EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Taxation of energy products and electricity in the Union is governed by Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (the ‘Energy Taxation Directive’ or the ‘Directive’).

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

The Italian municipality of Campione d'Italia constitutes an exclave of Italy in Switzerland with a very limited geographical scope and a small population. Its territory, which partly borders Lake Lugano, is entirely surrounded by the Swiss Canton of Ticino.

That exclave has a steep orographic structure which limits its urbanisation and, overall, accessibility, making the establishment of industrial activities more difficult.

Additionally, Campione d'Italia is experiencing a serious economic crisis (further aggravated by the COVID-19 pandemic) caused by the closure of its casino, on which its economy was almost entirely based.

Moreover, the entry of the municipality of Campione d’Italia into the Union customs territory on 1 January 2020 further led to an increase in the costs of energy products (such as electricity and gas oil used as fuel for heating purposes).

According to the Italian authorities, the particular geographical situation of the municipality of Campione d’Italia, coupled with the absence of a gas supply network and severe climatic conditions lead to higher energy costs, whether they come from Switzerland or from the nearest Italian province. In particular, the minimum road distance required for the supply of heating oil from Italy is approximately 30 km (distance between Campione and Como). Additionally, the need to accomplish customs formalities for crossing the Italian and Swiss border, is a strong disincentive for Italian economic operators to carry out those operations, besides constituting an additional cost.

By letter dated 7 August 2020, the Italian authorities requested authorisation to apply reduced rates of excise duty to gas oil used for heating purposes and to electricity, supplied in the territory of the municipality of Campione d'Italia. In justification of its request for derogation, Italy points out the unique situation of Campione d'Italia described above.

The proposed rates are, for electricity, EUR 0.0005 per kWh, for its use in premises and places other than households, and EUR 0.001 per kWh, for its use in households, which corresponds to 4% of the national excise duty but equal to the respective minimum rates provided for by the Energy Taxation Directive. For gas oil used as heating fuel, the proposed rate is EUR 201.50 per 1 000 litres, corresponding to 50% of the rate applied at national level, but above the minimum rate set out by the Energy Taxation Directive.

In this way, indirect taxes applied to these energy products consumed in Campione d’Italia would be broadly the same as that applied in Switzerland.

By the requested authorisation, Italy aims to mitigate the high energy costs for households and businesses supplied in that area since those energy products are used for heating (gas oil) and to meet all normal daily needs associated with the consumption of electricity (lighting, operation of household appliances, heating and cooling etc.).

This tax advantage would allow to alleviate the additional heating costs of the population of Campione d’Italia, which are due to cold climate, difficulties with fuel procurement and specific compliance cost.

Hence, this measure appears to be an appropriate instrument to remedy to the specific situation of the Italian municipality.

The requested period of validity is six years, starting from 1 July 2021 until 30 June 2027, which is within the maximum period allowed by Article 19 of the Energy Taxation Directive.

The tax advantage cannot be combined with other excise duty reductions. It would be reserved for consumption in the municipality of Campione d’Italia.