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.

France asked to be authorised to apply a reduced rate of taxation on final consumption of electricity to electricity directly supplied to maritime and inland waterway vessels (including fishing vessels), other than private pleasure craft, berthed in ports (‘shore-side electricity’). The objective of this proposal is to grant that authorisation by means of a derogation valid, as requested, until 31 December 2025.

By letter dated 7 August 2019, the French authorities informed the Commission of their intention to apply the measure. Additional information and clarifications were provided on 4 March 2020 and 30 April 2020.

France is seeking for an authorisation to apply a reduced tax rate of EUR 0.50/MWh, equal to the minimum rate of taxation for electricity for business use as laid down in the Directive, to shore-side supply of electricity to vessels operating exclusively for commercial purposes in Union sea and inland waters (including fishing).

The requested period of validity is from 1 January 2020 until 31 December 2025, which is within the maximum period allowed by Article 19 of the Energy Taxation Directive.

This reduction aims to provide an economic incentive for the deployment and use of shore-side electricity in order to reduce air pollution in port cities, improve local air quality and reduce noise for the health benefit of inhabitants.

The objective of the measure to be applied by France is also to reduce the overall environmental impact of water-borne transport.

With the requested measure France wants to give an incentive for the use of shore-side electricity which is considered a less polluting alternative to the generation of electricity on board vessels lying at berth in a port. As indicated in the request, in France the standard rate of electricity tax is EUR 22.50/MWh. The requested tax concession stands at EUR 22.00/MWh. This means that as a result the beneficiaries would be charged at the applicable EU minimum tax rate for electricity for business use under the Energy Taxation Directive of EUR 0.50/MWh (as specified in Article 10(1) and Table C of Annex I to the Directive).

On the other hand, according to Article 14(1)(c) of the Energy Taxation Directive, Member States have to exempt energy products used to produce electricity -and electricity produced- on board ships at berth in ports. They may also do so in the case of energy products used to produce electricity -and electricity produced- on board ships for navigation on inland waterways according to Article 15(1)(f) of the Directive. France confirmed the transposition of this latter optional exemption.

The French authorities have indicated that the tax reduction applies to all ships other than private pleasure craft, meaning that all ships involved in commercial navigation, regardless of size or flag, can benefit from the tax reduction. In certain cases, there can be an obligation for vessels to use shore-side electricity.

As indicated in the request, the estimated number of beneficiaries is around 7000 (including maritime and inland waterway transport companies, as well as the fishery sector). This is a maximum potential number of beneficiaries in the long term linked to an estimated increase in the deployment of shore-side electricity connection systems. The number of shore-side electricity terminals currently deployed is limited (approximately 230) mainly in the public inland waterway area and is intended for the transport of goods and passengers. There are currently no terminals for fishing vessels.

As an estimation of the tax expenditures from the measure, the French authorities calculated the loss of tax revenue based on the amount of consumed electricity, the amount of the requested fiscal advantage and the number of terminals. The consumption of electricity from these terminals is around 12 000 MWh/year and the tax relief would amount to EUR 22.00/MWh (the standard tax rate, as mentioned before, is EUR 22.50/MWh): this results in a loss of tax revenue amounting to around EUR 270 000. Considering the increasing number of terminals (from the current 230 to around 256 in the near future), an actual loss of around EUR 300 000 is estimated for the coming period.

France requested the authorisation to be granted until 31 December 2025, starting from 1 January 2020, within the maximum period allowed by Article 19(2) of the Directive.

With the tax reduction, France wants to provide an incentive for relevant operators to develop and use shore-side electricity in order to reduce airborne emissions and noise from the combustion of fuels by vessels at berth as well as CO2 emissions. The application of a reduced tax rate would strengthen the competitiveness of shore-side electricity relative to the burning of bunker fuels on board, which is tax exempt.