# EUR-Lex - 52008PC0007 - EN

Important legal notice

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# 52008PC0007

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[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 22.1.2008

COM(2008) 7 final

Proposal for a

COUNCIL DECISION

authorising Italy to apply, in determined geographical areas, reduced rates of taxation on gas oil and LPG used for heating purposes in accordance with Article 19 of Directive 2003/96/EC

(presented by the Commission)

EXPLANATORY MEMORANDUM

1) CONTEXT OF THE PROPOSAL

- Grounds for and objectives of the proposal

Taxation of energy products and electricity in the Community 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 the 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 excise duties for specific policy considerations.

The objective of this proposal is to allow Italy to apply, in determined geographical areas, reduced rates of taxation to gas oil and LPG used for heating purposes to partially off-set the extra heating costs of persons residing in those geographical areas. The high level of heating costs is either due to very severe climate conditions or due to severe climate condition or insularity of such zones combined with limited choice between fuels, lack of access to the natural gas network.

- General context

By letter dated 17 October 2006, the Italian authorities requested authorisation to apply, in determined geographical areas, reduced rates of taxation to gas oil and LPG used for heating purposes by way of an extension of a practice followed under the derogation provided for in Article 18(1) of the Energy Taxation Directive, read in conjunction with the tenth indent of point 8 of Annex II of the Directive. This provision authorised Italy to apply, until 31 December 2006, in certain areas reduced rates of excise duty on domestic fuel and LPG used for heating. The request of the Italian authorities was made before the aforementioned derogation expired. Additional information and clarifications were provided by the Italian authorities on 5 December 2006, 13 February 2007, 18 April 2007, 7 June 2007, on 27 August 2007, on 1 October 2007 and on 12 November 2007.

In support of its request for derogation, Italy points to the diversity of its territory with variable climate and geographical conditions. In 1999 Italy raised the general level of excise duties as part of a reform of its tax system. At the same time, taking into account the particularities of its territory, to avoid excessive burden on certain consumers, Italy introduced reduced rates of taxation in certain parts of its territory for LPG and gas oil used for heating purposes. At present the tax reduction amounts to EUR 129,11 per 1000 litres in the case of gas oil (driving the applicable tax rate down to EUR 274,10 per 1000 litres) and to EUR 159,07 per 1000 kg of LPG (driving the applicable tax rate down to EUR 30,87 per 1000 kg). The applicable tax rates are above the minimum levels of taxation prescribed by the Directive.

The tax reduction is applicable in geographical areas fulfilling the following criteria:

- Communes falling into zone F as defined in the Presidential decree no. 412 of 1993. This decree divides the Italian territory into six climate zones (A to F). The classification is based on the unit “day degrees” which represents for the conventional heating period the sum of daily average temperatures differing from the optimal 20 C°. The higher the number attributed to a commune, the lower is the average outside temperature during the heating period. Communes falling into climate zone F are defined as communes with more than 3000 "day degrees ".[2]

- Communes falling into zone E as defined in the Presidential decree no. 412 of 1993, as long as the natural gas network has not been made available in the commune concerned. Communes falling into climate zones E are defined as communes with 2100 to 3000 "day degrees ".

- Communes in Sardinia and small islands, as long as the natural gas network has not been made available in the commune concerned; this part of the regime covers all Italian islands apart from Sicily.

According to the Italian authorities, the tax differentiation and the choice of the eligible areas are based on objective criteria. The intention is to ensure geographical continuity with the rest of the Italian territory, i.e. to put the population of the eligible areas on a more comparable footing with the rest of the Italian population by means of reducing excessively high heating costs. The amount of the tax reduction is the same for all situations; it is only aimed at partially alleviating the additional heating costs of the population of the eligible areas which are due to cold climate and/or difficulties with fuel procurement.

According to the Italian authorities, for climate zones E and F , the tax reduction equals on average to 11 – 12 % of the price of gas oil and LPG for heating purposes. These figures have to be compared with the average heating costs: these are, due to climate conditions, 90% higher then the national average in climate zone E and 170% higher then the national average in climate zone F.

The specificity of the islands consists in the fact that due to their geographical situation, the fuel supply is restricted in scope and results in higher price then on the Italian mainland due to additional transport costs. The Italian authorities confirmed that the tax reduction does not result in overcompensation and does not drive the prices of LPG and gas oil below the price on the mainland. According to the sample figures provided by the Italian authorities, after the tax reduction the price is still about 2.5 EUR/hl to 4.5 EUR/hl higher on the islands as compared to the mainland for LPG. For gas oil, the price difference is even more significant and in some cases, the final price can be almost twice as high on the island as compared to the mainland.

Finally, once the natural gas network is available in the commune concerned (which can be expected to happen in communes falling in climate zone E and some islands), this would in the Italian authorities’ view reduce to an important extent the extra costs incurred in these areas. In particular, it would improve the variety of options between fuels, available to consumers. As a consequence, the Italian authorities do not foresee a tax reduction in communes belonging to climate zone E or to the islands concerned once the natural gas network is completed in the commune in question. In communes in climate zone F, situated in prevalently mountainous regions, natural gas networks will not develop so as to cover all or even most of the geographical area of the communes concerned. Therefore, any such development will for many inhabitants fail to improve the variety of available fuels. Therefore the eligibility of a commune in climate zone F is not made conditional upon the absence of a natural gas network.

The measure corresponds to an annual budgetary volume of around EUR 62 million. The eligible population amounts to 4.4 million inhabitants. The tax reduction is granted in the form of a price reduction at the moment of acquisition of the energy products by the beneficiary (beneficiaries are residents of the eligible areas).

- Existing provisions in the area of the proposal

Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity.

- Consistency with the other policies and objectives of the Union

Each request for derogation under Article 19 of the Energy Taxation Directive must be examined by the Commission taking into account the proper functioning of the internal market, the need to ensure fair competition and Community health, environment, energy and transport policies.

For the geographical areas concerned, the standard national level of taxation applicable to LPG and gas oils used for heating purposes would result in excessively burdensome heating costs, compared to the rest of the Italian territory. This is due to severe climate condition or insularity of the said areas, combined with a lack of access to the natural gas network as an alternative energy source for heating.

The reduced rate of taxation takes account of this particular position, in that it partially alleviates the additional heating costs incurred in the geographical areas in question, as compared with the rest of the Italian territory.

According to the Italian authorities, the reduction remains in all cases below those extra costs. At the same time the remaining levels of taxation are still higher then the Community minimum levels set out in the Energy Taxation Directive, both for gas oil and LPG.

It can be thus considered that the reduction is compatible with the incentive effect of taxation for the purpose of energy efficiency and other aspects of the energy policy. The measure has not been found incompatible with the relevant Community policies on the environment and energy.

Furthermore, the measure is acceptable from the point of view of the proper functioning of the internal market and the need to ensure fair competition. It merely seeks to partially offset the additional heating costs associated with the objective conditions of the areas in question. The tax reduction is not cumulative with any other sorts of tax reduction and it does not apply to other use of the heating materials than heating of rooms.

According to the Italian authorities the amount of the tax advantage for business users is in each particular case covered by the Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid[3]. Nevertheless, in case the benefit to any single undertaking exceeds the ceiling laid down in that regulation, it will be notified to the Commission in accordance with Regulation (EC) 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC[4]. Article 19(2) of the Energy Tax Directive further provides that measures adopted under its provisions must be limited in time, and sets a maximum period of 6 years, with a possibility of renewal. At the present stage, it appears appropriate to grant the authorisation for six years.

It should be ensured that, Italy can apply the specific reduction to which this proposal refers seamlessly following on from the situation obtaining under Article 18 of the Directive, read in conjunction with Annex II of the Directive, before 1 January 2007. The authorisation requested should therefore be granted with effect from that date.

2) CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT

- Consultation of interested parties

This proposal concerns only Italy.

- 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

Summary of the proposed action

The proposal aims at authorising Italy to derogate from the general provisions of Council Directive 2003/96/EC and to apply, in certain areas characterised by a high level of heating costs, reduced rates of taxation to gas oil and LPG used for heating purposes.

- Legal basis

Article 19 of Council Directive 2003/96/EC.

- Subsidiarity principle

The field of indirect taxation covered by Article 93 EC is not in itself within the exclusive competence of the Community within the meaning of Article 5 EC.

However, the exercise by Member States of their concurrent competences in this field is strictly circumscribed and limited by existing Community 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 the additional costs borne.

- Choice of instruments

Instrument(s) 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 Community. The proposal therefore has no impact on the Community budget.

Proposal for a

COUNCIL DECISION

authorising Italy to apply, in determined geographical areas, reduced rates of taxation on gas oil and LPG used for heating purposes in accordance with Article 19 of Directive 2003/96/EC

(Only the Italian text is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity,[5] and in particular Article 19(1) thereof,

Having regard to the proposal from the Commission,

Whereas:

(1) Pursuant to Article 18(1) of Directive 2003/96/EC, read in conjunction with Annex II to that Directive, Italy was authorised to apply in certain “particularly disadvantaged areas” reduced rates of excise duty on domestic fuel and LPG used for heating. The derogation was applicable until 31 December 2006.

(2) By letter dated 17 October 2006 the Italian authorities requested authorisation, under Article 19 of Directive 2003/96/EC, to apply within the same geographical areas reduced rates of taxation on gas oil and LPG used for heating purposes. Italy would like to continue, after 31 December 2006, its national practice followed under the above-mentioned derogation. The present authorisation is requested for the period from 1 January 2007 to 31 December 2012.

(3) Italy has a very diversified territory with variable climate and geographical conditions. In 1999 Italy raised the general level of excise duties as part of a reform of its tax system. Taking into account the particularities of its territory, Italy at the same time introduced reduced rates of taxation for gas oil and LPG with a view to partially offset excessively high heating costs borne by residents in certain geographical areas.

(4) The tax differentiation aims at putting the population of the eligible areas on a more comparable footing with the rest of the Italian population by means of reducing excessively high heating costs. For the purposes of identifying the eligible areas, Italy has based itself on objective criteria, concerning the climatic conditions of the area in question as well as access to the natural gas network. The latter criterion mirrors the degree of choice as between fuels, open to the population of the area concerned.

(5) Thus, the tax reduction is applicable in geographical areas (communes) fulfilling the following alternative criteria: i) communes falling into climate zone F as defined in the Presidential decree no. 412 of 1993[6], that is communes with more than 3000 "day degrees", ii) communes falling into zone E as defined in the Presidential decree no. 412 of 1993, that is communes with 2100 to 3000 "day degrees"[7]; iii) Sardinia and small islands; the latter regime covers all Italian islands apart from Sicily. Since the development of the natural gas network would to an important extent reduce the additional heating costs and in particular would improve the variety of options between fuels, available to consumers, the reduction will no longer apply in communes belonging to the second and third areas mentioned once the natural gas network is completed in the commune concerned.

(6) The common feature of the communes in question is additional heating costs as compared to the rest of Italy. For climate zones E and F, the tax reduction equals on average to 11 – 12 % of the price of gas oil and LPG for heating purposes. The average heating costs are, due to climate conditions, 90% higher then the national average in climate zone E and 170% higher then the national average in climate zone F. For the islands, the additional heating costs, as compared to mainland Italy, are due to the geographical particularities of the islands, restricted fuel supply and additional transport costs and in consequence higher fuel prices as compared to mainland Italy.

(7) The tax reduction remains in all cases below the additional heating costs borne by the population concerned, so that there is no overcompensation in the matter. In particular the Italian authorities have stated that the tax reduction does not go beyond the extra costs incurred in zones E and F due to cold climate; furthermore as far as the islands are concerned, they have stated that the tax reduction does not drive the price of the fuels in question bellow the price of the same fuel on the mainland.

(8) The reduced rate of taxation remains both for gas oil and LPG higher then the Community minimum levels of taxation set out in Directive 2003/96/EC.

(9) The measure in question applies only to heating of rooms (both for private individuals and businesses); it does not apply for other forms of business use of the said products.

(10) The measure has been found not to distort competition or hinder the operation of the internal market and it is not considered incompatible with Community policy on the environment, energy and transport.

(11) Italy should therefore be authorised, pursuant to Article 19(2) of Directive 2003/96/EC, to apply a reduced rate of taxation to gas oil and LPG used for heating purposes in certain geographical areas characterised by a high level of heating costs, as indicated in the annex to this decision, and this until 31 December 2012.

(12) It should be ensured that, Italy can apply the specific reduction to which this Decision relates seamlessly following on from the situation obtaining before 1 January 2007, under Article 18 of Directive 2003/96/EC read in conjunction with Annex II to that Directive. The authorisation requested should therefore be granted with effect from 1 January 2007.

HAS ADOPTED THIS DECISION:

Article 1

Italy is hereby authorised to apply reduced rates of taxation to gas oil and LPG used for room heating purposes in certain geographical areas characterised by a high level of heating costs, as specified in the annex to this decision.

In order to avoid any overcompensation, the reduction must not go beyond the additional heating costs incurred in the areas in question.

The reduced rate shall comply with the requirements of Council Directive 2003/96/EC, and in particular the minimum levels of taxation laid down in Article 9 of that Directive.

Article 2

Consumption in communes situated in the areas referred to in point 2 or point 3 of the annex to the present decision shall be eligible only as long as the commune concerned lacks a natural gas network.

Article 3

This Decision shall apply from 1 January 2007 until 31 December 2012.

Article 4

This Decision is addressed to the Republic of Italy.

Done at Brussels,

For the Council

The President

ANNEX

Overview of geographical areas concerned by this decision

1. Communes falling in the climate zone F as established by the Presidential Decree of 26 August 1993 no. 412.

2. Communes falling in the climate zone E as established by the Presidential Decree of 26 August 1993 no. 412.

3. Communes of Sardinia and of small islands[8].

[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; Directive last amended by Directives 2004/74/EC and 2004/75/EC (OJ L 157 of 30 April 2004, p. 87 and p.100).

[2] The remaining climate zones are defined in terms of "day degrees" as follows: Zone A (below 600), Zone B (above 600, but not exceeding 900), Zone C (above 900, but not exceeding 1400) and Zone D (above 1400, but not exceeding 2100).

[3] OJ L 379 of 28.12.2006, p.5.

[4] OJ L 83 of 27.3.1999, p. 1.

[5] OJ L 283 of 31.10.2003 p. 51.

[6] This decree divides the Italian territory into six climate zones (A to F). The classification is based on the unit “day degrees” which represents for the conventional heating period the sum of daily average temperatures differing from the optimal 20 C°. The higher the number attributed to a commune, the lower is the average outside temperature during the heating period.

[7] The remaining climate zones are defined in terms of "day degrees" as follows: Zone A (below 600), Zone B (above 600, but not exceeding 900), Zone C (above 900, but not exceeding 1400) and Zone D (above 2100, but not exceeding 2100).

[8] Point 3 refers to all Italian islands, except Sicily.