Brussels, 5.1.2005

COM(2004) 852 final

Proposal for a

COUNCIL DECISION

authorising Sweden to apply a reduced rate of taxation to electricity consumed by certain households and service sector companies in accordance with Article 19 of Directive 2003/96/EC

(Only the Swedish text is authentic)

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. SUBMISSION OF REQUEST

By letter of 20 August 2004, the Swedish authorities applied to the Commission for a derogation allowing them to implement a reduced rate of taxation to electricity consumed by households and service sector companies in the north of Sweden in accordance with Article 19 of Directive 2003/96/EC[1]. In order to obtain the information it required to evaluate the request, the Commission sent additional questions by letter dated 20 September to which the Swedish authorities replied on 13 October 2004.

The Swedish energy tax on electricity was introduced in 1957. In July 1981 a reduced energy tax rate was introduced for electricity used in the north of Sweden, where heating costs in average are higher than in other parts of the country. Electric heating represents about 30% of all heating in the household and service sectors in Sweden.

The differentiation, which has a specific regional policy objective, is based on climate considerations and aims at placing households and service sector companies in the north of Sweden at an equal footing with such consumers in the southern parts of the country by way of reducing the costs of electricity for the consumers up north. The geographical differentiation has been made on an objective basis of information about mean temperatures during those parts of the year when houses normally are heated. The electricity consumption needed to heat an average house in the northern parts of Sweden is about 25 % higher than in the south, which is due to a much colder climate and thus longer heating season. The beneficiaries receive a reduction in the level of electricity taxation, which equals 25 % of the full tax rate.

The energy tax on electricity used by households and service sector companies in the north of Sweden is presently set at 0,181 SEK per kWh (0,020 euro) and at 0,241 SEK per kWh (0,026 euro) for such consumption in other parts of the country. The legal base for the measure is found in chapter 11, sections 3 and 4 of the Act of Excise Duties on Energy.

Sweden considers that the tax-induced incentive to increase energy efficiency is maintained.

The annual budgetary expenditure anticipated is 800 million SEK (88 million euros).

The measure is granted in the form of a reduced energy tax rate. The effect of the reduced tax rate is given directly, when the tax is levied. The chargeable event occurs at the time of supply to the consumer by the distributor of the electricity.

The areas covered by the measure are:

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The measure is, as all energy taxation legislation in Sweden, not time limited.

The Commission, in its decision[2] of 11 June 2003, did not raise any objections on the regionally differentiated tax on electricity in favour of the service sector for the period 2002- 2005 under the State aid rules.

2. EVALUATION BY THE COMMISSION

Under Article 19(1) of Directive 2003/96/EC, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions of excise duties for specific policy considerations.

Exemptions requested under Article 19 of Directive 2003/96/EC must be examined in terms of their compliance with Community policies.

The differentiation places households and service sector companies in the north of Sweden at an equal footing with such consumers in the southern parts of the country by way of reducing the costs of electricity for the consumers up north. Therefore, the measure has regional and cohesion policy objectives.

The reduced level of taxation on electricity for consumption in the north of Sweden (20 euros per MWh) remains much higher than the Community minimum rate set out in directive 2003/96/EC (1 euro per MWh for non business use). Furthermore, the tax reduction is proportionate to the extra heating costs borne by households and service sector companies in northern Sweden. Consequently, the Commission is of the view that this tax level insures that the incentive effect of taxation to increase energy efficiency is maintained. The same conclusion was reached in the State aid decision relating to the relevant tax reduction. The Commission considered there that the beneficiaries had always to pay a significant share of the national tax.

As a general principle, tax derogations must be of limited duration. Article 19(2) of Directive 2003/96/EC sets a maximum period of 6 years for such derogations. A State aid decision was adopted by the Commission in the relevant case on 11 June 2003, before the entry into force of Directive 2003/96/EC (31 October 2003). That decision provides that the Swedish measure on regional differentiation is a compatible aid for a period ending on 31 December 2005. Therefore, the Commission can only propose to the Council to authorize the measure until that date. This is without prejudice of a possible prolongation of the measure after new assessments to be conducted by the Commission on State aid and fiscal rules, if the Swedish authorities were willing to maintain the tax reduction after 2005.

3. DECISION

The Commission proposes that, under Article 19 of Directive 2003/96/EC, the Council authorises Sweden to apply until 31 December 2005 a reduced rate of taxation to electricity consumed by households and service sector companies in certain cities located in northern Sweden.

Proposal for a

COUNCIL DECISION

authorising Sweden to apply a reduced rate of taxation to electricity consumed by certain households and service sector companies in accordance with Article 19 of Directive 2003/96/EC

(Only the Swedish text is authentic)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity,[3] and in particular Article 19(1) thereof,

Having regard to the proposal from the Commission,

Whereas:

(1) By letter of 20 August 2004, the Swedish authorities applied to the Commission for a derogation allowing them to apply a reduced rate of taxation to electricity consumed by households and service sector companies in the north of Sweden pursuant to Article 19 of Directive 2003/96/EC.

(2) Since July 1981 a reduced energy tax rate has been applied in Sweden to electricity used in the northern parts of the country, where electricity consumption for heating purposes is on average 25% higher than elsewhere in the country.

(3) By reducing the costs of electricity for households and service sector companies in the north of Sweden those consumers are placed on an equal footing with such consumers in the southern parts of the country. Therefore, the measure has regional and cohesion policy objectives.

(4) The reduced level of taxation on electricity for consumption in the north of Sweden, which amounts to 20 euros per MWh, remains much higher than the Community minimum rate set out in Directive 2003/96/EC. Furthermore, the tax reduction is proportionate to the extra heating costs borne by households and service sector companies in northern Sweden. Consequently, that level of taxation should ensure that the incentive effect of taxation to increase energy efficiency is maintained.

(5) The reduction applied for has been reviewed by the Commission and been found not to distort competition or hinder the operation of the internal market and it is not considered incompatible with Community policy on the environment, energy and transport.

(6) That approach is in line with the position taken by the Commission in the state aid case C 42/2003[4], where no objections were raised against the state aid element of the tax reduction for a period ending on 31 December 2005.

(7) It is therefore appropriate to authorize Sweden to apply a reduced rate of taxation to electricity for consumption in the north of Sweden until 31 December 2005.

HAS ADOPTED THIS DECISION:

Article 1

Sweden is authorized to apply a reduced rate of taxation to electricity consumed by households and service sector companies situated in the municipalities listed in the Annex .

The reduction shall be proportionate to the extra heating costs due to the northern location, in comparison with the rest of Sweden.

The reduced rate shall comply with the requirements of Directive 2003/96/EC, and in particular the minimum rates laid down in Article 10 of that Directive.

Article 2

This Decision shall expire on 31 December 2005.

Article 3

This Decision is addressed to the Kingdom of Sweden.

Done at Brussels,

For the Council

The President

Annex

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[1] OJ L 283, 31.10.2003, p. 51. Directive as last amended by Directive 2004/75/EC (OJ L 157, 30.04.2004, p. 100).

[2] Case "C42/03 (ex-NN 3/B/2001)– Sweden" (OJ C 189 of 09.08.2003, p.6).

[3] OJL 283, 31.10.2003, p. 51 Directive as last amended by Directive 2004/75/EC (OJL 157, 30.04.2004, p. 100).

[4] OJ C189, 9.8.2003, p. 6.