need for external expertise.

Impact assessment

This
proposal concerns an authorisation for an individual Member State upon its own request.

3.           LEGAL ELEMENTS OF THE
PROPOSAL

The
proposal aims at authorising France to derogate from the general provisions of
Council Directive 2003/96/EC and to apply,
within defined limits, differentiated levels of taxation to gas oil and
unleaded petrol.

Legal basis

Article 19
of Council Directive 2003/96/EC.

Subsidiarity principle

The field
of indirect taxation covered by Article 113 TFEU is not in itself within the
exclusive competence of the Community within the meaning of Article 3 TFEU.

However,
the exercise by Member States of their concurrent competences in this field is
strictly circumscribed and limited by existing EU law. Pursuant to Article 19
of Directive 2003/96/EC, only the Council is empowered to authorise a Member State to introduce further exemptions or reductions within the meaning of that
provision. Member States cannot substitute themselves for the Council.

The
proposal therefore respects the principle of subsidiarity.

Proportionality principle

The
proposal respects the principle of proportionality. The tax reduction does not
exceed what is necessary to attain the objective in question.

Choice of instruments

Instrument
proposed: Council Decision.

Article 19
of Directive 2003/96 makes provision for this type of measure only.

4.           BUDGETARY IMPLICATION

The measure
does not impose any financial and administrative burden on the EU. The proposal
therefore has no impact on the EU budget.

2013/0018 (NLE)

Proposal for a

COUNCIL DECISION

authorising France to apply reduced levels
of taxation to petrol and gas oil used as motor fuels in accordance with
Article 19 of Directive 2003/96/EC

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to Council Directive
2003/96/EC of 27 October 2003 restructuring the Community framework for the
taxation of energy products and electricity[6],
and in particular Article 19(1) thereof,

Having regard to the proposal from the
European Commission,

Whereas:

(1)       Council Implementing Decision
2011/38/EU (hereafter "Decision 2011/38/EU") authorises France to
apply, for a period of three years, differentiated levels of taxation to gas
oil and unleaded petrol for the purposes of an administrative reform involving
the decentralisation of certain specific powers previously exercised by central
government. Decision 2011/38/EU expires on 31 December 2012.

(2)       By letter dated 10
February 2012, France requested authorisation to continue to apply
differentiated rates of taxation under the same conditions for a further six
years after 31 December 2012.

(3)       Decision 2011/38/EC was
adopted on the basis that the measure requested by France met the requirements
set out in Article 19 of Directive 2003/96/EC, allowing tax exemption or
reduction, but no tax increase, for specific policy reasons. In particular, it
was considered that the measure would not hinder the proper functioning of the
internal market. It was also considered that it was in conformity with the
relevant Community policies.

(4)       The national
measure is part of a policy designed to increase administrative effectiveness
by improving the quality and reducing the cost of public services, as well as a
policy of subsidiarity. It offers regions an additional incentive to improve
the quality of their administration in a transparent fashion. In this respect, Decision 2011/38/EU requires that the reductions
be linked to the socio-economic circumstances of the
regions in which they are applied.
Consequently, a number of regions with either lower than average GDP or higher than
average unemployment have applied lower rates. Overall, the national measure is
based on specific policy considerations.

(5)       The tight limits set for
the reduction of rates on a regional basis as well as the exclusion of gas oil
used for commercial purposes from the measure imply that the risk of
competitive distortions in the internal market is very low. Moreover, the
application of the measure so far has shown a strong tendency on behalf of
regions to levy the maximum rate allowable, which has further decreased any
potential for competitive distortions.

(6)       No obstacles to the proper
functioning of the internal market have been reported as regards, more
particularly, the circulation of the products in question in their capacity as
products subject to excise duty.

(7)       When originally requested,
the national measure had been preceded by a tax increase equal to the margin
for regional reductions. Against this background and in light of the conditions
of the authorisation as well as experience gathered, the national measure does
not, at this stage, appear to be in conflict with EU energy and climate change policies.

(8)       It follows from Article
19(2) of Directive 2003/96/EC that each authorisation granted under this
Article must be strictly limited in time. Moreover, the Commission proposal for
a Council Directive amending Directive 2003/96/EC restructuring the Community
framework for the taxation of energy products and electricity[7] provides for a permanent rule allowing
  France, within certain limits, to apply differentiated levels of taxation at
the level of the French regions. It is therefore appropriate to limit the
period of application of this Decision to three years and to stipulate that, in
any event, this Decision expires once the said permanent rule becomes
applicable. Moreover, in order not to undermine future general developments of
the existing legal framework, it is also important to provide that, should the
Council introduce a modified general system for the taxation of energy products
to which the present authorisation would not be adapted, this Decision shall
expire on the day on which the rules on this modified system become applicable.

(9)       It should be ensured that France can apply the specific reduction to which this Decision relates seamlessly following
on from the situation existing before 1 January 2013, under Decision 2011/38/EU.
The authorisation requested should therefore be granted with effect from 1
January 2013.

(10)     This Decision is without
prejudice to the application of the Union rules regarding State aid,

HAS ADOPTED THIS DECISION:

Article 1

1.           France is hereby
authorised to apply reduced rates of taxation to unleaded petrol and gas oil
used as motor fuel. Gas oil for commercial use within the meaning of Article
7(2) of Directive 2003/96/EC shall not be eligible for any such reductions.

2.           Administrative regions may
be permitted to apply differentiated reductions provided the following
conditions are fulfilled:

(a)          the reductions are no
greater than EUR 35,4 per 1 000 litres of unleaded petrol or
EUR 23,0 per 1 000 litres of gas oil;

(b)          the reductions are no
greater than the difference between the levels of taxation of gas oil for
non-commercial use and gas oil for commercial use;

(c)          the reductions are linked
to the objective socio-economic conditions of the regions in which they are
applied.

(d)          the application of
regional reductions does not have the effect of granting a region a competitive
advantage in intra-Union trade.

3.           The reduced rates must
comply with the requirements of Directive 2003/96/EC, and in particular the
minimum rates laid down in Article 7

Article 2

This Decision shall be applicable from 1 January 2013 and shall expire on 31 December 2015.

However, this Decision shall expire on the
day one of the following modifications to Directive 2003/96EC becomes
applicable:

- the general system for the taxation of
energy products is modified in a manner to which the present authorisation is not
adapted;

- France is authorised to apply
differentiated levels of taxation at the level of the French regions.

Article 3

This Decision is addressed to the French Republic.

Done at Brussels,

For
the Council

The
President

[1]               Council Directive 2003/96/EC of 27 October 2003
restructuring the Community framework for taxation of energy products and
electricity (OJ L 283 of 31.10.2003 p. 51).

[2]               OJ L 19, 22.1.2011, p. 13.

[3]               OJ L 290, 4.11.2005, p. 25.

[4]               Commission Regulation (EC) No 800/2008/EC of 6 August
2008 declaring certain categories of aid compatible with the common market in
application of Articles 87 and 88 of the Treaty, OJ L 214, 9.8.2008, p. 3.

[5]               COM(2011)169

[6]               OJ L 283, 31.10.2003, p. 51.

[7]               COM(2011)169 of 13 April 2011.