EN Official Journal of the European Union L 59/87

COMMISSION DECISION (EU) 2016/288

of 27 March 2015

on the aid scheme SA.34775 (13/C) (ex 12/NN) implemented by the United Kingdom — Aggregates levy

(notified under document number C(2015) 2141)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to those provisions (1), and having regard to their comments,

Whereas:

1. PROCEDURE

(1) By letter dated 20 December 2001 (registered on 28 December 2001), the United Kingdom authorities (‘UK authorities’) notified to the Commission an aid scheme with the title ‘phased introduction of the aggregates levy in Northern Ireland’. In their notification, the UK authorities informed the Commission that they intended to introduce a levy on aggregates with effect from 1 April 2002. This levy was to be introduced by the Finance Act 2001, Part 2, Sections 16 to 49 and Schedules 4 to 10. The aid scheme itself (phased introduction of the aggregates levy in Northern Ireland) was described as consisting of the introduction of the levy in several stages in Northern Ireland so as to preserve the international competitiveness of companies in Northern Ireland that manufacture processed products such as concrete and asphalt from aggregates. This staged introduction of the levy for Northern Ireland was to be introduced by the Finance Act 2002.

(2) In addition to the notification, the Commission received on 27 September 2001 a complaint from two companies engaged in the extraction and processing of aggregates and, on 15 April 2002, an additional complaint, submitted by the British Aggregates Association (the ‘BAA’). The complainants considered that the Finance Act 2001 entailed State aid for the products and processes exempted from the aggregates levy (the ‘AGL’) and considered that the derogations relating to Northern Ireland were aid incompatible with the internal market.

(3) After the submission of additional information on 21 February 2002, the Commission adopted, on 24 April 2002, a no objections decision with respect to the AGL (2). It considered that the different exemptions provided for in the Finance Act 2001 were justified by the logic of the tax and that the Finance Act 2001 did not entail any State aid. The Commission further considered that the staged introduction of the AGL in Northern Ireland constituted aid that was compatible with the internal market.

(4) On 12 July 2002, the BAA brought an action for annulment of the Commission's decision of 24 April 2002, registered as Case T-210/02. On 13 September 2006, the General Court dismissed the action in its entirety. On 27 November 2006, the BAA appealed the judgment of the General Court. By judgment of 22 December 2008 in Case C-487/06 P, the Court of Justice set aside the appealed judgment and referred the case back to the General Court.

(5) On 7 March 2012, in its judgment in Case T-210/02 RENV, the General Court annulled the Commission decision mentioned in recital 3 above. The General Court found that the Commission failed to demonstrate that the tax differentiation associated with the exemption is justified on the basis of the normal taxation principle underpinning the AGL or on the basis of the environmental objective of the AGL. The General Court found in particular that the Commission had failed to take account of the normal taxation principle in determining the selective nature of any advantage generated by the AGL. In this connection, the General Court pointed to the inconsistencies in terminology used by the Commission in its decision, namely as regards the terms ‘virgin’, ‘primary’ and secondary' aggregates, which did not correspond to the terms used in the Finance Act 2001 as amended. Also, the Commission had failed to explain in its decision why certain exempt materials (used as aggregates, like clay aggregates) were not in the same legal and factual situation as taxed material.

(6) Following the annulment of the Commission Decision of 24 April 2002, the Commission was required to reassess whether the exemptions, exclusions and tax reliefs provided for in the 2001 Finance Act, as amended by the Finance Act 2002 and Finance Act 2007, constituted State aid. The Commission registered the file under an NN reference, since the AGL has been in force since 1 April 2002. The issue of the compatibility of the staged introduction of the AGL in Northern Ireland has been examined in the context of another procedure (see SA.18859 (11/C) — United Kingdom — Relief from Aggregates levy in Northern Ireland).

(7) In addition to the observations and submissions made during the proceedings before the Union Courts, the complainant submitted further comments and information to the Commission on 13 June 2012 and 26 October 2012. Those comments were transmitted to the United Kingdom on 15 May 2013. On 27 September 2012 and 27 May 2013, the UK authorities provided further information on the AGL.

(8) By letter dated 31 July 2013, the Commission informed the United Kingdom that it had decided to initiate the procedure laid down in Article 108(2) of the Treaty in respect of the tax exemptions, tax exclusions and tax reliefs established in Sections 17(3)(e), 17(3)(f)(i) and (ii), Section 17(4)(a) (in so far as the exempted material consists wholly of coal, lignite, shale, slate that is used as aggregate or consists mainly of coal, lignite, shale and slate), Section 17(4)(c)(i) and (ii) (when it consists mainly of the spoil), 17(4)(f) (as far as clay is concerned), 18(2)(b) (in so far as it relates to an exempt process that provides for materials that are used as aggregates) and 30(1)(b) (in so far as it relates to an exempt process within the meaning of Section 18(2)(b) that provides for materials that are used as aggregates) of the Finance Act 2001, as amended by the Finance Act 2002 and the Finance Act 2007. The Commission raised no objections to the tax exemptions, tax exclusions and tax reliefs established in Sections 17(2)(b), 17(2)(c), 17(2)(d), 17(3)(b), 17(3)(c), 17(3)(d) and 17(3)(da), 17(4)(d)) and 17(4)(e), Section 17(4)(a) (in so far as the exempted material consists wholly of coal, lignite, shale, slate that is used for other purposes than as aggregate), Section 17(4)(c) (when it consists wholly of the spoil), Section 17(4)(f) (except for clay), Section 18(2)(a), Section 18(2)(b) (in so far as it relates to materials that are not used as aggregates), Section 18(2)(c), Section 30(1)(a), Section 30(1)(b) (in so far as it relates to exempt processes within the meaning of Section 18(2) (a) and (c)), Section 30(1)(b) (in so far as it relates to an exempt process within the meaning of Section 18(2)(b) that provides for materials that are not used as aggregates) and Section 30(1)(c) of the Finance Act 2001, as amended by the Finance Act 2002 and Finance Act 2007, on the ground that they do not constitute State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union.

(9) The Commission decision to initiate the procedure was published in the Official Journal of the European Union (3) (the ‘Opening Decision’). The Commission invited interested parties to submit their comments on the aid.

(10) The Commission received extensive comments from 16 interested parties between 20 December 2013 and 17 January 2014, supplementary information from a British Aggregates Association member on 10 February 2014 and from the British Aggregates Association on 5 March 2014. They were forwarded on 27 May 2014 and 13 June 2014 to the United Kingdom, which was then given the opportunity to reply. The United Kingdom submitted its reply by letter dated 30 June 2014. In addition, it submitted observations on the Opening Decision on 1 October 2013, 31 October 2013 and 28 February 2014.

(11) The Commission requested further information from the United Kingdom on 14 July 2014, 1 September 2014, 8 September 2014, and 28 November 2014. The United Kingdom provided such information on 29 August 2014, 9 September 2014, 18 September 2014 and 8 and 9 December 2014.

(12) Following a tripartite meeting on 15 July 2014, the Commission requested further information to be submitted jointly by the United Kingdom and the BAA on 18 July 2014. Such information was submitted to the Commission on 8 September 2014. The BAA submitted additional information in response to the questions of the Commission on 15 September 2014. The information submitted was subsequently forwarded to the United Kingdom authorities on 17 October 2014, who responded on 12 November 2014, 14 November 2014 and 17 November 2014.

(13) The Commission requested further information from the BAA on 10 July 2014 and 16 October 2014. The BAA provided such information on 6 November 2014 and 21 November 2014. The information was forwarded to the United Kingdom authorities on 2 December 2014 who responded on 18 December 2014.

2. DETAILED DESCRIPTION OF THE MEASURE

2.1. NOTION OF AGGREGATES

(14) Aggregates are used in the construction sector. They can generally (4) be described as corresponding to granular or particulate material which because of its physical and chemically inert properties is suitable for use on its own or with the addition of cement, lime or bituminous material in construction as concrete (5), roadstone, asphalt or drainage courses (6), or for use as construction fill (7). Aggregate may be natural, manufactured or recycled (8). The Opening Decision describes in detail the notion of aggregates and aggregates use in recitals 8 to 13.

(15) The definition of aggregates is intrinsically linked to the possible uses of certain granular or particulate quarried materials in construction sector, as explained above in recital 14, as this is what primarily differentiates the notion of aggregates from the notion of minerals.

(16) Natural aggregates are aggregates that occur naturally and that can be used without industrial processing. These are sand, gravel and crushed rock (9) and are extracted from quarries and gravel pits or from sea dredging.

(17) Recycled aggregates derive from reprocessing materials previously used in construction, including construction and demolition residues (10).

(18) Manufactured aggregates are generally lightweight and high density aggregates manufactured for specialist purposes. They are produced after application of an industrial process (usually a thermal process). Examples are: blast furnace slag aggregate, expanded clay aggregate, expanded perlite aggregate, expanded polystyrene bead aggregate (11).

(19) Materials that are suitable for use as aggregates can also be used to manufacture other products. In that sense, the industry distinguishes between aggregate uses of sand, gravel and crushed rock materials and non-aggregate uses (12) of sand, gravel and crushed rock materials. Non-aggregate uses of rock, sand and gravel are, for instance, the production of cement, glass, and other industrial (13) or agricultural uses (14).

2.2. BACKGROUND TO THE AGL AND ITS OBJECTIVE

(20) Aggregate is a constrained natural resource, in terms of the sites at which it can be acceptably extracted (15). The quarrying of aggregate takes up land in the medium to long-term and causes environmental damage and pollution.

(21) Following a series of actions aimed at tackling the environmental concerns of the quarrying of aggregates that are described in recitals 15 to 18 of the Opening Decision, the AGL was introduced in April 2002 with the aim of encouraging the more efficient use of aggregates in the construction industry by: — Internalising in the price of aggregates some of the environmental costs of the extraction of aggregates, such as noise, dust, visual intrusion and biodiversity loss. In that sense, the AGL should encourage efficient extraction of aggregates and encourage economy of use and less waste at the construction site. — Encouraging a shift in demand away from deliberately extracted aggregates towards alternatives like: — recycled aggregates, — wastes and by-products from other processes, including the extraction of other minerals (clay and coal extraction wastes, glass and tyre wastes) (16).

(22) In this connection, the UK authorities had explained on the occasion of the Opening Decision that aggregates for construction uses are a relatively low value product, especially compared with the total costs of building projects for which aggregates are an input. Aggregates can be extracted from the ground relatively easily. Therefore without additional price signals, such as the one given by the AGL, there is no particular incentive to use aggregates efficiently.

(23) Also, without additional price signals, recycling of aggregates would not be economically viable. The UK authorities considered that incentivising the use of recycled aggregates, while not without its own environmental costs such as use of energy and creation of noise, is an important aspect of reducing the environmental costs associated with the extraction of materials from the ground (such as long-term biodiversity impacts). Indeed, the use of recycled materials does not require the disturbance of new land or the sea-bed.

(24) In addition to encouraging the use of recycled aggregates as an alternative to newly-quarried material, the AGL's structure also seeks to reduce the extraction of sand, gravel and rock specifically for use as aggregates, by incentivising the use of other materials that would otherwise be discarded. By-products, spoil and waste of other extraction processes or of industrial processes are usually considered to be of lower quality and specification than materials specifically extracted and exploited for use as aggregates. They may have slightly different uses and applications. For example, due to their lower density or uneven size they may not be safe to use in the construction of certain road surfaces or in other situations where the aggregates need to withstand high pressure and wear and tear. However, by-products, waste and spoil can still present a viable alternative to the highest quality aggregates in many situations. The by-products, waste and spoil from processes specified in the Finance Act 2001 would be discarded without the existence of the AGL. As they are, however, an unavoidable by-product of a number of processes which deliver important materials for the construction industry (such as roof tiles from slate) or other industries (such as feldspar for the glass-making industry), the UK authorities considered it environmentally more efficient to encourage a use as aggregates for these materials, instead of depositing them as waste. This avoids additional environmental costs by using an already quarried product that would otherwise be left as waste, as opposed to the (additional) extraction of fresh aggregates with unnecessary additional environmental costs (disturbance of new land). In addition, this assists in the rehabilitation of land already defaced by large waste and spoil tips. The UK authorities had added that the application of the AGL to such materials could have the undesired effect of discouraging what little use for those materials already exists, thus increasing rather than reducing tipping. Recital 23 of the Opening Decision contains a detailed account of the estimates of available amounts of alternatives.

(25) Initial projections suggested that the AGL would reduce demand for virgin aggregates by an average of 20 Mt/annum.

(26) The UK authorities had indicated that given the aim of inducing a more efficient extraction and a more efficient use of virgin aggregates, ‘the levy falls on those who undertake quarrying for the purposes of commercially exploiting aggregate’ (17). In this connection, the UK authorities had explained that while quarrying of high-specification materials to be used in the construction sector also produces materials of lesser quality and hence price, it is not in practice possible to relieve these materials in a similar manner as by-products of industrial processes or other extraction activities. First, the proportion of high quality and low quality aggregates will vary from quarry to quarry because of geological factors, but is not an immutable figure for any given quarry as more efficient practices can help reduce the proportion of low quality aggregates. In addition, the term low quality aggregate is, to some extent, a subjective term. What one quarry operator would consider as low quality could be part of another's primary product range. Exempting low quality aggregates could thus lead to unequal treatment of operators and lead to tax avoidance or evasion. Extensive public consultation with the industry on this issue around the time of the introduction of the AGL did not yield a workable definition of how to distinguish between high quality materials — which should be taxed — and lower quality by-products of the process of extracting high value aggregates. The UK authorities had further noted that taxing low quality aggregates also reflects the desire to address the environmental costs of aggregate extraction, regardless of whether the extracted product is ultimately deemed to be of high or low quality.

(27) Finally, the UK authorities had noted that the AGL is not conceived as a general tax on mineral extraction, but as a tax on the extraction of rock, sand and gravel used as aggregates in the construction sector and subject to commercial exploitation in the United Kingdom. The UK authorities have explained that while the extraction of other materials may have similar environmental impact, not all have suitable options for lessening the intensity of extraction through the use of alternative materials such as recycled materials and spoil. In addition, aggregates' extraction was the largest mineral extraction activity in the United Kingdom (in 2002, it accounted for around 70 %, by tonnage, of all mineral extraction) and therefore constituted the main source of environmental damage arising from mineral extraction across the United Kingdom as a whole. The scope of the tax was defined in order to achieve the greatest environmental benefit in the form of a reduction in the extraction of aggregates and in terms of the preservation of strategic resources, while at the same time not imposing a dead-weight tax burden on materials for which an alternative does not exist.

2.3. FINANCE ACT 2001, ENTRY INTO FORCE, AMENDMENTS AND DURATION

(28) The primary legislation governing the AGL is set out in the Finance Act 2001, Sections 16 to 49 and Schedules 4 to 10. The Finance Act 2001 was adopted on 11 May 2001 and has been subject to several amendments as described in recitals 28 and 29 of the Opening Decision. This Decision references the Finance Act 2001 as subsequently amended. The AGL came into effect on 1 April 2002 and remains applicable. The law does not limit the application of the AGL in time.

(29) Following the Opening Decision, the UK authorities amended the Finance Act 2001 by suspending the exemptions for the materials as regards to which the Commission had expressed doubts as of 1 April 2014.

(30) The UK authorities explained that in preparing the necessary legislation for the suspension, they concluded on the basis of comments received from industry that determining whether certain materials had been ‘extracted for use as aggregates’ would be impractical. Accordingly, they devised a new criterion, ‘for construction purposes’ which is consistent with the definitions used by the existing legislation. In order, however, to achieve the same result as envisaged by the Opening Decision with the application of the latter criterion, the suspension legislation additionally provides that: (i) clay (including ball clay, china clay and fireclay) and shale used to make ceramic construction products; and (ii) gypsum used to make plaster and plasterboard; are to be considered exempt processes. This is due to the fact that they could be included in material extracted ‘for construction purposes’, but they do not represent uses as aggregates of the respective materials.

2.4. STRUCTURE OF THE AGL AND EVENTS TRIGGERING THE TAX

(31) Section 16(1) of the Finance Act 2001 states that ‘a levy, to be known as aggregates levy, shall be charged in accordance with this Part on aggregate subjected to commercial exploitation’. Section 16(2) reads ‘The charge to the levy shall arise whenever a quantity of taxable aggregate is subjected on or after the commencement date, to commercial exploitation in the United Kingdom’.

(32) According to Section 17(1) ‘aggregate’‘means (subject to Section 18 below) any rock, gravel or sand, together with whatever substances are for the time being incorporated in the rock, gravel or sand or naturally occur mixed with it’.

(33) Section 18(1) provides that: ‘In this Part references to aggregate: (a) include references to the spoil, waste, off-cuts and other by-products resulting from the application of any exempt process to any aggregate; (b) but do not include references to anything else resulting from the application of any such process to any aggregate’.

(34) According to Section 18(2) exempt processes are: ‘(a) the cutting of any rock to produce stone with one or more flat surfaces; (b) any process by which a relevant substance is extracted or otherwise separated (whether as part of the process of winning it from any land or otherwise) from any aggregate; (c) any process for the production of lime or cement from limestone or from limestone and anything else’.

(35) Section 18(3) lists the relevant substances as being (a) anhydrite; (b) ball clay; (c) barytes; (e) china clay; (f) feldspar; (g) fireclay; (i) fluorspar; (j) fuller's earth; (k) gems and semi-precious stones; (l) gypsum; (m) any metal or the ore of any metal; (n) muscovite; (o) perlite; (p) potash; (q) pumice; (r) rock phosphates; (s) sodium chloride; (t) talc; (u) vermiculite. Subsections (3)(d) and (h) of Section 18 were omitted retroactively as of 1 April 2002 by changes introduced by the Finance Act 2002.

(36) Section 16(2) of the Finance Act 2001 read in conjunction with Section 19(1) and Section 19(2) determines that the AGL is triggered by any of the following four types of commercial exploitation within the United Kingdom that would occur first: (a) it is removed from its originating site, or any site registered under the name of a person who is the operator of the originating site (18), or any other site to which the quantity of aggregate had been removed for the purpose of having an exempt process applied to it on that site but at which no such process has been applied to it. (b) it becomes subject to an agreement to supply it to any person (19); (c) it is used for construction purposes (20); or (d) it is mixed, otherwise than in permitted circumstances (21), with any material or substance other than water.

(37) For the purpose of the AGL, the Finance Act 2001 distinguishes essentially between three types of originating sites: (a) the port or other landing site at which aggregate won from the United Kingdom seabed is first landed (Section 20(1)(a)); (b) the site where an exempt process took place (Section 20(1)(b)). This relates to situations where an exempt process has been applied, the exempt substance has been extracted and some aggregate is left over and exploited. The site where the extraction of the exempt substance took place becomes the originating site of the aggregate; (c) the site where the aggregate is obtained from the ground (Section 20(1)(d)).

(38) As a result of the concept of commercial exploitation, the AGL applies to both aggregates extracted in the United Kingdom and imported aggregates. Imported aggregates will be subjected to the AGL not when they are landed in the United Kingdom (22) but when they are the subject matter of an agreement (and the aggregate is already located in the United Kingdom) or are used for constructions purposes (in the UK) or are mixed (in the United Kingdom) with any material or substance other than water, unless in permitted circumstances (23).

(39) Section 19(3) of the Finance Act 2001 contains further details on the concept of commercial exploitation. It provides in letter (e) that there is no commercial exploitation taking place when — without its being subjected to any process involving its being mixed with any other substance or material (apart from water) — it again becomes part of the land at the site from which it was won (24).

(40) Sections 21 and 22 define who is the operator of a site and whether it is the operator of a site or some other person who is responsible for exploitation (and therefore liable to account for the AGL) in a given situation.

2.5. NOTION OF TAXABLE AGGREGATE — EXEMPTIONS FROM THE AGL AND TAX CREDITS

(41) Section 17(2) of the Finance Act 2001 provides that an aggregate is not a taxable aggregate in four cases: (a) if it is expressly exempted; (b) if it has previously been used for construction purposes (whether before or after the commencement date); (c) if it is, or derives from, any aggregate that has already been subjected to the AGL; (d) if it is aggregate that was removed from its originating site before the commencement date.

(42) An aggregate is regarded as being used for construction purposes when it is used as a material or support in the construction or improvement of any structure (including roads, paths, the way on which any railway is or is to be laid, embankments, buildings and bridges) or when it is mixed with anything as part of the process of producing mortar, concrete, tarmacadam, coated road stone or any similar construction material (25).

(43) Section 17(3) specifies that the aggregate is exempt from the AGL if: ‘(b) it consists wholly of aggregate won by being removed from the ground on the site of any building or proposed building in the course of excavations lawfully carried out: (i) in connection with the modification or erection of the building; and (ii) exclusively for the purpose of laying foundations or of laying any pipe or cable; (c) it consists wholly of aggregate won: (i) by being removed from the bed of any river, canal or watercourse (whether natural or artificial) or of any channel in or approach to any port or harbour (whether natural or artificial); and (ii) in the course of the carrying out of any dredging undertaken exclusively for the purpose of creating, restoring, improving or maintaining that river, canal, watercourse, channel or approach; (d) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any highway or proposed highway and in the course of excavations carried out: (i) for the purpose of improving or maintaining the highway or of constructing the proposed highway; and (ii) not for the purpose of extracting that aggregate; (da) it consists wholly of aggregate won by being removed from the ground along the line or proposed line of any railway, tramway or monorail or proposed railway, tramway or monorail and in the course of excavations carried out: (i) for the purpose of improving or maintaining the railway, tramway or monorail or of constructing the proposed railway, tramway or monorail; and (ii) not for the purpose of extracting that aggregate; (e) it consists wholly of the spoil, waste or other by-products, not including the overburden, resulting from the extraction or other separation from any quantity of aggregate of any china clay or ball clay; or (f) it consists wholly of the spoil from any process by which: (i) coal, lignite, slate or shale; or (ii) a substance listed in Section 18(3) below; has been separated from other rock after being extracted or won with that other rock.’

(44) Subsection (3)(da) of Section 17 was inserted by Section 22(3) of the Finance Act 2007, applies from 1 August 2007.

(45) In addition, subsection (4) of Section 17 exempts aggregates consisting wholly or mainly of any one or more of the following, or is part of anything so consisting, namely: ‘(a) coal, lignite, slate or shale; (c) the spoil or waste from, or other by-products of: (i) any industrial combustion process; or (ii) the smelting or refining of metal; (d) the drill-cuttings resulting from any operations carried out in accordance with a licence granted under the Petroleum Act 1998 or the Petroleum (Production) Act (Northern Ireland) 1964; (e) anything resulting from works carried out in exercise of powers which are required to be exercised in accordance with, or are conferred by, provision made by or under the New Roads and Street Works Act 1991, the Roads (Northern Ireland) Order 1993 or the Street Works (Northern Ireland) Order 1995; (f) clay, soil or vegetable or other organic matter.’

(46) According to the Notice AGL 1, ‘wholly’ means that 100 % of the material in question is one of the exempt materials. ‘Mainly’ means that more than 50 % of the material is one of the exempt materials. Artificially mixing aggregate with a larger amount of exempt material will not produce an exempt mixture but will mean that the AGL is due on the aggregate at the time of mixing.

(47) Section 30(1) of the Finance Act 2001 provides for regulations to be made establishing a person's right to a credit of tax if: (a) the aggregate that has been subject to the AGL is exported from the United Kingdom in the form of aggregate; (b) an exempt process is applied to the aggregate that has been subject to the AGL; (c) the aggregate that has been subject to the AGL is used in a prescribed industrial or agricultural process; (d) the aggregate that has been subject to the AGL is disposed of in such manner not constituting its use for construction purposes as may be prescribed (26); or (e) the whole or any part of a debt due to a person responsible for subjecting the aggregate to commercial exploitation is written off in his accounts as a bad debt.

(48) Section 30(1)(b) of the Finance Act 2001 provides for tax relief in case an exempt process within the meaning of Section 18(2)(a), (b) and (c) of the Financial Act 2001 has been applied to the material when the material has already been subject to the AGL. It thus mirrors the exemptions provided for in Section 18(2).

(49) The industrial and agricultural processes that can benefit from tax relief under Section 30(1)(c) are listed in the Schedule ‘Industrial and Agricultural Processes’ to Regulation 13 of the Aggregates Levy (General) Regulations 2002. Notice AGL 2 (27) describes in more detail the type of processes that are concerned. They are the following: Industrial processes — Code 001: Iron, steel and non-ferrous metal manufacture and smelting processing including foundry processes, investment casting, sinter plants and wire drawing — Code 002: Alloying — Code 003: Emission abatement for air, land and water — Code 004: Drinking water, air and oil filtration and purification — Code 005: Sewage treatment — Code 006: Production of energy — Code 007: Ceramic processes — Code 008: Refractory processes — Code 009: Manufacture of glass and glass products — Code 010: Manufacture of fibre glass — Code 011: Man-made fibres — Code 012: Production and processing of food and drink — Code 013: Manufacture of plastics, rubber and PVC — Code 014: Chemical manufacturing for example soda ash, sea water magnesia, alumina, silica — Code 015: Manufacture of precipitated calcium carbonate — Code 016: Manufacture of pharmaceuticals, bleaches, toiletries and detergents — Code 017: Aerating processes — Code 018: Manufacture of fillers for coating, sealants, adhesives, paints, grouts, mastics, putties and other binding or modifying media — Code 019: Manufacture of pigments, varnishes and inks — Code 020: Production of growing media and line markings for sports pitches and other leisure facilities — Code 021: Incineration — Code 022: Manufacture of desiccant — Code 023: Manufacture of carpet backing, underlay and foam — Code 024: Resin processes — Code 025: Manufacture of lubricant additives — Code 026: Leather tanning — Code 027: Paper manufacture — Code 028: Production of art materials — Code 029: Production of play sand, e.g. for children's sandpits — Code 030: Clay pigeon manufacture — Code 031: Abrasive processes: specialist sandblasting, iron free grinding (pebble mills) and sandpaper manufacture — Code 032: Use as propping agent in oil exploration (or production), for example, fracture sands and drilling fluids — Code 033: Flue gas desulphurisation and flue gas scrubbing — Code 034: Manufacture of mine suppressant — Code 035: Manufacture of fire extinguishers — Code 036: Manufacture of materials used for fireproofing — Code 037: Acid neutralisation — Code 038: Manufacture of friction materials, for example automotive parts Agricultural processes — Code 039: Manufacture of additives to soil — Code 040: Manufacture of animal feeds — Code 041: Production of animal bedding material — Code 042: Production of fertiliser — Code 043: Manufacture of pesticides and herbicides — Code 044: Production of growing media, including compost, for agricultural and horticultural use only — Code 045: Soil treatment, including mineral enrichment and reduction of acidity.

2.6. RATE

(50) Originally, the AGL was levied at the rate of GBP 1,60 per tonne. The rate was increased to GBP 1,95 per tonne for aggregates subject to commercial exploitation on or after 1 April 2008. The rate currently applied is GBP 2 per tonne (since 1 April 2009).

2.7. GROUNDS FOR INITIATING THE FORMAL INVESTIGATION PROCEDURE

(51) As explained in recital 170 of the Opening Decision, the Commission doubted whether the exemptions and exclusions mentioned in recital 139 of the Opening Decision (28) (the ‘exemptions under investigation’) were justified by the general principles and logic of the AGL. The exemptions and exclusions concerned seemed to relieve the beneficiaries from a tax that they would normally have had to pay and constituted operating aid. As it did not have enough elements to conclude whether the measure fulfils the conditions of the Community guidelines on State aid for environmental protection (29) (‘2001 EAG’) and the 2008 Community guidelines on State aid for environmental protection (30) (‘2008 EAG’), the Commission had doubts as to the compatibility of the exemptions under investigation and exclusions with the internal market.

3. COMMENTS FROM INTERESTED PARTIES

(52) As mentioned in recital 10 above, the Commission received extensive comments from interested parties following the publication of the Opening Decision.

(53) The comments from interested parties concerned: (i) the Opening Decision itself; (ii) the logic of the AGL; (iii) the exemptions which had previously been found not to constitute State aid already in the Opening Decision; and (iv) the exemptions under investigation.

(54) For ease of reference, this section will outline the comments received in relation to the Opening Decision. The remaining categories of comments received are presented in the relevant sections of this decision.

3.1. COMMENTS REGARDING THE CONTENT OF THE OPENING DECISION

(a) Comments received from Richard Bird, BAA, received on 20 and 23 December 2013.

(55) Mr Bird has provided the Commission with his contribution to the UK authorities' public consultation on the approach to suspending the exemptions from the AGL in respect of which the Commission expressed doubts in the Opening Decision.

(56) Mr Bird further claims there are a number of inaccuracies in the Opening Decision, such as: (i) various quarrying sites have been identified showing that there is no risk the United Kingdom will run out of aggregates; (ii) slag aggregate, crushed slate aggregate and the silica sand from china clay production have always been a major source of aggregate; (iii) exempted aggregates and recycled aggregates could not replace quality aggregates required in construction, which are extracted together with lesser quality aggregates (1 tonne good quality with 1 tonne of lower quality aggregates). New waste heaps have been created due to this material; (iv) a series of abuses of the AGL are taking place; (v) quarries have opened simply to produce aggregates that are exempt (31). Mr Bird claims there are slate quarries that produce simply slate rock and not any roofing slate. Mr Bird provides as example the names of two quarries; (vi) shale aggregates quarries are producing and selling untaxed aggregates. One million tonnes of shale were used for constructing a road near Edinburgh; (vii) the Opening Decision allegedly fails to recognise what aggregate is: smaller sizes of rocks, crushed or uncrushed, including natural sand and gravel. Armour rock for sea defences, stone for river protection, walling stone, fireplace stone, ditching stone, cobbles for roads and hearting stone for marine breakwaters are all taxed as aggregates if they are not geologically slate or shale; (viii) the AGL is nonsensical, as sorted walling stone that is not cut is taxed; (ix) only slate from north Wales may be used as roofing slate. Slate from other slate areas in the United Kingdom is not used as roofing slate, but as walling stone or paving stone. Sandstone, walling and paving stone is taxed. Shale is not used for roofing. Slate and shale quarries have been opened because the materials are exempt from the levy (32); (x) allegedly, the AGL has in fact had a negative environmental impact as recycled aggregate operations are environmentally damaging also due to the additional transportation distances of exempted materials; (xi) silica sand from china clay workings has always been a source of aggregate. There is little sand in Cornwall, thus the sand from china clay quarries does not reduce extraction of natural sand. It is actually an important source of sand in the area. This sand distorts the market for crushed rock fines which are a by-product of local hard rock aggregate quarries whose prime objective is to produce aggregate chippings for concrete, asphalt and construction work; (xii) china clay by-products are exempted while limestone by-products are taxed even when the limestone is used for agriculture or for industrial processing. They produce 20 % waste by-products; (xiii) allegedly, a number of old worked-out china clay quarries have been reopened solely for the exploitation of the exempted aggregates as the kaolin had been worked out. On the other hand, someone wanting to exploit an old granite tip would have to pay the tax; (xiv) the by-products of the refining and smelting of metal are indeed not the same as natural aggregates, but they were never waste and have a very good market. Mr Bird claims the AGL should apply to by-products that are not waste; (xv) Mr Bird considers that it is impossible to replace quality aggregates with aggregates from most slate, shale or china clay operations.

(57) Mr Bird supplemented this information with a submission on 10 February 2014 regarding the uses of slag aggregate, a by-product of the steel manufacturing industry. The submission aims at showing that slag is not a waste, but a first class aggregate that can be used as an alternative to cement.

(b) Comments received from the BAA on 10 January 2014

(58) The BAA considers that the concept of aggregate should not be used to determine whether or not the AGL results in State aid as there is no clear definition of aggregate which corresponds to the scope of the tax. The Commission defines aggregates in the Opening Decision as ‘rock, gravel and sand extracted for the purpose of providing bulk in construction’. However, allegedly, the AGL taxes many materials that are used for different purposes than ‘providing bulk in construction’, such as uncut building stone used to construct walls, armour rock, rail track ballast, high polished stone value (‘PSV’) stone for skid-resistant asphalt, etc. The BAA mentions that the British competition authorities have assessed the aggregates market on a number of occasions and generally concluded that specialist materials such as rail track ballast and high PSV stone are in different markets from each other and from ‘construction aggregate’ because they are used for different applications and there is neither demand-side substitution nor supply-side substitution (33).

(59) The BAA maintains that three of the exemptions on which the Commission concluded positively in the Opening Decision are selective, i.e. the exemption for recycled building waste, aggregate excavated in the course of construction of roads, railways, buildings, etc., and industrial waste/by-product. The BAA claims that from the perspective of the ‘shift in demand’ objective these three categories of exempted materials are in the same position as the waste/by-product of, inter alia, china clay, slate and coal as regards which the Commission expressed doubts in the Opening Decision.

(c) Comments received from Lantoom Quarry on 16 January 2014

(60) The Lantoom Quarry claims that the Opening Decision has created uncertainty and has impacted investment and employment.

4. COMMENTS FROM THE UNITED KINGDOM

(61) The UK authorities provided extensive comments to the doubts raised in the Opening Decision and additional information as well as compatibility grounds for the exemptions under investigation.

(62) No comments were received from the UK authorities regarding the content of the Opening Decision itself. For ease of reference, the comments and information received are presented in the relevant sections of this decision.

5. ASSESSMENT OF THE MEASURE

(63) The Commission has already decided with the adoption of the Opening Decision to raise no objections in respect of the exemptions, exclusions and tax reliefs laid down in Sections 17(2)(b), 17(2)(c), 17(2)(d), 17(3)(b), 17(3)(c), 17(3)(d), 17(3)(da), 17(4)(d) and 17(4)(e), Section 17(4)(a) (in so far as the exempted material consist wholly of coal, lignite, shale, slate that is used for other purposes than as aggregate), Section 17(4)(c) (when it consists wholly of the spoil), Section 17(4)(f) (except for clay), Section 18(2)(a), Section 18(2)(b) (in so far as it relates to materials that are not used as aggregates), Section 18(2)(c), Section 30(1)(a), Section 30(1)(b) (in so far as it relates to exempt processes within the meaning of Section 18(2) (a) and (c)), Section 30(1)(b) (in so far as it relates to an exempt process within the meaning of Section 18(2) (b) that provides for materials that are not used as aggregates), and 30(1)(c) of the Finance Act 2001, as amended by the Finance Act 2002 and the Finance Act 2007, in relation to the AGL, since the Commission considered that they do not entail State aid within the meaning of Article 107(1) of the Treaty. The Commission will therefore not assess these exemptions, exclusions and tax reliefs provided by the Finance Act 2001, as amended by the Finance Act 2002 and the Finance Act 2007 in relation to the AGL and will confine its assessment to the exemptions under investigation.

5.1. ASSESSMENT OF THE COMMENTS RECEIVED REGARDING THE CONTENT OF THE OPENING DECISION

(64) The BAA, as mentioned above in recital 59, maintains that the exemptions for recycled building waste, aggregate excavated in the course of construction of roads, railways, buildings etc., and industrial waste/by-product are not within the logic of the AGL from the perspective of the ‘shift in demand’ objective.

(65) The Commission concluded in the Opening Decision that recycled aggregates and freshly extracted aggregates are not in a comparable situation in the light of the objective of the AGL and the distinction made between recycled and freshly extracted aggregates results from the nature and logic of the AGL. It is clear that using recycled aggregate, even though the recycling process is less environmentally friendly than the excavation of fresh aggregate process, prevents the excavation of the same quantity of fresh aggregate. Moreover, incentivising the use of materials that are the unavoidable result of certain activities that would take place in any event clearly helps to reduce build-up of waste and prevents the excavation of the same quantity of fresh aggregate.

(66) Therefore, these three exemptions contribute to achieving a greater environmental benefit by preventing additional quarrying.

(67) Several interested parties mentioned in this regard that there have been cases of additional excavation solely with the purpose of obtaining aggregates for sale. However, these are cases of clear abuses that should be reported and dealt with under the national law of the United Kingdom and do not constitute a matter for State aid law.

(68) The reasons underlying the doubts expressed by the Commission in the Opening Decision as regards the waste/by-product of, inter alia, china clay, slate and coal do not affect the assessment of the three exemptions mentioned above, primarily the doubts raised by the Commission do not preclude the final results of the formal investigation procedure and the materials subject to the exemptions are different and result in different circumstances.

(69) Mr Bird points to the use as aggregates of a series of materials exempted from the AGL which proves that the exemptions from the AGL help to achieve its environmental purpose as they successfully replace freshly quarried aggregates.

(70) The data provided by the UK authorities, as we will show below in recital 143 shows that the number of quarries producing exempt materials has not increased following the introduction of the AGL, but has, in fact, decreased.

(71) One of the quarries that Mr Bird has listed as allegedly producing only slate rock and not roofing slate is in fact, according to its own website, producing roofing slate. As regards the other quarry, the UK authorities have committed to investigate what material it actually produces and will commence enforcement under the national legislation depending on the results of the investigation.

(72) Both the UK authorities and the BAA maintained that they have no information that former worked-out china clay quarries had been recently reopened. The UK authorities are not aware of any permission granted in this respect and the two china clay and ball clay producers are not aware of such openings.

5.2. STATE AID WITHIN THE MEANING OF ARTICLE 107(1) OF THE TREATY (EX ARTICLE 87(1) EC)

(73) A measure constitutes State aid within the meaning of Article 107(1) TFEU if it fulfils four conditions. First, the measure confers an advantage to the beneficiaries. Second, the measure favours certain undertakings or economic activities (selectivity). Third, the measure is funded by the state or through state resources. And fourth, the measure has the potential to affect the trade between Member States and to distort competition in the internal market.

(74) According to settled case-law, the definition of aid is more general than that of a subsidy because it includes not only positive benefits, such as subsidies themselves, but also state measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which thus, without being subsidies in the strict sense of the word, are similar in character and have the same effect (34).

(75) As regards the criterion of the selectivity of the advantage, it is necessary to consider whether, under a particular statutory scheme or specific tax system, a state measure is such as to favour certain undertakings or the production of certain goods within the meaning of Article 107(1) TFEU in comparison with other undertakings in a comparable legal and factual situation in the light of the objective pursued by the scheme or tax system concerned (35).

(76) However, a measure which, although conferring an advantage on its recipient, is justified by the nature or general scheme of the tax system of which it is part does not satisfy that condition of selectivity (36). A Member State can thus show that a measure results directly from the basic or guiding principles of its tax system.

(77) For the purpose of assessing the selective nature of the advantage conferred by the measure in question, it is important to determine what constitutes the reference framework, since the existence of an advantage may be established only when compared with this reference framework (37).

(78) In summary, selectivity can be assessed following a three-step approach: (i) determination of the reference system (or normal taxation system) where the normal taxation principle of the AGL and the (environmental) objective are identified; (ii) the establishment whether the tax differentiation constitutes a derogation from the normal taxation regime inasmuch as it differentiates between economic operators who are in a comparable legal and factual situation; and (iii) in case of comparability of legal and factual situation the tax differentiation does not constitute a derogation if it can be justified by the objective of the tax system. In absence of such justification the measure is to be considered de facto selective. When justifying the tax differentiation only the intrinsic mechanisms of the tax system necessary for the achievement of the objective pursued can be invoked. Objectives unrelated to the tax system cannot be considered in this regard.

(79) As the General Court has confirmed (38), the reference framework on the basis of which normal taxation and the existence of any selective advantages are to be determined consists of the AGL itself since it established a specific tax system applicable to the aggregates sector in the United Kingdom. It is thus by reference to the normal taxation and objective of the AGL that it is necessary to examine whether tax differentiations are justified.

(80) The Commission has examined the Finance Act 2001 as amended retroactively by the Finance Act 2002. As the AGL is an on-going scheme, the Commission has also examined the exemption laid down in Section 17(3) (da), which was introduced by the Finance Act 2007.

5.3. NORMAL TAXATION UNDER THE AGL AND OBJECTIVE OF THE AGL

(81) The AGL is a levy on aggregates. Subsections (1) and (2) of Section 16 of the Finance Act 2001 establish a levy on taxable aggregates that are subjected to commercial exploitation in the United Kingdom on or after its commencement date.

(82) The AGL was introduced on 1 April 2002. What constitutes commercial exploitation is defined in Section 19. Four types of commercial exploitation are envisaged: (a) the removal of aggregate from its originating site; (b) the conclusion of an agreement to supply; (c) the use for construction purposes; or (d) the mixing with any material or substance other than water.

(83) As to the concept of aggregates, the UK authorities have confirmed on many occasions that the AGL is not conceived as a levy on all extracted minerals or even on all rock, gravel or sand, but only on rock, gravel and sand extracted for the purpose of providing bulk in construction.

(84) This is further confirmed by the preparatory works of the AGL (39). Those works confirm that from the outset, the AGL was intended to be a tax on aggregates and not on any particular extracted mineral. This has also been recognised by the General Court (40).

(85) As indicated in recital 14 above, aggregates can generally be described as corresponding to granular or particulate materials which because of their physical and chemically inert properties are suitable for use on their own or with the addition of cement, lime or bituminous material in construction as concrete, roadstone, asphalt or drainage courses, or for use as construction fill. Natural aggregates are sand, rock and gravel. However, materials that are used as aggregates can also serve other purposes. In other terms, for the purposes of the AGL whether a material has to be considered as an aggregate or not will depend on its use rather than its geological composition.

(86) In the course of drafting the AGL legislation, the UK authorities realised that a use-based definition of the scope of the tax would prove problematic, as the intended use for the product could change after the tax point had passed (41). In order to solve that difficulty, the UK authorities opted for another technique. Instead of using a precise definition of the term ‘aggregate’ or general taxation criteria, the Finance Act 2001 starts by subjecting sand, gravel or rock to the tax but then narrows down the application and scope of the tax through exclusions, exemptions and tax reliefs of rock, sand or gravel that have been used for certain purposes or have been subjected to certain processes.

(87) The objective assigned to the AGL is to ensure that the environmental impact of aggregates extraction (in particular damage to biodiversity and to visual amenity) is more fully reflected in prices so as to induce a more efficient extraction and use of aggregates. It also aims at encouraging a shift in demand away from freshly extracted aggregates towards alternative aggregates such as recycled aggregates and aggregates which are the by-products of or waste from certain extraction or industrial processes. The shift in demand on its turn will reduce the need for freshly extracted aggregates and will thus limit the damage to the environment associated with the extraction activity.

(88) The Commission considered in the Opening Decision that it was necessary to determine the objective assigned to the tax system of the AGL without referring to the terminology of virgin or primary aggregates, but by reference to its content. The terminology is described in detail in recitals 64 and 65 of the Opening Decision.

(89) Irrespective of the terminology used, the UK authorities oppose aggregates that were (freshly) extracted for their use as aggregates to various materials that were either not freshly extracted as aggregates or that were inevitably obtained as a result of other activities that were not aimed at the extraction of aggregates, but which nonetheless could serve as alternatives to freshly and specifically extracted aggregates.

(90) Taking into account the explanations provided by the UK authorities the Commission concluded in the Opening Decision that the normal taxation principle of the AGL is the taxation of rock, gravel and sand (freshly) extracted for being used as aggregates and subjected to commercial exploitation within the United Kingdom on or after 1 April 2002.

(91) As regards its objective, the Commission noted that the AGL aims at making the extraction of aggregates more efficient by internalising the environmental costs of that activity. In addition, it aims at shifting demand: from deliberate extraction of rock, gravel and sand for aggregates use in the construction industry towards the use of aggregates which are the by-products of or waste from certain processes or of recycled aggregates.

(92) The Commission has received extensive comments from interested parties as regards the normal taxation principle and the objective of the AGL.

5.4. COMMENTS RECEIVED ON NORMAL TAXATION PRINCIPLE AND OBJECTIVE OF THE AGL

(a) Comments received from the BAA on 15 September 2014

(93) The BAA reiterated its statements from previous submissions that the AGL is inherently illogical. The BAA claims that there is no clear definition for aggregates that can explain the scope of the AGL. The BAA maintains that, the AGL taxes many materials that are outside the scope of the definition laid down in the Opening Decision i.e. materials that are used for different purposes than ‘providing bulk in construction’ or use in concrete, roadstone, asphalt, drainage courses or as construction fill. They claim that, armour rock for sea defences, which is taxed, is not used to add bulk in construction and is much larger and heavier than aggregates that are used for concrete or the other uses listed. In addition, uncut building stone is taxed by the AGL while it is used to construct walls of buildings and traditional hedges (i.e. walls separating fields) rather than any of the uses listed. The BAA argues that it cannot be claimed that these materials are ‘aggregate’ and that roofing slate, cut building stone or clay for the manufacturing of bricks is not ‘aggregate’. All the materials are rock extracted from the ground, but used for different purposes and are not interchangeable. Furthermore, there would be, supposedly, no environmental basis to label some of these materials as ‘aggregate’ and others not.

(94) The BAA claims that the fact that the exemptions are based on the geology of the material is problematic as the geological terms of clay, shale and slate cover a very wide geological range of rocks that are extracted from quarries that could not produce roofing slate tiles or ceramic products. This material however still qualifies as exempt clay, shale and slate from a geological perspective. The BAA provides some statements from Dr Rachel Hardie, a specialist geologist, as regards the poor choice of geological terms for differentiating rocks. Moreover, the exemptions for material mainly consisting of certain geological groups add even more difficulties. The BAA has provided in this respect a report prepared in 2003 by the British Geological Society for the United Kingdom tax authorities to assist tax officers with the application of the exemptions for slate, shale and clay in a geologically correct manner (the ‘Report’). The Report seeks to define shale, slate and clay, in terms of their characteristics and geological origin so as to assist the United Kingdom tax authorities. However it also mentions that ‘the original choice of these terms for the purpose of the Act is believed to have been based on their use as economic mineral commodities rather than geological entities’. It also provides that ‘[c]lay, shale, mudstone and slate occur extensively in the United Kingdom’, with shale often being ‘interbedded with sandstones’.

(95) The BAA claims that the UK authorities have treated shale and mudstone as synonyms and that consequently the entire family of rocks has been treated as exempt. Furthermore, the BAA argues that the definitions for the three materials determined by the report are very restrictive and that other materials could still have been categorised as shale, slate or clay. For example slate rock with the required ‘slaty cleavage’ to produce roofing tiles is relatively rare and rocks exhibiting a weak slaty cleavage that would be unsuitable for cleaving may be much more extensive, but still be classified as slate. The BAA further argues, partially quoting from the report, that slate is also extracted for decorative architectural uses, i.e. dimension stone, wall cladding, paving, sills, fireplaces, table-tops and ornaments for home and garden, for which a slaty cleavage would be less important than cutting and polishing. The BAA presents the example of a slate quarry that produces slate that is different from roofing slate and in regard to which it is, allegedly, unclear whether the material should be classified as slate at all.

(96) The BAA argues that, in their experience, an expert geologist's opinion is commonly sought to ascertain which rock is present at a quarry for the purposes of the AGL and whether an exemption is available for its extraction.

(97) The BAA maintains that while they have no information about the evolution of slate and shale spoil heaps since the introduction of the AGL, heaps of taxed aggregates by-product have increased. The BAA puts forward examples of three quarries where heaps of by-products accumulated. One quarry had to send in excess of 1 million tonnes of by-products while another had to invest GBP 2 million in a new installation to further process their by-product so that it could be sold.

(b) Comments received from the BAA on 17 January 2014

(98) The BAA argues that when the UK authorities suspended the exemptions from the AGL regarding which the Commission raised doubts in the Opening Decision, those authorities have, in fact, introduced two new exemptions, i.e. for clay and shale used in ceramic construction products and gypsum used in plaster and plasterboard. They consider that these materials cannot be considered to be in a different situation from materials taxed under the AGL in light of its environmental logic. The BAA maintains that, these materials are in the same situation as rock, sand and gravel as they have been extracted for construction purposes. They claim that these additional exemptions constitute State aid that could not be found by the Commission to be compatible aid as the relevant conditions are not met.

(99) The BAA maintains that the extraction of clay and shale used for the production of ceramic construction products could be reduced by using concrete construction products that can be produced with quarry waste/by-product (which is often taxed).

(100) The BAA claims that it does not matter that clay undergoes a chemical change when used in the manufacture of bricks and other ceramic products used in construction as this is irrelevant from an environmental perspective.

(c) Comments received from Cloburn Quarry Company Ltd on 17 January 2014

(101) Cloburn Quarry maintains that it extracts granite and greywacke. The latter is used for polished stone value anti-skid aggregates with a PSV in excess of 70. As there is no exemption for by-products for such material, large stockpiles of greywacke dust are accumulating and will become a major problem in time.

(102) Cloburn Quarry maintains that, sales volumes of the quarry have recently decreased from 1,3 million tonnes in 2007/2008 to 0,5 million tonnes. This is allegedly due, less to the recession and more to the exempt sales from competing quarries.

(103) According to Cloburn Quarry, the AGL diminishes the chances of the quarry competing with imported aggregates, as their by-products are sold without tax somewhere else, and, externally, with quarries that do not have to pay a similar levy.

(104) Cloburn Quarry maintains that the AGL has led to a depressed market, i.e. low price for aggregates, and exempted quarries can transport their materials farther.

(105) According to Cloburn Quarry, in 2013, 50 000 tonnes of aggregates sales were lost due to the exempted quarries. There is a particular problem with shale deposits that are being used on large construction sites, especially along the Glasgow-Edinburgh corridor. Around 1 million tonnes of shale was used for roads construction. This has affected competition as other quarries could not sell their low-value by-products. Moreover, the quarry's bright red aggregates compete with the plum red decorative slate which is exempted.

(106) The quarry submits that it has faced competition and lost tenders for projects to quarries it suspects of benefiting from an exemption from the AGL. According to the quarry, one of the contracts was lost to a quarry which received planning consent to work an exempt shale deposit for aggregates' extraction. According to the quarry, at least 800 000 tonnes of shale were available that could have been forward-sold to the main contractor.

(107) The quarry also submitted a series of general comments regarding the lack of environmental scope of the AGL.

(d) Comments received from Blinkbonny Quarry (Borders) Ltd (‘Blinkbonny Quarry’) on 8 January 2014

(108) Blinkbonny Quarry reports that it has been facing competition from another quarry that, possibly, sells exempt material included in ready mix concrete and would therefore be able to offer lower prices. It considers that, had it not been for the exemption, the competing quarry would not have opened and would not have been able to compete on the market. The Quarry alleges that the exemption enables their competitor to transport its material for longer distances which creates environmental damage.

(109) Blinkbonny Quarry further provided a series of comments in response to the Opening Decision. It claims that the measure favours those with exemptions by allowing them to sell products onto an open market without the same costs as those who do not benefit from this advantage.

(110) Blinkbonny Quarry considers that the AGL has failed in its environmental objective as it has resulted in the creation of a cheaper material which is transported further and which encourages the quarrying of exempt aggregate for the sake of producing cheaper materials which are not by-products or waste. Moreover, the Quarry claims that exempt shale and slate are being sold as aggregates for construction purposes and, due to the exemption, more shale and slate are being extracted for use as aggregates.

(e) Comments received from Kinegar Quarries Ltd (‘Kinegar Quarries’) on 15 January 2014

(111) Kinegar Quarries claims that all quarries produce lower grade aggregates. In its view, it makes no difference whether the product is slate that is exported all over the world or the everyday aggregates used within 15 miles of the quarry. Kinegar Quarries maintains that as aggregates are secondary products they can be used in a variety of ways and have always been cheap. Kinegar Quarries further considers that the cost of aggregates is low because they are a by-product of a higher grade product, and in order to maintain a balance of stock, will be priced according to supply and demand. Nevertheless, it maintains that aggregates always brought in some revenue until the AGL was introduced. Thereafter, secondary aggregates were required to compete with aggregates benefiting from the exemption and in certain circumstances they could not. However, production of secondary aggregates has not diminished as there is demand for the higher quality product. They just cannot be sold to the same extent. This, allegedly, leads to increased stockpiles of secondary aggregates. Moreover, Kinegar Quarries claims that there are no environmental benefits due to the additional transportation of aggregates.

(112) Kinegar Quarries claim that the United Kingdom Government had sought to ensure that non-aggregate producers can sell their by-products as levy exempt aggregates minimising their stocks of by-products. They consider that this goal has been achieved by the exemptions granted to non-aggregate producers (and a growing number of aggregate producers) for products which should in fact be called aggregates, because they are sold for the same purpose as material from an aggregate producer. However, the stockpiles of by-products have moved from non-aggregate producers to aggregate producers who pay levy.

(113) Kinegar Quarries mention that following the introduction of the AGL their sales of secondary aggregates dropped from over 50 000 tonnes in 2007 to 9 000 tonnes in 2013 and this could not be attributed entirely to economic recession. It maintains that it is no longer able to compete with exempted aggregates as its quotations are GBP 1,5-GBP 2,0 higher than those of its competitors.

(f) Comments received from Torrington Stone Ltd (Beam Quarry & Vyse Quarry) (‘Torrington Stone’) on 17 January 2014

(114) Torrington Stone submits that if its two quarries were not under the same ownership they would not have been viable today due to the introduction of the AGL. It maintains that clients make their purchasing choice based on the descriptions of the materials, such as quality and size, and not the geology of the materials. Clients do not know if a material is taxed or not.

(115) One of the quarries produces primarily shale with mudstone by-products while the other produces primarily gritstone with shale spoil. All are sold as aggregates. The mudstone by-product cannot be sold for any profit and is therefore tipped.

(g) Comments received from Mineral Products Association Ltd (the ‘Mineral Products Association’) received on 2 January 2014

(116) The Mineral Products Association submits that the ability of some operators to extract exempt materials such as shale and slate for the purpose of supplying aggregates markets is contrary to the original principles of the design of the AGL. The Association considers that extracted materials which are used for aggregates purposes should be subject to the AGL and that the exemptions should be limited to non-aggregate uses of the materials.

(117) The Association submits that materials which arise as a result of individual combustion processes or smelting and refining of metal are genuine by-products of these processes and should be exempted as they meet the underlying objective of the AGL to encourage the use of recycled material and resource efficiency. By comparison, exemptions for shale, slate and other extracted materials lead to local market distortions as they lead to the substitution of taxed materials by untaxed materials.

(h) Comments received from the BAA on 10 January 2014

(118) The BAA claims that the environmental objective of the AGL is to shift demand in favour of waste/by-product material as opposed to the implementation of the ‘polluter pays principle’, as the Commissions allegedly states in the Opening Decision. This suggested primary objective, of polluter pays principle, if in fact applicable, would entail a selective approach to materials (to the ‘aggregates sector’ but not to other mineral-extraction activity), which inevitably results in State aid. Rather, the environmental objective of the AGL is intended to promote the use of aggregates which are by-products of waste from certain processes or of recycled aggregates, thereby reducing the use of quarried aggregates (shift in demand logic).

(119) The BAA submits that the effect of a would be ‘shift in demand’ logic of the tax would mean, in practice, that the AGL would be limited to rock, sand or gravel used to add bulk to construction and, that in view of this objective, only by-products or waste that could replace extracted minerals should benefit from the exemption. However, BAA points out that this limitation is not the guiding principle of AGL taxation which allows for materials that cannot be replaced to be taxed.

(120) The BAA considers that even if the exemptions under investigation were removed, the scope of AGL would be not consistent with its environmental logic, i.e. the ‘shift in demand’ logic. According to BAA, the removal of exemptions for by-product/waste materials would make the AGL less aligned with its environmental objective. By contrast, they claim that the removal of exemptions for material extracted for ‘use as aggregate’, such as slate and shale, would be in line with the environmental objective of the AGL.

(121) The BAA considers that the fact that the scope of the AGL does not correspond to the environmental objective of ‘shift in demand’ is supported by the fact that the by-product/waste of lime or cut building stone and materials such as rail track ballast and high PSV stone, for which there is no substitute, are taxed.

(122) The BAA considers that the scope of the AGL is too far removed from its environmental logic. This would be due to the fact that some of the material that is not-taxed could be replaced with by-product or waste. They provide as example clay used for bricks and ball clay used for tiles.

(i) Comments received from the BAA on 17 January 2014

(123) The BAA submitted a copy of the Cornish Building Stone and Slate Guide 2007 and observed that in that publication, several granite and slate quarries advertise themselves as producing similar types of products and building stone. The BAA argues that the Guide reveals that the exemptions from the AGL are not consistent with its logic, i.e. to achieve a shift in demand between materials quarried for use as aggregate and waste being capable of being used as aggregate.

(124) The BAA claims that there is evidence that the availability of exemptions for the by-product/waste of china clay quarries has encouraged the extraction of more material than required, purely to benefit from the exemptions for the alleged by-products i.e. high quality granite (42). The BAA further maintains that there is also evidence that some china clay quarry operators concentrate their efforts on the extraction of these alleged by-products rather than the original china clay material (43). The BAA refers to an e-mail from a quarry operator to the BAA (44) alleging that since the introduction of the AGL they have experienced severe difficulty competing with aggregates from china clay quarries as they the aggregate they produce are cheaper and have taken over the market. As per the e-mail, the aggregates sold by china clay quarries are high grade stone and not a secondary product or a by-product. The production of the respective quarry operator has halved and they have not achieved a profit in over nine years. Their waste materials cannot be sold.

(125) The BAA maintains that the way the AGL is applied in the context of lime extraction is problematic. The extraction of lime itself is not taxed, but its waste or by-products are taxed. Moreover, the AGL applies to fines, by-product or waste of certain quarries, which can be used in the manufacturing of concrete building blocks that could be used to replace bricks manufacture with untaxed clay.

(j) Comments received from Quarry Products Association Northern Ireland Limited (‘QPANI’) on 8 January 2014

(126) QPANI maintains that it represents approximately 95 % of companies involved in the supply of quarry products to the construction industry in Northern Ireland. QPANI considers that the AGL had a flawed design from the beginning as materials should have been taxed based on their use, rather than on their geology.

(127) QPANI believes that there should not be an aggregates levy exemption for shale and slate if used for aggregates purposes. Slate and shale are used as aggregates in the United Kingdom construction markets and can have significant local market impact where they are supplied into aggregates markets. This is particularly true in Northern Ireland. While the supply of slate and shale for aggregates purposes can be materials which are, in effect, the by-products of extraction for non-aggregates purposes (e.g. the extraction of slate for the production of roofing slate), these materials are also extracted primarily for supply into aggregates markets.

(128) QPANI also questions the exemption for materials which consist ‘mainly’ of coal, lignite, slate or shale. According to QPANI it would be more simple and consistent if a simple distinction were made between materials used for aggregates purposes, on the one hand, and those used for non-aggregates purposes, on the other. Materials used for aggregates purposes should be subject to the AGL and materials used for non-aggregates purposes should not be subject to it.

(129) QPANI maintains that the AGL has led to environmental damage due to the possibility to transport farther exempt materials.

(130) QPANI submits that in Northern Ireland there have been hundreds of thousands of tonnes of shale imported from Donegal, in Ireland. Shale from Ireland is sold in construction markets across the whole of Northern Ireland. Construction projects along the border with the Ireland have used exempt aggregates from Ireland classified as shale.

(131) QPANI further makes reference to stone that is described as shale and, thus, unduly benefits from the exemption.

(k) Comments from the UK authorities

(132) The UK authorities maintain their position that the exemptions and reliefs under investigation do not give rise to State aid. In particular, they submit that the distinctions made by the levy are justified by the nature or general scheme of the tax system and therefore do not satisfy the condition of selectivity.

(133) The UK authorities acknowledge the description of aggregates as included in recital 8 of the Opening Decision. Furthermore, they agree with the logic of the AGL as described in recital 67 of the Opening Decision.

(134) The UK authorities mention that the General Court observed in paragraph 55 of its judgment of 7 March 2012: ‘the normal taxation principle underlying the aggregates levy is based solely on the notion of the commercial exploitation in the United Kingdom of a material that is taxable as an “aggregate”’. The UK authorities maintain that since the AGL is not intended to tax rock, sand, or gravel exploited for use in industrial or agricultural processes, any levy paid on materials used for such non-aggregate purposes is recoverable as a tax credit. Following the same logic, rock, sand or gravel which is extracted, but not commercially exploited (as defined in the legislation) falls outside the scope of the levy.

(135) The United Kingdom, quoting the General Court's judgment, explained that the AGL's objective: ‘… essentially entails the promotion in the construction industry of the use of aggregates which are the by-products of or waste from certain processes (also known as “secondary” aggregates), or of recycled aggregates, thereby reducing the use of quarried aggregates (also known as “primary” aggregates), which are non-renewable natural resources, and thereby limiting the damage to the environment associated with that process of extraction (“the aim of shifting demand” or “the environmental objective of the AGL”).’

(136) The UK authorities maintain that the logic of the tax was set out clearly from the beginning in the Regulatory Impact Assessment: ‘The main objective of the Government's chosen option would be to reduce the environmental costs of quarrying that are imposed on individuals and firms in society more generally, and to encourage recycling.’

(137) The UK authorities claim that the AGL seeks to achieve its environmental objective in two distinct, but interconnected ways. First, the imposition of the levy helps to internalise some of the damage caused by the extraction and transportation of aggregate. The levy thus leads to a decrease in demand for freshly extracted aggregate as costs increase. Secondly, exemptions and reliefs are granted for waste and recycled materials in order to encourage a shift in demand from freshly extracted aggregate to such materials, while not discouraging the production of non-aggregate material. For the achievement of the environmental objective of the AGL, it was designed to ensure that there are economically attractive alternatives to freshly extracted, taxable aggregate.

(138) The UK authorities maintain that, through its exemptions, the AGL aims to encourage the use of recycled or by-product material (which arises during a process not intended to produce aggregate), so as to reduce the demand for virgin aggregate and thereby reduce the environmental damage associated with aggregates quarrying. The derogations from the scope of the tax may fall into two categories: recycled aggregate and unavoidable waste by-products. The latter can be defined as material which is commercially exploited in the United Kingdom and used as construction aggregate, but which arises as an unavoidable consequence of a process which is not carried out deliberately to produce aggregate. At their turn such products fall into two categories: (a) those materials which arise unavoidably from the extraction of a non-aggregate mineral; or (b) those which arise unavoidably from a digging or dredging process not intended to extract any material for commercial exploitation.

(139) The UK authorities maintain that those materials which are extracted for commercial exploitation as aggregate, or which arise as by-products from a process which is intended to produce aggregate for commercial exploitation, are in a different factual situation to the exempted materials.

(140) The UK authorities maintain that, in accordance with the derogations described above, the exemptions from the levy distinguish between waste materials that arise as the by-product of the extraction of a non-aggregate mineral, which are exempt, and waste materials that are the by-product of the extraction of aggregate (such as waste from limestone), which remain subject to the tax. The distinction, in their view, stems from the objective of discouraging the extraction of limestone for aggregate whilst not discouraging the production of non- aggregate material. The AGL discourages the extraction of aggregate from natural rock while encouraging the use of alternative supplies of aggregate.

(141) The UK authorities submit that the exemptions from the tax are crucial for achieving the environmental purpose of the AGL as they reduce the damage created by fresh quarrying. They maintain it is the price difference between exempt and taxed materials which shifts demand from fresh quarrying. The exemptions are consistent with the environmental objective of the AGL in so far as the use of exempt materials ultimately reduces demand for the extraction of fresh aggregate and the environmental harm associated with it.

(142) The UK authorities maintain that there are many examples of exempted materials replacing premium quality aggregates. For example, the construction of the 2012 Olympic Park required over a million tonnes of aggregate fill materials. By-products of china clay production from Cornwall were used alongside recycled aggregates in place of premium aggregates such as freshly quarried limestone or granite. Slate waste from a […] (45) slate quarry was used as pipe bedding in the […]. This crushed slate was used in place of other crushed rock aggregate. Slate by-product from the same quarry was also used in construction at […] in place of premium quality aggregate.

(143) The UK authorities show that the number of exempt quarries has not increased after the introduction of the AGL as shown in the table below which contains the number of active quarries at a certain point in time: 2001 2002 2003 2004 2005 2006 Ball clay 20 20 22 18 18 18 China clay 17 17 17 17 15 15 Limestone 348 348 359 336 340 319 Igneous & metamorphic rock 211 211 210 204 213 199 Slate 43 43 44 43 40 35 Clay & shale 177 177 180 172 169 172 2007 2008 2009 2010 2011 2012 Ball clay 18 18 18 18 18 18 China clay 13 12 16 17 16 15 Limestone 338 335 324 331 317 322 Igneous & metamorphic rock 208 203 207 195 204 191 Slate 36 37 32 33 33 32 Clay & shale 175 165 156 159 155 155

(144) In 2009, crushed rock accounted for 59,4 % of primary aggregate sales in the United Kingdom. The remainder of such sales concerned sand and gravel. Limestone was by far the most important source of crushed rock aggregate, accounting for 66 % of the total, followed by igneous rock such as granite (24 %) and sandstone (9 %). Limestone, igneous rock and sandstone all have other uses, e.g. as building stones, or in the case of limestone, as industrial lime.

(145) In 2012, 1 tonne of limestone aggregate would sell for GBP 7,16 to GBP 11,70 per tonne. 1 tonne of granite would sell for GBP 6,12 to GBP 12,82 per tonne. 1 tonne of slate aggregate would sell for between GBP 2 and GBP 8 per tonne.

(146) As regards decorative aggregates, the UK authorities jointly with the BAA submitted information that they are an atypical use of aggregates. Those used in landscaping are used in small quantities and chosen based on their visual properties, e.g. colour and shape, with construction properties such as strength being a minor consideration, unlike for other aggregate uses. Given the small quantities involved, decorative aggregates form a small part of the market demand for aggregates in the United Kingdom.

5.5. ASSESSMENT OF COMMENTS RECEIVED

(147) The Commission already concluded in the Opening Decision that the normal taxation principle of the AGL can be summarised as being the taxation of rock, gravel and sand freshly/deliberately extracted for being used as aggregates and subjected to commercial exploitation within the United Kingdom on or after 1 April 2002.

(148) In addition to the comments made by the UK authorities above as regards the tax principle underpinning the AGL, the Commission makes the following observations.

(149) Several third parties commented that the AGL does not treat materials in a consistent manner because by-products from other exempted materials (rock used to produce stone with one or more flat surfaces (hereafter referred to as ‘cut stone’), lime), high PSV rock, armour rock for sea defences, walling rock and by-products/waste from extraction of primary high quality aggregates are not exempted. They would allegedly be in the same legal and factual situation as currently exempted by-products of non-aggregate materials or as materials having specialised uses that are not taxed.

(150) The Commission itself raised the question in the Opening Decision as to why it is considered justified to grant exemptions for by-products of ball clay, china clay, coal, lignite, shale and slate but not for by-products of lime for agricultural use and cut stone.

5.5.1. TAXATION OF BY-PRODUCTS OF CUT-STONE AND LIME EXTRACTION

(151) Following receipt of extensive information from third parties and from the UK authorities, the Commission notes that waste or by-products from the extraction of cut stone and lime consists of the same type of rock as the cut-stone and lime: (i) waste from the extraction of limestone used for producing lime is likely to consist also of limestone, and (ii) waste arising from the extraction of rock to produce cut stone is likely to consist largely of the chippings of the same type of rock which is being cut.

(152) The exemptions from the AGL distinguish between waste materials that arise as the by-product of the material extracted not for aggregate use (such as waste from china and ball clay, coal, lignite and slate extraction), which are exempt, and waste materials that are the by-product of the deliberate extraction of material for an aggregate use (such as waste from limestone), which remain subject to the tax.

(153) This tax distinction stems from the objective of discouraging the fresh extraction of limestone, granite, sandstone, etc., for aggregate use while not affecting the production of non-aggregate material.

(154) As described by the UK authorities, limestone, sandstone and granite are the most common materials extracted for aggregates use. An AGL exemption of by-products of cut stone or of limestone used to produce lime would in fact at least maintain the level if not encourage the fresh extraction of these materials.

(155) Moreover, there is no additional (processing) costs for obtaining cut stone and lime from the main extracted materials. This is unlike, for example, ball clay and china clay extraction where the separation of these materials from the waste is very costly.

(156) The UK authorities explained that both the stone to be cut and the limestone used for obtaining lime are deliberately extracted for use as aggregates. Also, their by-products and waste may be sold on their own even without the main material as they make good quality material for aggregates use. As proof of this, the UK authorities submitted pricing information showing that, indeed, the prices of the lime and cut-stone are in the majority of cases not much higher than the prices of their respective by-products. The cost of limestone for lime is around GBP 12,50 to GBP 19,50 per tonne, whereas the price of its by-product is GBP 7,16 to GBP 11,70 per tonne. Igneous rock (including granite), which is also used to produce cut stone, costs around GBP 5,51 to GBP 12,91 per tonne, whereas its by-product sells for around GBP 6,12 to GBP 12,82 per tonne. This would mean that if there is no demand for the high quality specialised product, the quarry would still proceed with the fresh extraction as it makes economic sense to sell the freshly extracted product and its by product for aggregate use. It cannot be excluded that the exemption of by-products would thus encourage additional fresh quarrying and thus would undermine the AGL's environmental logic.

(157) Moreover, there is no objective way to distinguish between limestone as a by-product of agricultural lime production and limestone quarried specifically for use as aggregate. The same is applicable to granite and sandstone and to by-products of cut stone. Thus these freshly extracted materials and their by-products are interchangeable and thus the quarry operator can decide depending on the demand to sell both for the same ‘aggregates use’.

(158) On the basis of the considerations set out in recitals 151 to 157 above, the Commission notes that the by-products of the extraction of lime and cut stone are not in a different factual and legal situations as the freshly extracted products. In addition, any possible exemption for the spoil arising from extraction of limestone/rock used for cut stone or for other purposes than aggregates would only serve to encourage increased extraction of fresh rock and limestone, and would not contribute to the shift of demand.

5.5.2. HIGH PSV ROCK, ARMOUR ROCK FOR SEA DEFENCES, WALLING ROCK, PRIMARY HIGH QUALITY AGGREGATES AND THEIR BY-PRODUCTS/WASTE

(159) Materials used for high PSV rock, armour rock, walling stone and primary high quality aggregates represent indeed either specialised uses of the respective materials, or uses where they cannot be replaced by recycled aggregates or by waste from materials that are not subject to the tax.

(160) However all the materials used for high PSV rock, armour rock, walling stone and primary high quality aggregates and their by-products are of the same rock. For example armour rock is produced from the same rock as the smaller aggregates chippings that result as by-products.

(161) These rocks are in general suitable for aggregates use and the quarry operators have a choice as to how to sell or exploit the given rock in accordance with demand.

(162) For the reasons explained in recitals 151 to 157 above as regards by-products of cut stone and of lime, the Commission cannot exclude that an exemption for high PSV rock, armour rock for sea defences, walling rock, primary high quality aggregates and their by-products/waste, would encourage the extraction of these materials for aggregates purposes.

(163) As regards the fact that several interested parties questioned the logic of the AGL in view of the fact that high PSV and armour rock are taxed whereas clay for flood defences or materials for other specialist uses are not taxed, the UK authorities jointly with the BAA submitted information that PSV (is a measure of the resistance of an aggregate to polishing; aggregates with a high PSV are used in a bituminous mixture laid on the surface of roads to give a high level of skid resistance. Aggregates with the highest PSV are used in locations such as bends and braking zones, and are specified for their PSV and aggregate abrasion value (AAV). These are properties that are inherent in the rock deposits and enhanced by the manufacturing process. The materials are still aggregate and this use is classified as an aggregate use for the purpose of the AGL.

(164) Armour rock is used to protect the United Kingdom shorelines from erosion. The requirements of the specification depend of the specific severity of the marine environments. Qualities that are specified include density and aggregate abrasion value. It is classified as an aggregate use for the purpose of the AGL as it is used for strength and bulk.

(165) Moreover, whether a material used for a certain purpose is interchangeable or not does not affect the logic of the AGL and the exemptions granted for other materials. Indeed, the Commission notes that there the AGL applies to a variety of different uses that are not interchangeable. However, as long as such materials can and are widely used as aggregates and their use as aggregates makes economic sense, an exemption for such materials even for certain uses would undermine the objective of the AGL.

(166) Numerous interested parties point to the fact that exempted aggregates replace secondary aggregate products and not the higher grade products. The Commission notes, firstly, that this consideration does not cast any doubt over the fact that the AGL is achieving its environmental scope as the exempted materials which are unavoidable by-products of material extracted for a non-aggregate use are replacing freshly extracted aggregates. It does not matter if they replace higher grade or lower grade aggregates as long as fresh extraction is diminished. Moreover, the Commission notes that on occasion exempted materials could even replace higher grade aggregates as described by the UK authorities in recital 142.

(167) The Commission acknowledges the problems with implementing the AGL and its exemptions based on the geology of the materials. However, the Commission also notes that it would have been more difficult to base the exemptions on the uses of the materials as this might lead to difficulties in enforcement and leave more room for abuse. Moreover, it appears that the UK authorities have obtained the Report as support for the implementation of the AGL and follow the definitions and tests for the material provided therein. The BAA themselves acknowledged that the UK authorities use an expert geologist to determine the materials produced by quarries.

(168) As regards the exclusion of clay and shale used for ceramic products from the suspension of the AGL, the Commission notes that this is an exempt industrial process which has already been considered in the Opening Decision and found not to constitute State aid.

(169) As regards the content of the Cornish Building Stone and Slate Guide 2007, submitted by the BAA, the Commission notes that it cannot be relied upon as an accurate source of information for a comprehensive overview of all products of a quarry. It is a guide made for promotional purposes where quarries advertise their products addressed to the construction industry. The Commission, thus, considers that the quarries appearing in the Cornish Building Stone and Slate Guide 2007 would have presented products in line with their marketing strategy towards the construction industry. The UK authorities mentioned that they allow quarries to advertise their products as they wish regardless of the geological composition of the respective materials and do not consider such promotional descriptions as relevant for the qualification of materials for the purposes of the AGL.

(170) It follows that the taxation of high PSV rock, armour rock for sea defences, walling rock, primary high quality aggregates and their by-products/waste falls within the normal taxation principle of AGL and is justified by the objective pursued.

5.5.3. CONCLUSION ON THE NORMAL TAXATION UNDER THE AGL AND OBJECTIVE OF THE AGL

(171) The Commission considers that the comments received by all interested parties do not provide reasons to depart from its findings in the Opening Decision as regards normal taxation principle under the AGL and the objective of the AGL.

(172) The normal taxation principle of the AGL is that rock, gravel and sand defined as aggregates pursuant to Section 17(1) are to be taxed when they are subjected to commercial exploitation as defined in Section 19 within the United Kingdom on or after 1 April 2002 (46).

(173) In accordance with the description that had been provided by the UK authorities prior to the Opening Decision and as confirmed by the preparatory works of the AGL (47), the Commission found in the Opening Decision (48) that aggregates can generally be described as corresponding to granular or particulate materials which because of their physical and chemically inert properties are suitable for use on their own or with the addition of cement, lime or bituminous material in construction as concrete, roadstone, asphalt or drainage courses, or for use as construction fill (‘aggregates use’).

(174) All interested parties and the UK authorities acknowledged the term of ‘aggregates use’ in their submissions and presented their comments accordingly. The BAA has actually submitted comments aiming to show that the AGL lacks logic as certain materials that do not fulfil this definition are taxed. The Commission has addressed in detail these comments above in recitals 151-158 and 159-165.

(175) Thus, in other words, the normal taxation principle of AGL is the taxation of rock, gravel or sand when extracted for ‘aggregates use’/extracted for commercial exploitation as aggregate as described above.

(176) The above description is also consistent with the objective of the AGL which is to make the extraction of aggregates more efficient by internalising the environmental costs of that activity. As also confirmed by the General Court (49), the objective of the AGL is to promote in the construction industry the use of aggregates which are the by-products of or waste from certain processes (also known as ‘secondary’ aggregates), or of recycled aggregates, thereby reducing the use of quarried aggregates (also known as ‘primary’ aggregates), which are non-renewables natural resources, and thereby limiting the damage to the environment associated with that process of extraction (the aim of ‘shifting demand’).

5.6. TAX DIFFERENTIATIONS

(177) The Finance Act 2001 initially establishes a broad basis for the imposition of the AGL. The scope of this imposition is then narrowed down through exclusions and exemptions. In addition, the Finance Act 2001 also provides for a certain number of tax reliefs. The Commission will examine again whether the exclusions, exemptions and tax reliefs as regards to which it raised doubts in the Opening Decision are in line with the normal taxation principles in the light of the objective of the AGL.

(178) For the purpose of assessing the tax differentiations under the AGL, the reference framework/normal taxation principle used by the Commission is the imposition of the AGL on materials that are commercially exploited in the United Kingdom as aggregates (50). As described above in recital 173, the ‘use as aggregates’ is intrinsically linked to the commercial exploitation of rock, gravel and sand for construction purposes, that is their use as material or support in the construction or improvement of any structure (including roads and paths, the way on which any railway track is or is to be laid and embankments) or mixing them as part of the process of producing mortar, concrete, tarmacadam, coasted roadstone or any similar construction material (51).

(179) In addition, the notion of aggregates use, as defined above, is used by the Finance Act 2001 in Section 30(1)(d) of the Finance Act 2001 which provide a right for a person to ask for a tax credit if ‘the aggregate that has been subject to the AGL is disposed of in such manner not constituting its use for construction purposes as may be prescribed’.

(180) If an exempted material is extracted for aggregates use or is subjected to the commercial exploitation for construction purposes as described above it should fall within normal taxation under the AGL as it is in a comparable factual and legal situation as the taxed materials and its exemption could be justified only in light of the inherent objective pursued by the AGL.

(181) As regards the exemptions under investigation concerning by-products, waste, or spoil of other materials or processes, the Commission will maintain the assessment criteria used in the Opening Decision. The Commission will take into account in its assessmen