EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

The Treaty on the Functioning of the European Union (TFEU) applies to the outermost regions of the Union. The French outermost regions, however, are excluded from the territorial scope of the VAT and excise duty directives.

The TFEU, in particular Article 110, does not in principle authorise any difference in the French outermost regions between the taxation of local products and the taxation of products from metropolitan France, the other Member States or non-member countries. However, Article 349 TFEU provides for the possibility of introducing specific measures for those regions because of permanent constraints affecting their economic and social situation. Such measures concern various policies, including taxation.

The dock dues tax is an indirect tax in force only in the French outermost regions of Martinique, Guadeloupe, French Guiana, Réunion and Mayotte. This tax applies to imports of products, irrespective of their origin, and to supplies of goods for consideration by persons engaged in production activities. In principle, it applies in the same way to locally produced products and to imported products.

However, Council Decision No 940/2014/EU of 17 December 2014 authorises France to apply, until 31 December 2020, exemptions or reductions to dock dues in respect of certain locally produced products. The Annex to the Decision contains the list of products to which the tax exemptions or reductions may be applied. The difference between the taxation of locally produced products and that of other products may not exceed 10, 20 or 30 percentage points, depending on the product.

The purpose of these tax differentials is to offset the competitive disadvantages affecting the outermost regions, which increase production costs and therefore the cost price of products produced locally. Without specific measures, local products would be less competitive than those produced elsewhere, even taking into account the cost of transporting such goods. This would make it harder to maintain local production with higher production costs.

Following the expiry of the Council Decision, the Commission launched an external study to assess the current arrangements and the potential impact of various options for the period after 2020. On the basis of that study, the Commission considers it justified to grant the requested extension, with some modifications to the existing arrangements.

The Commission has therefore undertaken an analysis of the lists of the products to which the French authorities wish to apply differentiated taxation. This analysis is a lengthy process for both the French authorities and the Commission, requiring verification, for each product, of the reasons for differentiated taxation and its proportionality, so as to ensure that differentiated taxation does not undermine the integrity and the coherence of the Union legal order, including the internal market and common policies.

The crisis caused by the COVID-19 pandemic has seriously delayed the work carried out by the French authorities to collect all the necessary information. Consequently, this work has not yet been completed.

Failure to adopt any proposal before 1 January 2021 might create a legal vacuum as it would rule out application of any differentiated taxation in the French outermost regions after 1 January 2021, even in the case of products for which differentiated taxation would prove justified in the end.

An additional period of six months is therefore required to make it possible to complete the work under way and to give the French authorities the opportunity to collect all the necessary information and to allow the Commission time to present a balanced proposal that takes account of the various interests at stake.

•Consistency with existing provisions in the policy area

The 2017 Communication on a stronger and renewed strategic partnership with the EU’s outermost regions stresses that the outermost regions continue to face serious difficulties, many of which are permanent. The Communication presents the Commission’s new approach to how to galvanise the development of the outermost regions by making the most of their assets and tapping into the opportunities provided by new vectors of growth and job creation.

Against that background, the objective of this proposal is to promote and maintain certain local production activities which are particularly at risk, thereby boosting employment in the French outermost regions. The proposal deepens the single market and makes these local outputs competitive again by compensating for the disadvantages resulting from their geographical and economic situation. It supplements the Programme of Options Specifically Relating to Remoteness and Insularity (POSEI), which aims to support the primary sector and the production of raw materials, the European Maritime and Fisheries Fund (EMFF) and the European Regional Development Fund (ERDF), which includes an additional special allocation to offset the additional costs of the outermost regions inherent in their own constraints.

•Consistency with other Union policies

The proposal is consistent with the 2015 Single Market Strategy, in which the Commission seeks to establish a deeper and fairer Single Market that will benefit all stakeholders. One of the objectives of the proposed measure is to mitigate the additional costs faced by companies in the outermost regions, which impede their full participation in the Single Market. In view of the limited volume of production concerned in the French outermost regions, no negative impact on the proper functioning of the Single Market is expected.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY