COMMISSION OF THE EUROPEAN COMMUNITIES 
C0MC89) 526 final 
Brussels, 19 December 1989 
Amended proposal for a 
COUNCIL DIRECTIVE 
on the approximation of the rates of exciseduty on mineral oils 
(presented by the Commission) 
EX P LANATORY MEM0 R A N D UM 
T• INTRODUCTION 
1. This proposal sets out to amend the terms of the 
Commission's initiative of August 198 7 in respect 
of the rates of excise duty on mineral oily. Tn 
June of this year, the Communication from the 
Commission to the Council and to the European 
Parliament on the completion of the internal market 
and the approximation of indirect: taxes 
( C 0 M ( G 9 ) 2 6 0) set down the general tenor of changes 
in this field. A minimum rate or a band of rates is 
set out for each category of product for 
implementation in each Member State by 31 December 
1992. Corresponding target rates are laid down for 
these products. The target rates represent the 
long term objectives towards which Member States 
must conVG ry i* . 
II. BACKGROUND 
2. The initial approach of the Commission, as outlined 
in C0M(07) 3 27 was set against a background where 
all Member States levy excises on mineral oils. 
Uithout exception these taxes are specific - i.e., 
rates are set in fixed monetary values for a given 
physical quantity of the product. Individual rates 
are prescribed for each of the. major product 
categories: petrol. (leaded or unleaded), road 
diesel, heating gas oil, heavy fuel oil, kerosene 
and liquid petroleum gas. In general, these various 
rates of taxation as set within each Member State, 
do not conform to any overall approach but rather 
tend to be determined by diverse historical 
patterns of development/i In addition a high level 
of diversity is found in the rates charged across 
the Community on individual categories of mineral 
oils - although this is less pronounced in the case 
of mineral oils than for other categories cf 
exciseable products. % • 
3. Given this scenario, the path taken was essentially 
a pragmatic one. Based on the accepted product 
categories and on the rates of taxation then in 
Corci? (in practice. those of I April 1 9117) in 1.1: e 
Member States the Commission put forward a set of 
average rates for adoption as Community target 
rates by 31 December 1992. 
This proposal was discussed (together with the rest 
of the fiscal package) both within the Council «ind 
Parliament. It emerged that for many Member States 
a rapid transition from their existing rates of 
taxation to the target rates advocated present:ed 
considerable practical difficulties - not least of 
which was a potentially serious drop in revenue for 
certain Member States. In response to this 
situation, the Commission indicated in June of this 
year that it was considering a more flexible 
approach to the approximation of tax rates. 
III. FLEXIBILITY AND THE ABOLITION OF FISCAL FRONTIERS IN 
1992 
4. Any fresh proposal aimed at easing these 
difficulties must be formulated within the terms of 
the Single European Act. For mineral oils in 
practice this means that the rates and regime to be 
adopted must be in conformity with the abolition of 
fiscal controls at intracommunity frontiers. In 
addition the approach taken has to reflect the 
particular realities of trade in these products and 
the pattern of their consumption within the 
-Community. The competitive implications of varying 
tax rates on those mineral oils which-constitute an 
important industrial and commercial cost input form 
another vital constraint on the limits of such 
flex ibi 1 ity. 
5. The approach of the Commission is therefore to 
distinguish between those products which are 
essentially destined for final private consumption 
(and where the risk of distortion is limited) and 
those whose consumption is mainly commercial (and 
with obvious implications for competitive 
distortion). The result is that petrol (leaded and 
unleaded) can be treated in an approach which 
differs from that accorded to diesel and heavy fuel 
oil - heating gas oil being somewhat of an 
exception since although its consumption is mainly 
private, the pattern of supply dictates a 
particular approach. 
6. Account must also be taken of the various other 
policy considerations which impinge on the question 
of setting tax levels. For mineral o i 1 s the impact of 
national policies in the field of energy and transport 
as well as environment, is reflected in the diversity of existing 
rates. The Commission has taken particular account of the environ­
mental impact of its proposed rates» whitst always taking into 
account the policies in the field of energy and environment. 
IV. NATURE OF FLEXIBILITY 
7. From the above (essential requirements in the energy, 
transport and environment fields) and from the 
considerations set out in the communication to Parliament 
and Council (C0M(89)260), it is clear that flexibility in 
the form of minimum rates or ranges according to product 
is justified. 
8. In practice, this flexibility will be applied as follows: 
8.1. On 1st January 1993, an initial move towards 
approximation of rates will take place: each Member 
State must apply rates equal to or above the minimum 
rates fixed for petrol (leaded or unleaded), LPG, 
methane and kerosine used as engine fuels, and rate 
within a range fixed for diesel, heating oil and 
heavy fuel. 
8.2. After this date this initial flexibility will entail 
a gradual alignment of rates on benchmark values that 
will be known as target rates, with a view to 
attaining the objectives of the internal market. 
At Community level, these rates will also have to be 
set at a level compatible with the requirements of 
transport, energy and environment policy. 
It is important not to anticipate the results of the 
studies in process nor to prejudge the orientations 
which the Commission will propose in this field. 
This is why the level of the target-rates is not set 
up in this directive. The Commission will make a 
proposal to the Council before the 31 december 1990. 
8.3. In order to make it easier for Member States to adapt 
their rates and with a view to reducing the 
distortions of competition associated with the 
continued existnce of different rates, only those 
adjustments conductive to convergence on the target 
rates will be authorised. 
8.4. Every two years, the level of the different rates 
(minimum rates, ranges and target rates) will be 
subject to examination by the Council, on the basis 
of a report by the Commission. The Council will 
decide on the basis of a proposal by the Commission 
on eventual amendments to these rates taking account 
in particular of the evolution of Community policy in 
different fields (transport, energy, environment). 
Independently of this adaptation, every two years the 
Council on the basis of a proposal by the Commission, 
shall adjust the different rates in order to maintain 
their real value. 
PARTICULAR CONSTDFRATION FOR EACH PRODUCT 
A. PREMIUM (LEADED) PETROL 
9. Taxes on petrol account for almost 4 0% of 
revenue from excises within the Community 
making it the single most important such tax. 
Accordingly, for the higher taxing Member 
States (who face material revenue losses as a 
consequence of rate approximation) any 
flexibility which might ease the burden of 
adjustment becomes critical. 
10. Petrol is essentially an item of end 
consumption being purchased excise and VAT 
paid by final consumers in relatively small 
quantities (i.e., the standard tank of a 
private car). Existing safety regulations 
effectively limit movements in commercial 
quantities to recognized operators. 
At this level of trade, controls on cross-
border purchases are virtually non-existant 
and it can be assumed that Member States find 
whatever trade diversion results to be within 
acceptable limits. 
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12. The 1987 proposal advocated a rate of 340 ECU 
per 1000 litres based on the simple arithmetic 
average of existing rates. (The rate weighted 
for consumption was 337 ECU). 
13. In the mpantimeT it is proposed to introduce__a 
minimum rate of 337 ECU. 
14. This will involve no immediate change in rates 
for the majority of Member States whilst those 
where the rates are below the minimum laid 
down will be obliged to move upwards by 31 
December 1992. 
B. UNLEADED PETROL 
15. Any historical data on the market-share of lead 
free petrol rapidly becomes out-of-date but in 
those Member States where its promotion has 
been strongest, this is now approaching 5 0% of 
total consumption. It is however clear that 
the rate of conversion from leaded petrol is 
heavily dependent on favourable tax treatment 
to offset the additional refining, 
distributional and promotional costs which 
might otherwise be reflected in the retail 
selling price. 
16. The production and distribution of relatively 
small quantities of unleaded petrol certainly 
imposed additional fixed and marginal costs on 
commercial operators. The initial motivation 
for a preferential tax rate was to compensate 
for such extra costs and thus to obviate the 
need for higher prices. In addition, some 
positive incentive was required to make the 
conversion attractive to consumers. 
17. Rather than proposing a rate for lead free 
petrol per-se, the approach taken by the 
Commission in 1987 was to put forward a 
differential (then set at 30 ECU) in favour of 
the environment-friendly product. This figure 
was based on the average differential in the 4 
(currently 7) Member States who had adopted 
such an approach. 
1 0 . It is now proposed to increase this differential to SO Frn -
not on the basis of the current average but 
rather to reflect the level of incentive found 
to be needed in those Member States where the 
introduction of unleaded petrol has been most 
successful .and to accelerate the environmental argument 
in its favour. 
19. There are good grounds for asserting that as 
market-share (and sales volume) of unleaded 
petrol increase, the impact of these extra 
costs on unit prices decrease. This decrease 
should become particularly; significant as 
unleaded becomes the dominant product type. 
It would follow that the provisions laid down 
for the periodic review of rates should take 
account of the matter of reconsidering the tax 
differential as the incremental costs 
diminish. 
20. The effect of this proposal will be to oblige 
those Member States whose excise rates do not 
currently encourage the introduction of 
unleaded petrol to. amend their policy in this 
area. In addition, most of those Member 
States who at present give a tax break to 
unleaded petrol would face some increase in 
the differential. 
C. DIESEL 
21 
22 Consumption of 
industrial and 
purchases - at 
consumer - can 
the absence of 
relatively 
commerc ial diesel fuel is mainly by 
commercial users. Individual 
"retail" level by the end 
be relatively substantial. In 
border controls and given the 
large fuel tank capacity of 
vehicles, it is difficult to 
envisage any 
operators from 
most attractive effective way to restrain 
purchasing where prices are 
Although fuel is by no means the most 
substantial component in road transport costs, 
price sensitivity is sufficiently important to 
ensure that where convenient these vehicles 
will transit through a Member State where 
diesel prices are unattractive and tank-up at 
a cheaper location. This must certainly be 
considered unless existing tax rates are 
brought closer together. The resultant 
disruption and distortion in commercial road 
transport would be highly inimical to the 
realisation of the internal market. 
23. A harmonized rate of 177 ECU per 1000 litres 
was proposed in 198 7 (based on the weighted 
arithmetic average). For the reasons outlined 
above it is essential that the ultimate 
objective of a single rate be retained. To 
ease the burden of adjustment somewhat, it is 
now proposed to set a rate-band ranging from 
195 to 2J8S ECU per 1000 litres. This will 
serve to reduce substantially the importance 
of varying tax rates in price differences and 
an important first step in the direction of a 
target rate. 
24. Apart from the matter of changes in the excise 
rate for diesel per se, most Member States 
will have to consider the impact of 
approximation on the relative tax burden 
between petrol and diesel. For the private 
motorist, diesel has a definite role in 
substituting for petrol as a motor fuel. In 
the Member States where the differential 
between the excises on petrol and diesel most 
favours the latter, there are generally 
compensatory measures to offset the 
attractiveness of lower diesel costs - usually 
taking the form of an increased annual road 
tax on diesel cars. There is no reason why 
this approach should not continue and be used 
by other Member States who fear the effect on 
revenue of a decrease in the price of diesel. 
& 
D. HEATING GAS OIL 
25. The tax incidence in the selling price plays a 
critical role in the competitive equilibrium 
between heating gas oil and other fuels 
particularly natural gas. Although the 
proposed rate will upset the current position 
in certain Member States, there are already 
differences in pre-tax prices which are in 
some instances greater than the differences in 
tax rates. 
26. 50 ECU per 1000 litres was proposed in 1987 
(based on the weighted arithmetic average). 
The nature of the product and its supply 
pattern militate in favour of a single rate. 
As for other mineral oils, there is some 
measure of general acceptance for the 
principle of seeking closely aligned rates for 
heating gas oil. A rate band from 47 to 5 3. ECU__ 
Rer 1000 litres wi L L provide a measure of flexibility 
wich would still be compatible with.this objective. 
HEAVY FUEL OIL 
27. The pattern of supply of heavy fuel oil is 
quite close to heating gas oil except that 
consumption is almost entirely industrial or 
commercial. It would follow therefore that 
both on grounds of practicality and 
competitive balance rates should be as closely 
aligned as is possible. 
28. In 198 7 a harmonized rate of 17 ECU per tonne 
was proposed (based on the weighted arithmetic 
average). The principle of a taTget rate has 
since then found some measure of acceptance. 
.It should however be noted that when compared 
with other categories' of mineral oils the tax 
incidence in the final price is relatively 
low. 
2 9. It is now proposed to establish a narrow band 
of rates from 16 to 18 ECU per tonne 
GASES - LIQ"TD PETROLEUM GAS AND MEjrjjAJLE. 
30 For LPG used for automotive purposes a 
harmonized rate of 85 ECU per 1000 litres 
(based on the weighted arithmetic average) was 
proposed in 1987. It was also proposed that 
the (limited) use of methane for similar 
purposes be taxed at the same rate. 
3 1. Uhen used as a motor fuel, the relationship 
between the tax charged on LPG and that on 
petrol is critical. Accordingly it is 
appropriate that the approach taken be 
similar. It is therefore proposed to fix 
a minimum rate ot 84.5 ECU per 1000 litres. Those Member 
States taxing LPG at a higher rate may continue for the 
moment to retain their rates. 
KEROSENE 
3 2. The effect of the 19 8 7 proposal was to treat. 
kerosene according to its use. Uhen used as a 
propellant, the charge was as for petrol and 
when consumed as fuel for other purposes the 
appropriate rate was that for heating gas oil. 
33. A similar approach is adopted in this revised 
proposal. 
COMPARISON OF EXCISE RATES/1000 Lt 
LEADED PETROL 
Minimum rate proposed 337 ECU ECU 600 
0 
BE DK DE FR EL IE IT LU NL GB ES PT 
•• 1987 MM 1989 
1. Part of the change in rates arises from ecu movements. 
2. Certain rates are average or representative. 
COMPARISON OF EXCISE RATES/1000 Lt 
UNLEADED PETROL 
ECU 
600 
DK DE FR EL IE IT LU NL iB 
•• 1987 WÈk 19b9 
Minimum rate proposed 287 EC1 
1. Part of the change in rates arises from ecu movements. 
2. Certain rates are average or representative. PI 
* * * 
-r * j, * i 
! 
COMPARISON OF EXCISE RATES/1000 Lt 
ROAD DIESEL 
ECU 
•• 1987 EH 1989 
Rate band 195-205 ECU 
1. Part of the change in rates arises from ecu movements. 
2. Certain rates are average or representative. \ 
COMPARISON OF EXCISE RATES/1000 Lt 
HEATING GAS OIL 
ECU 
250 
200 h 
150 
100h 
BE DK DE FR EL IE 
1987 IT LU NL GB 
1989 
Rate band 47-53 ECU 
1. Part of the change in rates arises from ecu movements 
2. Certain rates are average or representative 
3. In Denmark the tax is repaid to commercial users * *, 
* * * 
COMPARISON OF EXCISE RATES/TONNE 
HEAVY FUEL OIL 
Rate band 16-18 ECU ECU 
300 
IE IT MM ••#! i 
-V 
i 
LU NL GB ES PT 
1989 ^1987 
1. Part of the change in rates arises from ecu movements 
2. Certain rates are average or representative 
3. In Denmark the tax is repaid to commercial users 
COMPARISON OF EXCISE RATÇS PER 1000 L, 
OF AUTOMOTIVE IM. : H4ft?-1969 
C0MC87) 327 final Amended proposal for a 
COUNCIL DIRECTIVE 
on the approximation of the rates of excise duty 
on mineral oiIs 
ORIGINAL TEXT 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic 
Community, and in particular Article 99 thereof, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European Parliament, 
Having regard to the opinion of the Economic and Social Committee, 
Whereas Council Directive ... lays down provisions relating to 
the structures of excise duty applicable to mineral oils; 
rfhereas for the purpose of establishing an internal market 
without frontiers it is necessary to apply common rates of excise 
Juty to each of these products ; 
'hereas, it is necessary to provide for the periodic adjustment 
f those common rates ; AMENDED PROPOSAL 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
Whereas , in order to set in train a process of convergence, it 
is necessary to fix target rates of excise duty for each of these 
products ; 
Whereas these target rates take account of the Community policies 
on energy, the environment and transport ; 
Whereas, so as not to prejudge the guidelines which the 
Commission will propose in those areas, the setting of the levels 
of the target rates will be the subject of a Commission proposal 
between now and 31 December 1990 
Whereas it is necessary to provide for the periodic adjustment of 
those target rates ; 
Whereas the excise rate on mineral oils should be charged at a 
specific rate by reference to a given quantity of the products. unchanged 
Whereas these target rates cannot be applied immediately because 
of the diverse situations in Member States ; whereas, therefore, 
flexibility of rates should be introduced in the form of minimum 
rates or rate bands in order to achieve a frontier-free internal 
market by 1 January 1993 ; f 
- 2 -
Whereas this Directive lays down minimum rates, target rates and 
rate bands ; whereas these should be adjusted in line with price 
movements and whereas such decisions should be taken by the 
Council under a less burdensome procedure, 
HAS ADOPTED THIS DIRECTIVE : 
Article 1 
Not later than 31 December 1992 Member States shall apply common 
rates of excise duty on mineral oils in accordance with this 
Directive. HAS ADOPTED THIS DIRECTIVE 
Article 1 
Member States shall apply target rates of excise duty on mineral 
oils in accordance with this Directive. The levels of those 
rates shall be the subject of a Commission proposal for a 
Directive between now and 31 December 1990. 
Article 1a 
Not later than 1 January 1993, Member States shall apply rates 
which, in accordance with this Directive, will not be less than 
the minimum rates or, where appropriate, will, fall within the 
prescribed bands. 
Article 2 
The mineral oils covered by this Directive are those defined in 
Directive ... 
Article 3 
The common rates of excise duty laid down in this Directive shall 
°e adjusted periodically in accordance with provisions to be 
established before 1 January 1989 in Directives adopted by the 
Council acting on proposals from the Commission. unchanged Article 2 
Article 3 
1. Every two years, and for the first time not later than 31 
December 1994, the Council, acting on the basis of a report 
and, where appropriate, a proposal from the Commission, shall 
examine the target rates of duty, the minimum rates and the 
rate bands laid down herein and shall, acting unanimously, 
take such measures as are necessary. 
2. In any event, every two years, and for the first time not 
later than 31 December 1994, the Council, acting by a 
qualified majority on a proposal from the Commission and after 
consult ing the European Parliament, shall take such measures as are 
necessary to maintain the real value of the target rates of 
duty, the minimum rates and the rate bands laid down herein. 
- 3 -
Article 4 Article 4 
The common rate of excise duty on leaded petrol shall be 340 ECU 
per 1000 litres. The common rate of excise duty on unleaded 
petrol shall be 310 ECU per 1000 litres. As from 1 January 1993, the minimum rate of excise duty on leaded 
petrol shall be fixed at 337 ECU per 1000 litres. 
Article 4a 
As from 1 January 1993, the rate of excise duty on unleaded 
petrol shall be 50 ECUs lower than the rate applicable to leaded 
petrol. 
Article 5 
The Common rate of excise duty on diesel shall be 177 ECU per 
1000 litres. 
Article 6 
The common rate of excise duty on heating gas oil shall be 50 ECU 
per 1000 litres. 
Article 7 
The common rate of excise duty on heavy fuel oil shall be 17 ECU 
per 1000 kg. 
Article 8 
The common rate of excise duty on liquid petroleum gas and 
methane used as road fuel shall be 85 ECU per 1000 litres. 
Article 9 
1. The common rate of excise duty on kerosene when used as a 
propel lant shall be 340 ECU. per 1000 litres. 
2. The common rate of excise duty on kerosene when used for other 
purposes shall be 50 ECUs, per 1000 litres. 
./. 
2* 
où Article 5 
As from 1 January 1993, the rate of excise duty on diesel shall 
be not less than 195 ECU or more than 205 ECU per 1000 litres. 
Article 6 
As from 1 January 1993, the rate of excise duty on heating gas 
oil shall not be less than 47 ECU or more than 53 ECU per IQOO 
litres. 
Article 7 
As from 1 January 1993, the rate of excise duty on heavy fuel oil 
shall not be less than 16ECU or more than 18 ECUs per 1000 kg. 
Article 8 
As from 1 January 1993, the minimum rate of excise duty on 
liquid petroleum gas and methane used as road fuel shall be 
84,5 ECU per 1000 litres. 
Article 9 
1. As from 1 January 1993, the minimum rate of excise duty on 
kerosene when used as a propel lant shall be 337 ECU per 100G 
litres. 
2. As from 1 January 1993, the rate of excise duty on kerosene 
when used for other purposed shall not be less than 47ECU or 
more than 53 ECU per 1000 litres. 
_ H _ 
Article 10 
Member States shall bring into force the laws, regulations and 
administrative provisions necessary to comply with this Directive 
not later than 31 December 1992. They shall forthwith inform the 
Commission of any provisions of national law which they adopt in 
the field governed by this Directive. 
Article 11 
This Directive is addressed to the Member States. Article 10 
As from 1 January 1993, Member States may adjust their rates of 
excise duty on mineral oils provided that such adjustements bring 
their rates more closely into line with the target rates as fixed 
in accordance with Article 1. 
Article 11 
Member States shall bring into force the laws, regulations and 
administrative provisions necessary to comply with this 
Directive not later than 31 December 1992. They shall forthwith 
inform the Commission of any provisions of national law which 
they adopt in the field governed by this Directive. 
The provisions adopted pursuant to the first paragraph shall make 
express reference to this Directive. 
Article 12 
This Directive is addressed to the Member States. 
Done at Brussels For the Council, 
The President Done at Brussels For the Council, 
The President 
I. Will application of the present proposal for a Directive result in an 
increase in Community resources? 
The effect of the proposal for a Directive cannot be qnant.1 fled as regards 
VAT own resources. 
<?o 
STATEMENT QF IMPACT ON SMEs. 
Approximation of taras on ml TVWI.1, ollff 
The approximation of indirect taxes (VAT and excise duties) is necessary if 
tax frontiers are to be abolished and is an integral part of the measures 
for completing the internal market. 
As to the actual impact, reference should be had to the statement contained 
in the 1987 proposal for a Directive (0CM(87)325) in view of the fact that 
the situation in the mineral oils sector has changed little in the 
intervening two years. 
I. A±ninistrative obligations on businesses arising from application of 
the present Directive 
- Same constraints as those spelt out in 1987. 
II. What axe the advantages for businesses? 
- The advantages resulting from the approximation of rates could not be 
determined. 
III. Are there any drawbacks for businesses in terms of additional costs? 
- Application of the present Directive will not impose any additional costs 
IV. Effects on employment 
- The possible effect of the approximation of rates on employment in the 
sector concerned cannot be determined. 
V. The two sides of industry have not been consulted. 
VI. No less binding alternative Is available with a view to aboi 1 shlr.g 
tax frontiers. 
*i 

ISSN 0254-1475 
COM(89) 526 final 
DOCUMENTS 
EN 06 09 
Catalogue number : CB-CO-89-511-EN-C 
ISBN 92-77-54551-8 
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