Proposal for a Council Directive amending Directive 2003/96/EC as regards the possibility for certain Member States to apply, in respect of energy products and electricity, temporary exemptions or reductions in the levels of taxation
Date: 2004-01-28
Institutions: European Commission
Subjects: Central and Eastern Europe, accession to the European Union, electrical energy, energy-generating product, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 28.1.2004 
COM(2004) 42 final 

2004/0016 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2003/96/EC as regards the possibility for certain Member States  
to apply, in respect of energy products and electricity, temporary exemptions 
or reductions in the levels of taxation 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

1. 

INTRODUCTION 

Council  Directive  2003/96/EC  restructuring  the  Community  framework  for  the  taxation  of 
energy products and electricity (hereafter the "Directive") was adopted on 27 October 20031. 
It will enter into force on 1 January 20042. 

As  for  the  current  Member  States,  acceding  Member  States  need  certain  transitional 
arrangements  to  cope  with  the  new  requirements  introduced  by  the  Directive.  The 
Commission, therefore, has to propose a directive, based on Article 93 of the EC Treaty, to 
amend the Directive. 

2. 

THE FISCAL FRAMEWORK APPLICABLE TO ENERGY PRODUCTS AND ELECTRICITY 

Energy products are basically taxed in three ways: (a) excise duties, which are specific duties 
(proportional to the physical quantity of the product), (b) dedicated taxes and duties and (c) 
VAT, which is an ad valorem tax (proportional to the selling price of the product).  

2.1. 

The mineral oils Directives 

In  the  case  of  excise  duty,  the  Member  States  decided  in  1992  to  establish  a  Community 
system for taxing mineral oils. This decision was transposed into two Directives, one on the 
harmonisation of the structures of excise duties on mineral oils (92/81/EEC),3 and the other 
on  the  approximation  of  the  rates  of  excise  duties  on  mineral  oils  (92/82/EEC).4  The 
Directives  define  the  various  products  and  structures  and  lay  down  a  minimum  tax  rate  for 
each  type  of  mineral  oil,  depending  on  whether  it  is  used  as  a  fuel,  for  industrial  or 
commercial purposes or for heating.  

Pursuant  to  Article  8(4)  of  Directive  92/81/EEC,  the  Council,  acting  unanimously  on  a 
proposal  from  the  Commission,  may  authorize  any  Member  State  to  introduce  further 
exemptions or reductions for specific policy considerations. More than one hundred of these 
derogations  are  in  force  in  the  15  Member  States.  They  were  extended  in  2001.  The  great 
majority expires on 31 December 20065.  

The  level  of  excise  duties  applied  by  many  of  the  acceding  countries  is  in  some  cases 
significantly lower than that in the European Union. While some accession countries already 
comply with the current minimum excise duty rates set by Directive 92/82/EEC, others are as 
still  in  the  process  of  alignment  towards  the  current  minimum  excise  rates  and  will  not 
comply with the present Community legislation until the date of accession. However, only a 
very few derogations are granted in respect of such duties in the Treaty of Accession to the 
European Union 20036: 

1 
2 

3 
4 
5 

6 

OJ L 283 of 31.10.2003, p. 51. 
Measures concerning biofuels and individual derogations, granted on the basis of Article 8 paragraph 4 
of Directive 92/81/EEC, enter retroactively into force on 1 January 2003. 
OJ L 316, 31.10.1992, p. 12, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p. 46).  
OJ L 316, 31.10.1992, p. 19, as last amended by Directive 94/74/EC (OJ L 365, 31.12.1994, p. 46). 
Council Decision of 12 March 2001 concerning reduced rates of excise duty and exemptions from such 
duty on certain mineral oils when used for specific purposes (OJ L 84 of 23.3.2001, p. 23). 
OJ L 236, 23.9.2003, p. 17. 

2 

 
 
  
 
                                                 
i) 

for Cyprus: 

–  Without  prejudice  to  a  formal  decision  to  be  adopted  according  to  the 
procedure set out in Article 8(4) of Directive 92/81/EEC, Cyprus may apply an 
exemption from excise duties on mineral oils used for the production of cement 
until one year after the date of accession. 

–  Without  prejudice  to  a  formal  decision  to  be  adopted  according  to  the 
procedure  set  out  in  Article  8(4)  of  Directive  92/81/EEC,  Cyprus  may  also 
apply an exemption from additional excise duties on all types of fuel used for 
local passenger transport until one year after the date of accession. 

ii) 

for Poland: 

–  Without  prejudice  either  to  a  formal  decision  to  be  adopted  according  to  the 
procedure set out in Article 8(4) of Directive 92/81/EEC, or to an assessment 
of  this  measure  under  Article  87  of  the  EC  Treaty,  Poland  may  maintain  a 
reduced rate of excise duty on petrol manufactured with anhydrous alcohol, gas 
oil with a low sulphur content and petrol containing ethyl butyl alcohol ether 
until one year after the date of accession. 

Directives 92/81/EEC and 92/82/EEC will be repealed as from 31 December 2003. 

2.2. 

The energy tax Directive 

The energy tax Directive widens the scope of the previous mineral oils directives to nearly all 
energy products, including coal and gas, and electricity. It also updates the minimum rates for 
mineral oils which have not been revised since 1992: 

Motor fuels 

Minimum 
Directive 92/82/EEC 

rates 

in 

rates 

Minimum 
in 
Directive  2003/96/EC 
from 1/1/2004 

rates 

Minimum 
in 
Directive  2003/96/EC 
from 1/1/2010 

Petrol (€/1000 l.) 

337 

Unleaded 
(€/1000 l.) 

petrol 

287 

Diesel (€/1000 l.) 

245 

Kerosene (€/1000 l.) 

245 

LPG (€/1000 kg.) 

100 

421 

359 

302 

302 

125 

421 

359 

330 

330 

125 

Natural gas  

100 (€/1000 kg) 

2.6  (€/gigajoule,  gross 
calorific value) 

2.6  (€/gigajoule,  gross 
calorific value) 

3 

 
 
  
 
 
Fuels used for industrial or commercial purposes 

Minimum  rates 
92/82/EEC 

in  Directive 

Minimum  rates 
2003/96/EC from 1/1/2004 

in  Directive 

Diesel (€/1000 l.) 

Kerosene (€/1000 l.) 

LPG (€/1000 kg.) 

18 

18 

36 

Natural gas  

36 (€/1000 kg) 

21 

21 

41 

0.3 
(€/gigajoule, 
value) 

gross 

calorific 

Heating fuels and electricity 

Minimum 
Directive 92/82/EEC 

rates 

in 

rates 

Minimum 
in 
Directive  2003/96/EC 
1/1/2004 
from 
(business) 

rates 

Minimum 
in 
Directive  2003/96/EC 
1/1/2004  
from 
(non-business) 

Diesel (€/1000 l.) 

18 

Heavy 
(€/1000 kg.) 

fuel 

oil 

13 

Kerosene (€/1000 l.) 

LPG (€/1000 kg.) 

0 

0 

Natural 
(€/gigajoule, 
calorific value) 

N/A 

gas 
gross 

Coal 
and 
(€/gigajoule) 

coke 

N/A 

Electricity (€/MWh) 

N/A 

21 

15 

0 

0 

0.15 

0.15 

0.5 

21 

15 

0 

0 

0.3 

0.3 

1.0 

The  Directive  will  reduce  distortions  of  competition  that  currently  exist  between  Member 
States  as  a  result  of  divergent  rates  of  tax.  Furthermore,  it  will  reduce  distortions  of 
competition between mineral oils and the other energy products that have not been subject to 
Community tax legislation until now. Finally, it will increase the incentive to use energy more 
efficiently, so as to reduce dependency on imported energy and cut carbon dioxide emissions 
in the context of the Kyoto Protocol. 

2.3. 

Tax differentials and transitional arrangements 

The  Directive  gives  various  possibilities  to  differentiate  tax  rates,  depending  on  uses  or 
products. The following measures are particularly relevant to the present proposal: 

4 

 
 
  
 
 
 
 
–  Member  States  with  difficulties  in  implementing  the  new  minimum  levels  of 
taxation  are  allowed  a  transitional  period  until  1  January  2007,  in  order  to 
avoid  jeopardising  price  stability,  provided  that  this  does  not  significantly 
distort competition - see Article 18(2). 

–  Member States have, in principle, to exempt from taxation energy products and 

electricity used to produce electricity - see Article 14(1)(a). 

–  Member  States  may  apply  under  fiscal  control  total  or  partial  exemptions  or 
reductions in the level of taxation to natural gas in Member States in which the 
share  of  natural  gas  in  final  energy  consumption  was  less  than  15%  in  2000. 
The total or partial exemptions or reductions may apply for a maximum period 
of ten years after the entry into force of this Directive or until the national share 
of  natural  gas  in  final  energy  consumption  reaches  25%,  whichever  is  the 
sooner.  However,  as  soon  as  the  national  share  of  natural  gas  in  final  energy 
consumption reaches 20%, the Member States concerned must apply a strictly 
positive  level  of  taxation,  which  must  increase  on  a  yearly  basis  in  order  to 
reach at least the minimum rate at the end of the period referred to above - see 
Article 15(1)(g). 

–  Member States may apply, under fiscal control, total or partial exemptions or 
reductions in the level of taxation to electricity, natural gas, coal and solid fuels 
used by households - see Article 15(1)(h).  

– 

Dual  uses7  and  non-fuel  uses  of  energy  products  as  well  as  mineralogical 
processes  are  excluded  from  the  scope  of  the  Directive.  Electricity  used  in 
similar ways benefits from similar treatment - see Article 2(4). 

In  addition  to  these  measures,  Member  States  are  allowed  to  continue  to  apply,  until  31 
December 2006 at the latest, the derogations granted on the basis of Article 8(4) of Directive 
92/81/EEC, and extended in 2001 - see Article 18(1).  

Finally, the Directive includes transitional periods for some Member States during which the 
Member States in question are required to progressively increase their rates and so reduce the 
gap with respect to the new minimum levels of taxation - see Article 18(14). 

3. 

TRANSITIONAL ARRANGEMENTS FOR THE ACCEDING MEMBER STATES 

At  its  meeting  of  24  October  2003,  the  Interim  Committee  of  the  Council  took  note  of  the 
concerns expressed by the delegations of the acceding States on the Directive. The latter were 
invited  by  the  Commission  to  submit  as  soon  as  possible  and  preferably  within  15  working 
days their detailed and  reasoned requests for transitional arrangements  in order to allow for 
their timely examination 

In the course of November 2003, the acceding Member States submitted their requests to the 
Commission. 

7 

The use of energy products for chemical reduction and in electrolytic and metallurgical processes must 
be regarded as dual use. 

5 

 
 
  
 
                                                 
Taking into account their present level of excise duties, their ongoing economic transition and 
their relatively low income level, acceding Member States may face significant economic and 
social difficulties as regards the minimum rates set by the Directive. In particular, the likely 
price  increase  could  adversely  affect  their  citizens  and  the economy  as  a  whole  and  may  in 
particular represent an unbearable burden for SMEs. However, it should be underlined as well 
that the acceding countries will receive important community transfers (TEN, structural and 
cohesion  funds  up  to  4%  of  their  GDP)  and  despite  the  fact  that  the  national  development 
plans  differ  significantly  in  terms  of  the  allocation  of  support  to  areas  of  intervention, 
reflecting  variations  in  social  and  economic  circumstances  and  perceived  priorities,  these 
transfers  aim  to  compensate  their  weakness  and  reinforce  their  competitiveness  by  the 
development  of  new  infrastructures  notably  in  the  energy  sector.  Moreover,  the  scope  for 
most  acceding  Member  States  to  internally  compensate  for  these  additional  burdens,  by 
reducing other taxes, seems rather limited. Therefore the Commission suggests granting – if 
needed - transitional arrangements.  

This is in line with the general position that the EU set out during negotiations with acceding 
countries: transitional periods should be granted taking account of the interests not only of the 
Union,  but  also  of  Candidate  Countries8.  As  concerns  in  particular  the  taxation  chapter,  the 
Communication from the Commission to the European Council, on a mid-term review of the 
implementation  of  the  enlargement  strategy,  read  that  “in  considering  whether  transitional 
measures  should  be  accepted,  the  Member  States  should  take  into  account  the  need  to 
safeguard the functioning of the internal market, as well as the political, economic and social 
implications for the Candidate Countries”9. 

The  EU  acknowledged  the  direct  and  potentially  disrupting  impact  of  increase  of  indirect 
taxation (excises and VAT) on the standards of living of large sections of the population in 
candidate countries. As a result, during negotiations an extensive range of transitional periods 
was granted to all candidate countries, to maintain reduced rates of VAT or excises in areas 
recognised as particularly socially and politically sensitive, including heating, electricity and 
gas, cigarettes10.  

As concerns the taxation of energy, it should be recalled that current Member States were also 
granted  transitional  periods  (as  explained  above)  that  often  concern  the  same  products  for 
which  acceding  countries  have  put  forward  their  requests.  Against  this  background,  while 
taking into account  the specific needs of  acceding countries, the Commission assessed their 
requests against the same principles that were applied to the granting of transitional periods to 
present Member States. According to such principles, the transitional measures should: 

– 

– 

– 

be strictly time limited and, in principle, last no longer than 2012; 

be proportionate to the problem they seek to address; 

include,  where  relevant,  a  progressive  alignment  towards  the  Community 
minimum rates applicable. 

8 

9 
10 

EU  general  position  as  cited  in  enlargement  strategy  paper  2000,  p.  26,  and  communication  from  
Mr.  Verheugen  (in  agreement  with  the  president)  to  the  Commission:  “Essential  elements  on  excise 
duty  rates  on  cigarettes  for  the  draft  common  positions  concerning  chapter  taxation”  of  23  October 
2001. 
COM(2001) 553 of 2.10.2001, p. 17. 
Accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia 
and Slovakia (OJ L 236 of 23.9.2003). 

6 

 
 
  
 
                                                 
Moreover,  where  no  transitional  period  was  granted  in  the  Accession  Treaty,  the  minimum 
rates set by Directive 92/82/EEC have to be implemented as of 1 May 2004.  

The  objectives  of  other  Community  policies,  notably  the  environmental  friendliness  of 
heating fuels, have also been integrated in the analyses.  

It  is  worth  recalling  that,  after  the  political  agreement11  was  reached  (March  2003),  the 
Commission  went  to  all  acceding  Member  States  to  give  technical  information  on  the 
Directive.  In  addition,  a  meeting  dedicated  to  the  difficulties  met  by  Member  States  in 
transposing the future Directive was held on  1 July 2003 at which acceding Member States 
were invited. 

3.1. 

The Czech Republic 

According to the Czech authorities letter of 13 November 2003, introducing excise duties on 
electricity, solid fuels and natural gas would have an adverse impact on consumers. It would 
bring an unbearable social burden for the Czech citizens. Furthermore, it would affect small 
and  medium  enterprises  and  would  make  them  less  competitive  in  the  Internal  Market.  The 
higher  levels  of  taxation  would  also  affect  the  Czech  industry,  in  particular  the  chemical 
industry,  building  industry  (burnt  bricks,  roof  covering,  etc.),  ceramic  and  porcelain 
production, traditional Czech glass-blowing and costume jewellery. 

The  Czech  authorities  have  estimated  that  the  introduction  of  the  minimum  rates  set  by  the 
energy  tax  Directive  would  lead  to  price  increases  for  final  consumers  of  around  1%  for 
electricity, in the range of 10% for solid fuels12, and up to 5% for natural gas. 

Therefore, the Czech Republic requests transitional arrangements regarding i) electricity and 
solid fuels, and ii) natural gas used for heating purpose.  

The  Czech  authorities  point  out  that  it  would  be  important  to  adjust  national  duty  rates 
applicable to electricity, solid fuels and natural gas used for heating purpose at the same time, 
in order to avoid distortions of competition on the energy market. 

3.1.1.  Electricity and solid fuels 

Electricity  and  solid  fuels  are  not  subject  to  tax  in  the  Czech  Republic.  Due  to  the 
implementation of the Directive, a completely new system for the taxation of electricity and 
solid fuels will have to be introduced and new legislation will have to be drafted and adopted 
in this area. 

Concerning electricity, liberalisation of the electricity market will be finalised by the end of 
2005.  This  would  bring  about  changes  in  the  electricity  trading  system.  It  is,  therefore, 
important that the new taxation system on electricity be introduced in line with these changes. 

The  Czech  Republic  is  a  coal  producer.  If  the  tax  rate  is  introduced  for  solid  fuels,  its 
competitiveness with petroleum would suffer and a further decrease of coal production would 
occur. This would have a direct impact on employment in the coal regions. 

11 
12 

Doc 8084/03 Fisc 59 of 3.4.2003. 
For solid fuels, the spread is rather large, between 4% and 16%, depending on the product and use. 

7 

 
 
  
 
                                                 
In  this  context,  the  Czech  Republic  requests  a  transitional  period  until  1  January  2008  to 
introduce a taxation system for electricity and solid fuels, according to the provisions set out 
in the Directive. 

Assessment 

The mere need to introduce appropriate legislation is not a reason for postponing the taxation 
of electricity and solid fuels by three and a half years. However, the Commission considers 
that a transitional arrangement could be accepted if it includes a progressive phasing in of the 
tax, in order to smoothly reach the minimum levels set by the directive. 

The  Commission  concludes  that  the  Czech  Republic  should  be  authorised  to  apply  total  or 
partial exemptions or reductions in the level of taxation of electricity and solid fuels until 1 
January 2008. 

3.1.2.  Natural gas 

According to the national legislation on excise duties, natural gas used for heating purposes is 
already a taxable product, but with a zero tax rate. The natural gas facilities are mainly owned 
by  municipalities,  which  would  not  be  able  to  cope  with  a  reduced  demand,  resulting  from 
higher  gas  prices  due  to  higher  taxation.  This  would  result  in  an  increase  in  municipalities' 
debts, with a serious adverse impact on public budgets. A related negative consequence would 
be a rise in the use of heating fuels, which are less environmentally friendly than natural gas. 

Therefore, the  Czech  Republic requests an exemption in the level of taxation of natural gas 
used for heating purpose until 1 January 2008. 

Assessment 

The Commission is of the view that the request is proportionate.  

The  Commission  concludes  that  the  Czech  Republic  should  be  authorised  to  apply  total  or 
partial exemptions or reductions in the level of taxation of natural gas used for district heating 
until 1 January 2008. 

3.2. 

Estonia 

The Estonian authorities, in their letter of 14 November 2003, requested transitional periods 
regarding: i) motor fuels, ii) oil shale and shale oil, iii) natural gas), and iv) electricity. 

3.2.1.  Motor fuels 

Estonia is gradually increasing the rates of excise duty applicable to motor fuels, to achieve 
the  requirements  of  Directive  92/82/EEC  by  accession.  However,  the  present  rates  remain 
well below the minimum rates set by the above-mentioned Directive. If the minimum levels 
set in Directive 2003/96/EC were  to  be applied, the excise duty rate of unleaded petrol and 
gas oil would rise by 60% and 85% respectively.  

To avoid price increases and consequent economic drawbacks, Estonia requests a transitional 
period  for  applying  minimum  rates  to  unleaded  petrol,  diesel  and  LPG.  In  its  letter  of  14 
November, Estonia proposes a road map for gradually increasing its tax rates and to meet the 
minimum rates by 1 January 2010. 

8 

 
 
  
 
Assessment 

For LPG used as motor fuel, Article 15(1)(i) of the energy tax Directive states that Member 
States may apply, under fiscal control, total or partial exemptions in the level of taxation to 
natural gas and LPG used as propellants. Therefore, no transitional arrangement is necessary. 

The  Commission  is  of  the  view  that  the  remaining  part  of  the  request  is  proportionate.  The 
Commission concludes that Estonia should be authorised to apply a transitional period until 1 
January 2010 to adjust its national level of taxation on gas oil used as propellant to the new 
minimum level of EUR 330 per 1000 l. 

Estonia should also be authorised to apply a transitional period until 1 January 2010 to adjust 
its national level of taxation on unleaded petrol used as propellant to the new minimum level 
of EUR 359 per 1000 l. 

3.2.2.  Oil shale and shale oil 

Currently oil shale and shale oil used for heating purposes are not subject to excise duties in 
Estonia. 

Oil  shale  is  the  most  important  domestic  source  of  primary  energy, constituting  60%  of  the 
overall  primary  energy  balance  of  Estonia.  Oil  shale  has  a  critical  role  in  guaranteeing 
Estonia’s energy supply independence. It is produced for two purposes – 80% for production 
of electricity and heat, 20% as shale oil. The production of oil shale and its consumption is 
very concentrated from a geographical point of view.  

Taxing  shale  oil  for  heating  purposes  upon  accession  to  the  EU  would  lead  to  serious 
problems  due  to  the  price  increase  and  would  endanger  the  whole  industry  sector.  The 
decrease of the production of oil shale and shale oil for heating purposes would also result in 
increased  unemployment,  mainly  in  the  North-East  of  Estonia,  where  the  level  of 
unemployment is about 17% (in 2003). 

More  than  half  of  the  Estonian  heating  plants  produce  thermal  energy  from  shale  oil.  The 
introduction of excise duty would cause a rise in the prices of heating services of about 14%. 

In their letter of 14 November, Estonia proposes a road map for the increases in tax rates, to 
meet the minimum rates in 2015. Full exemption would apply until the end of 2008. 

Assessment 

Oil shale is a bituminous rock that releases hydrocarbons on distillation. It is classified under 
CN code 2714. Therefore, it comes within the scope of the Directive (see Article 2(1)(b)). 

The  Commission  recalls  that  oil  shale  used  to  produce  electricity  should  in  principle  be  tax 
exempt,  pursuant  to  Article  14(1)(a)  of  the  Directive.  Moreover,  oil  shale  used  to  produce 
shale oil most likely comes within the scope of Article 21(3). In principle, such use is not to 
be  considered  as  a  chargeable  event  giving  rise  to  taxation.  As  a  consequence,  a  very 
significant part of oil shale use will not be taxed in Estonia. 

The  Commission  takes  note  of  the  Joint  Declaration  by  the  present  Member  States,  in  the 
Treaty of Accession to the European Union 2003, regarding Estonia, "on oil shale, the internal 
electricity market and Directive 96/92/EC of the European Parliament and of the Council of 
19 December 1996 concerning common rules for the internal market in electricity (Electricity 

9 

 
 
  
 
Directive)".  Most  notably  it  states  that  "the  Union  recognises  in  this  respect  the  specific 
situation related to the restructuring of the oil shale sector which will require particular efforts 
until the end of 2012, and the need for gradual opening of the Estonian electricity market for 
non-household customers until that date. Based on this assessment, with full consideration to 
the  unique  character  of  oil  shale  and  social  and  economic  considerations  related  to  the 
extraction,  production  and  consumption  of  oil  shale  in  Estonia,  and  taking  into  account  the 
objectives of the Community regarding the electricity market, the Commission shall report to 
the Council with appropriate recommendations." 

Due  to  these  exceptional  circumstances,  the  Commission  considers  that  Estonia  should  be 
authorised  to  apply  a  total  exemption  from  taxation  of  oil  shale  until  1  January  2009,  and 
thereafter a reduction in the level of taxation of oil shale until 1 January 2013. However, the 
effective  tax  rate  applied  to  oil  shale  cannot  be  less  than  50%  of  the  relevant  Community 
minimum  rate  as  from  1  January  2011.  The  above  mentioned  report  to  the  Council  may 
include appropriate tax measures in favour of oil shale, as of 1 January 2010. 

Shale oil is a mineral oil within the meaning of Directive 92/81/EEC. For taxation purposes, it 
is equivalent to heavy fuel oil. No transitional period was requested during the enlargement 
negotiations.  Therefore,  the  Commission  considers  that  the  minimum  rates  set  by  Directive 
92/82/EEC should in principle be implemented at the time of accession. However, on a very 
exceptional  basis,  the  Commission  can  accept  that  Estonia  was  not  fully  aware  of  the 
necessity to tax shale oil according to the mineral oils Directives.  

To  avoid  social  difficulties,  the  Commission  is  of  the  view  that  a  tax  exemption  could  be 
granted in favour of households. Estonia should therefore be authorised to apply a transitional 
period until 1 January 2010 to adjust its national level of taxation on shale oil used for district 
heating purposes to the minimum level of taxation. However, the effective tax rate applied to 
shale  oil  used  for  district  heating  purposes  cannot  be  less  than  50%  of  the  relevant 
Community minimum rate as from 1 January 2007. 

For companies, the Commission notes that heating purposes often represents a significant part 
of  the  total  energy  consumption.  The  energy  tax  Directive  has  taken  such  elements  into 
account  by  providing  for  certain  specific  arrangements,  in  particular  in  Article  17.  The 
Commission considers that it is not appropriate to grant a further arrangement for exempting 
shale oil used by companies, beyond the existing framework. 

3.2.3.  Natural gas 

According to the statistics provided by the Estonian authorities in their letter of 14 November 
2003,  the  consumption  of  natural  gas  in  the  years  2000  and  2001  constituted  13%  of 
aggregated  consumption  of  primary  energy  in  Estonia.  Estonia  is  willing  to  apply  Article 
15(1)(g)  of  the  Directive,  with  a  view  to  reaching  the  minimum  rates  set  by  the  Directive 
in 2009. 

Assessment 

Article 15(1) of the energy tax Directive contains a list of possible exemptions or reductions 
in the level of taxation that Member States may apply under fiscal control. A Member State 
does  not  need  to  make  an ad hoc request  to the  Commission to implement such  a  measure. 
No specific transitional arrangement is regarded as necessary by the Commission, as long as 
the conditions set in Article 15(1) are respected. 

10 

 
 
  
 
3.2.4.  Electricity 

No  excise  duty  is  applied  on  electricity  today.  However,  Estonia  has  introduced  a  CO2 
emission charge on energy production (0.76 euros per MWh on average in year 2002, 1.145 
euros  per  MWh  from  2005).  As  a  consequence,  the  CO2  emission  charge  on  energy 
production is already 25% higher than the minimum tax level on electricity stipulated in the 
Directive. 

The  implementation  of  excise  duty  upon  accession  to  the  EU  would  increase  the  price  of 
electricity  in  Estonia.  Taking  into  account  the  average  income  of  Estonian  consumers,  this 
would  have  serious  consequences.  Therefore,  Estonia  is  seeking  a  transitional  period  for 
gradual alignment of its electricity taxation rates until the year 2009. 

Assessment 

The  Estonian  emission  charge  is  similar  to  an  input  tax,  introduced  for  an  environmental 
policy reason. According to Article 14(1) of the Directive, Estonia may maintain such a tax, 
without  having  to  respect  the  minimum  levels  of  taxation  laid  down  in  the  Directive. 
However,  the  input  tax  cannot  be  taken  into  account  for  the  purpose  of  satisfying  the 
minimum level of taxation on electricity laid down in Article 10 of the Directive. 

A comparable case is addressed in the Directive, in Article 18(8). Therefore, the Commission 
concludes that Estonia should be authorised to apply a transitional period until 1 January 2010 
to convert its current input electricity taxation system into an output taxation system. 

This  change  in  the  tax  structure  can,  in  principle,  be  managed  in  a  revenue  neutral  way,  so 
that there is no price increase for consumers. 

3.3. 

Cyprus 

Cyprus  has  not  required  any  transitional  arrangements,  additional  to  those  granted  in  the 
Accession Treaty. 

3.4. 

Latvia 

According to the Latvian authorities, in their note dated 12 November 2003, transposition of 
the  excise  tax  rates  according  to  the  directive  would  lead  to  an  increase  of  excise  tax  for 
energy products from 5% to 97% as of 2004. It would double the excise tax for gas oil. Thus, 
the  increase  of  the  minimum  effective  level  of  indirect  taxation  of  energy  products  would 
result  in  an  immediate  negative  impact  through  rapid  growth  of  prices  for  motor  fuels  and 
energy for heating purposes. 

According to the Latvian authorities, introduction of all the requirements of the Directive as 
of 1 January 2004 would increase the inflation rate by at least 1 percentage point which would 
impact on the country's macroeconomic outlook. The expected inflation rate for the year 2004 
in Latvia is 3% but taking into account the afore-mentioned, the inflation rate would increase 
to more than 4%. In such a situation, Latvia risks contravening one of the criteria set out by 
the Maastricht Treaty . 

Last but not the least is that the necessary arrangements to adjust the tax administration to the 
restructured  Community  framework  for  the  taxation  and  possible  introduction  of  new  taxes 
means  that  a  proper  tax  administration  as  of  2004  seems  hardly  feasible,  both  from  the 
methodological, practical and financial point of view. 

11 

 
 
  
 
As  a  consequence,  Latvia  requests  several  transitional  periods:  i)  for  motor  fuels,  ii)  for 
energy products and electricity used in public passenger transport, iii) for heavy fuel oil, iv) 
for natural gas, and v) for electricity, coal and coke. 

3.4.1.  Motor fuels 

Development  of  transportation,  which  is  a  key  branch  of  the  Latvian  economy,  would 
severely  suffer  from  an  overnight  increase  in  the  tax  for  motor  fuels.  Costs  of  carriage  of 
passengers  by  rail  would  increase  by  6%  and  for  carriage  of  goods  by  5%.  Costs  in  other 
kinds of passenger transport would increase by between 15 – 20%. 

The  purchasing  power  of  private  users  of  motor  fuel  is  such  that  they  would  not  be  able  to 
cope  with  the  price  increase  and  would  not  be  able  to  buy  fuel  at  the  new  price.  Such  a 
situation could lead to a sharp increase in tax fraud (smuggling) and a decrease in state budget 
revenues. 

Latvia requests a transitional period until 31 December 2010 to adjust the excise rate for gas 
oil, kerosene and fuel oil used as propellant to the minimum level of 302 euros, and until 31 
December 2012 to reach 330 euros. For unleaded petrol, they request a transitional period to 
31  December  2010  to  reach  the  minimum  rate  of  359  euros.  For  LPG  and  leaded  petrol, 
Latvia requests a transitional period to 31 December 2004. 

Assessment 

According to Article 15(1)(i) of the Directive, Member States may apply, under fiscal control, 
total or partial exemptions or reductions in the level of taxation to natural gas and LPG used 
as propellant. No specific arrangement is therefore required. 

According to Article 18(2) of the Directive, Member States with difficulties in implementing 
the new minimum levels of taxation are allowed a transitional period until 1 January 2007, in 
order  to  avoid  jeopardising  price  stability,  provided  that  this  does  not  significantly  distort 
competition. The Commission acknowledges that the two conditions set by this article are met 
in the case of leaded petrol taxation in Latvia. Therefore, there is no need to grant a specific 
transitional arrangement in that case. 

The  lengthiest  transitional  periods  granted  in  the  Directive  regarding  gas  oil  and  unleaded 
petrol  are  respectively  1  January  2012  and  1  January  2010.  Due  to  the  exceptional 
circumstances prevailing in Latvia, in particular the low present duty rates on motor fuels, the 
Commission  acknowledges  that  one  additional  year  would  be  necessary  for  Latvia  to  reach 
the  minimum  levels  set  by  the  Directive.  An  intermediate  step  increase  in  the  national  tax 
rates should then be planned. 

The  Commission  concludes  that  Latvia  should  be  authorised  to  apply  a  transitional  period 
until 1 January 2011 to adjust its national level of taxation on gas oil and kerosene used as 
propellant to the new minimum level of EUR 302 per 1000 l and until 1 January 2013 to reach 
EUR 330. However, the effective tax rate applied to gas oil and kerosene cannot be less than 
EUR 274 per 1000 l as from 1 January 2008. 

Latvia should also be authorised to apply a transitional period until 1 January 2011 to adjust 
its national level of taxation on unleaded petrol used as propellant to the new minimum level 
of EUR 359 per 1000 l. However, the effective tax rate applied to unleaded petrol cannot be 
less than EUR 323 per 1000 l as from 1 January 2008. 

12 

 
 
  
 
3.4.2.  Derogation for energy products and electricity used in public passenger transport 

Latvia  asks  for  a  derogation  in  favour  of  energy  products  and  electricity  used  in  public 
passenger transport. 

Assessment 

According to Article 15(1)(e) of the Directive, Member States may apply under fiscal control 
total  or  partial  exemptions  or  reductions  in  the  level  of  taxation  to  energy  products  and 
electricity used for the carriage of goods and passengers by rail, metro, tram and trolley bus. 

In  addition  to  the  possibility  given  to  Member  States,  the  Commission  considers  that  only 
local public passenger transport vehicles could enjoy preferential tax treatment. This view is 
reflected in Annex II to the Directive, which includes several derogations in favour of  such 
vehicles. These derogations are granted until 31 December 2006 at the latest. 

The Commission concludes that Latvia should be authorised until 31 December 2006 to apply 
a  reduced  rate  of  taxation  or  an  exemption  from  taxation  in  favour  of  energy  products  and 
electricity used in local public passenger transport vehicles. 

3.4.3.  Heavy fuel oil 

First,  Latvia  requests  a  transitional  period  until  31  December  2004  to  introduce  the  new 
minimum level of taxation applicable to heavy fuel oil. 

Secondly, the Latvian authorities note that currently excise tax is refunded to enterprises that 
use heavy fuel oil for producing heat and hot water. In several cities, heavy fuel oil would be 
the  only  fuel  used  for  central  heating  as  other  fuels  are  not  available  due  to  lack  of 
infrastructure.  The  central  heating  system  would  be  mainly  used  by  blocks  of  flats,  where 
low-income  families  live.  Cost  of  heating  would  represent  a  great  part  of  their  expenses.  A 
sharp  increase  in  heating  prices  could  lead  to  social  tension  in  these  regions.  As  a 
consequence,  Latvia  wishes  to  be  granted  a  tax  exemption  for  heavy  fuel  oil  used  by 
enterprises in the production of heat and hot water.  

Assessment 

Regarding  the  transitional  period  until  31  December  2004  to  introduce  the  new  minimum 
level of taxation applicable to heavy fuel oil, Member States with difficulties in implementing 
the new minimum levels of taxation are allowed a transitional period until 1 January 2007, in 
order  to  avoid  jeopardising  price  stability,  provided  that  this  does  not  significantly  distort 
competition - see Article 18(2) of the Directive. The Commission acknowledges that the two 
conditions set by this article are met in the case of the first Latvian request.  

To conclude, no specific transitional arrangement is necessary in that case. 

Regarding the tax exemption request for heavy fuel oil used by enterprises in the production 
of  heat  and  hot  water,  the  Commission  considers  that  two  cases  have  to  be  addressed.  For 
households, a tax exemption could be granted, in order to avoid a sharp price increase. Latvia 
should therefore be authorised to apply a transitional period until 1 January 2010 to adjust its 
national level of taxation on heavy fuel oil used for district heating purposes to the minimum 
level  of  taxation.  However,  the  effective  tax  rate  applied  to  heavy  fuel  oil  used  for  district 
heating purposes cannot be less than 50% of the Community minimum rate as from 1 January 
2007. 

13 

 
 
  
 
For companies, the Commission notes that heat and hot water production represents often a 
significant part of the total energy consumption. The Directive has taken such elements into 
account  by  providing  for  certain  specific  arrangements,  in  particular  in  Article  17.  The 
Commission considers that it is not appropriate to grant a further arrangement for exempting 
heavy fuel oil used by economic operators, beyond the existing framework. 

3.4.4.  Natural gas 

Latvia  requests  i)  a  postponement  of  the  introduction  of  the  new  tax  for  natural  gas  until  
31 December 2006, ii) a possibility to apply total or partial exemptions or reductions in the 
level  of  taxation  to  natural  gas  until  31  December  2009  and  iii)  a  derogation  for  a  tax 
exemption for natural gas used as heating fuel. 

Assessment 

The request for an unlimited derogation cannot be accepted as a matter of principle. In Latvia, 
the share of natural gas in final energy consumption was 11% in 2000. Therefore, Latvia has 
the possibility to benefit from a tax exemption on natural gas as defined by Article 15(1)(g). 
The  Commission  considers  that  the  long-term  possibility  of  applying  a  tax  exemption  to 
natural  gas,  given  by  this  Article,  covers  the  needs  of  Latvia.  No  specific  transitional 
arrangement is proposed by the Commission. 

3.4.5.  Electricity, coal and coke 

Electricity, coal and coke are not currently subject to any excise duty in Latvia. Introduction 
of the minimum taxation level could lead to an increase in the price of electricity by up to 5% 
and  in  the  price  of  coal  and  coke  by  12%.  In  addition,  the  Public  Utilities  Commission  of 
Latvia has already approved a price increase of electricity from 1 January 2004. The price of 
electricity  used  by  households  would  increase  by  15%  and  the  inflation  rate  by  0.45  of  a 
percentage point. 

Latvia requests i) a postponement of the introduction of the new tax for electricity, coal and 
coke  until  31  December  2006,  and  ii)  a  possibility  to  apply  total  or  partial  exemptions  or 
reductions in the level of taxation to electricity, coal and coke until 31 December 2009. 

Assessment 

The Commission is of the view that the request is proportionate for electricity. However, for 
solid fuels, the Commission considers that the transitional arrangement should end in 2008 at 
the latest. Progressive phasing in of taxation has to be included, in order to smoothly reach the 
minimum levels set by the directive. 

The  Commission  concludes  that  Latvia  should  be  authorised  to  apply  a  transitional  period 
until  1  January  2010  to  adjust  its  national  level  of  taxation  on  electricity  to  the  relevant 
minimum levels of taxation. However, the effective tax rates applied to electricity cannot be 
less than 50% of the relevant Community minimum rates as from 1 January 2007. 

The  Commission  concludes  that  Latvia  should  be  authorised  to  apply  a  transitional  period 
until 1 January 2009 to adjust its national level of taxation on coal and coke to the relevant 
minimum levels of taxation. However, the effective tax rates applied to coal and coke cannot 
be less than 50% of the relevant Community minimum rates as from 1 January 2007. 

14 

 
 
  
 
3.5. 

Lithuania 

According  to  the  Lithuanian  authorities,  in  their  letter  dated  7  November  2003,  Lithuania 
would face difficulties in implementing some new minimum rates of taxation for motor fuels 
and heating fuels, and in introducing taxation for products which were not previously subject 
to the Community harmonised structure. 

As  a  consequence,  Lithuania  requests  several  transitional  periods  regarding  for  motor  fuels, 
and electricity, natural gas, coal, coke and lignite, and orimulsion.  

3.5.1.  Motor fuels 

Lithuania will apply the minimum rates applicable to motor fuels set by Directive 92/82/EEC 
at  the  date  of  the  Accession.  The  increase  of  the  tax  rates  up  to  the  level  prescribed  in  the 
energy  tax  Directive  would  have  a  significant  direct  impact  on  the  growth  of  expenses  of 
households and businesses. 

Lithuania considers that the following transitional periods are needed: 

– 

– 

for unleaded petrol: until 1 January 2011; 

for  gas  oil  and  kerosene:  until  1  January  2011  to  reach  the  minimum  rate  of  
EUR 302 and until 1 January 2013 to reach the minimum rate of EUR 330. 

Lithuania is contemplating a gradual path to reach the minimum rates.  

Assessment 

The  lengthiest  transitional  periods  granted  in  the  Directive  regarding  gas  oil  and  unleaded 
petrol  are  respectively  1  January  2012  and  1  January  2010.  Due  to  the  exceptional 
circumstances prevailing in Lithuania, in particular the current low duty rates on motor fuels, 
the Commission acknowledges that one additional year would be necessary for Lithuania to 
reach the minimum levels set by the Directive. An intermediate step increase of the national 
tax rates should then be planned. 

The Commission concludes that Lithuania should be authorised to apply a transitional period 
until 1 January 2011 to adjust its national level of taxation on gas oil and kerosene used as 
propellant to the new minimum level of EUR 302 per 1000 l and until 1 January 2013 to reach 
EUR 330. However, the effective tax rate applied to gas oil and kerosene cannot be less than 
EUR 274 per 1000 l as from 1 January 2008. 

Lithuania  should  also  be  authorised  to  apply  a  transitional  period  until  1  January  2011  to 
adjust its national level of taxation on unleaded petrol used as propellant to the new minimum 
level of EUR 359 per 1000 l. However, the effective tax rate applied to unleaded petrol cannot 
be less than EUR 323 per 1000 l as from 1 January 2008. 

The  Commission  notes  that  the  minimum  levels  of  taxation  to  be  achieved  as  from  2008 
according to this proposal are consistent with the tentative timetables of excise duty increases 
for motor fuels transmitted by the Lithuanian authorities in their letter of 7 November 2003.  

15 

 
 
  
 
3.5.2.  Electricity, natural gas, coal, coke and lignite, and orimulsion. 

The Directive introduces taxation of electricity, natural gas, coal, coke and lignite as well as 
of orimulsion. Lithuania seeks transitional periods on the introduction of the taxation of new 
energy products in order to avoid adverse economic and social implications of the increase of 
consumption  of  alternative  energy  products  following  the  decommissioning  of  the  Ignalina 
Nuclear Power Plant (between 2005-2009). 

Lithuania considers that the following transitional periods are needed: 

– 

– 

– 

for coal, coke and lignite: until 1 January 2007; 

for natural gas and electricity: until 1 January 2010; 

for orimulsion: until 1 January 2016. 

Lithuania  would  like  to  be  allowed  to  apply  full  tax  exemption  to  the  above-mentioned 
products until the end of the relevant transition periods, instead of taxing the products at lower 
rates and gradually increasing them. 

In  response  to  an  additional  question  raised  by  the  Commission,  the  Lithuanian  authorities 
point out that orimulsion is not used solely to produce electricity. In Lithuania, power stations 
producing electricity also produce, at the same time, heat energy, which is supplied to the heat 
consumers. The proportion of energy produced in thermo-power stations consists of 60-70% 
of heat energy and 30-40% of electricity. 

Assessment 

In  the  Protocol  n°  4  to  the  treaty  of  accession  to  the  European  Union  2003  on  the  Ignalina 
nuclear power plant, Lithuania commits to the closure of Unit 1 of the Ignalina Nuclear Power 
Plant  before  2005  and  of  Unit  2  of  this  plant by  31  December  2009  at  the  latest  and  to  the 
subsequent decommissioning of these units. The "Ignalina Program" is established to support 
this  action.  According  to  this  programme,  measures  should  be  adopted  to  "contribute  to  the 
necessary  restructuring,  environmental  upgrading  and  modernisation  of 
the  energy 
production,  transmission  and  distribution  sectors  in  Lithuania  as  well  as  to  enhancing  the 
security of energy supply and improving energy efficiency in Lithuania." 

this  context, 

In 
tax 
reductions/exemptions could be granted as complementary measures to help smooth the very 
important restructuring process of the energy production sector in Lithuania. 

that,  until  31  December  2009, 

the  Commission  considers 

The  Commission  concludes  that  Lithuania  should  be  authorised  to  exempt  coal,  coke  and 
lignite from taxation until 1 January 2007 and natural gas and electricity until 1 January 2010. 

Orimulsion is a mixture of bitumen and water. It is classified under CN code 2714. It does not 
fall  within  the  scope  of  Directive  92/81/EEC13.  The  Lithuanian  authorities  explain  that  
30-40% of orimulsion consumption will be used to produce electricity. Member States have in 
principle to exempt from taxation energy products and electricity used to produce electricity 
(see  Article  14(1)(a)).  Furthermore,  according  to  the  Lithuanian  authorities,  orimulsion  is 

13 

Cf.  discussions  at  the  Excise  Committee  in  October  1995  (CED  163/12)  and  January  1996  
(CED 176/3). 

16 

 
 
  
 
                                                 
used to produce heat in "combined heat and power" (CHP) plants. Pursuant to Article 15(1)(c) 
of the Directive, Member States may apply under fiscal control total or partial exemptions or 
reductions in the level of taxation to energy products and electricity used for combined heat 
and  power  generation.  Therefore,  the  request  of  Lithuania  to  apply  a  full  tax  exemption  to 
orimulsion  used  to  produce  either  electricity  or  heat  in  CHP  plants  appears  redundant  in 
comparison with measures included in the energy tax Directive.  

Moreover, the Commission is of the view that no twelve-year transition period can be deemed 
proportionate  in  the  context  of  the  Directive.  The  possibility  of  a  tax  exemption  could  be 
granted  to  orimulsion  used  for  purposes  other  than  to  produce  electricity  or  heat  until  
1 January 2010, due to the special circumstances explained above. 

The Commission concludes that Lithuania should be authorised to exempt orimulsion used for 
purposes other than to produce electricity or heat until 1 January 2010. 

3.6. 

Hungary 

By letter dated 6 November 2003, Hungary requested two transitional periods: i) for energy 
products and electricity used for district heating and ii) for coal and coke. 

3.6.1.  Energy products and electricity used for district heating  

According to the Hungarian authorities, due to the structure of the accommodation market in 
Hungary,  a  significant  part  of  the  households  (18%)  live  in  flats  and,  therefore,  have  no 
possibility  for  individual  heating.  These  households  have  to  purchase  heating  services  from 
district  heating14  suppliers.  According  to  the  Directive,  the  products  used  directly  by 
households in the case of individual heating may be exempted. On the other hand, households 
using district heating have to bear the cost of the energy tax paid on the inputs.  

Hungary points out that flats with district heating are situated mainly in large blocks of flats, 
where  low-income  families  live.  The  cost  of  energy  would  represent  a  considerable  part  of 
their expenses, due to the fact that the cost of district heating would be 40% higher than that 
of individual heating.  

Finally, from an environmental point of view, district heating would be much friendlier than 
individual forms of heating. 

Therefore,  Hungary  requests  the  possibility  of  exempting  from  energy  taxation,  electricity 
(CN code 2716), natural gas (CN code 2711), coal and coke (CN codes 2701, 2702 and 2704) 
used for district heating purposes, until 31 December 2009. 

Assessment 

The Commission is of the view that the request is proportionate. However, it should include a 
progressive phasing in of the tax, in order to smoothly reach the minimum levels set by the 
directive. 

14 

The  Hungarian  authorities  note  that  the  term  “district  heating”  means  generating  heat  supplied  to 
inhabitants, in large number of flats, by a boiler of high capacity located at a distance from the flats and 
operated by an independent company. It also includes provision of “block heating” when the supply is 
provided to only one block of flats by an independent company. 

17 

 
 
  
 
                                                 
The Commission concludes that Hungary should be authorised to apply a transitional period 
until 1 January 2010 to adjust its national level of taxation on electricity, natural gas, coal and 
coke used for district heating purposes to the relevant minimum levels of taxation. However, 
the effective tax rates applied to the energy products concerned, and to electricity, cannot be 
less than 50% of the relevant Community minimum rates as from 1 January 2007. 

3.6.2.  Coal and coke 

According to the Hungarian authorities, coal consumption is not significant in Hungary.  

Some 96-97 % of national coal consumption would be covered by the exemptions laid down 
in the energy tax Directive (electricity production, sectors outside the scope of the Directive, 
etc …) and by the requested exemption for district heating. At this stage, taxing the remaining 
total consumption, amounting to 4600 TJ, would lead to disproportionate administrative costs. 

In  addition,  national  coal  production  and  consumption  are  in  decline.  Taxing  coal  would 
accelerate  the  decline  resulting  in  the  closure  of  mines  and  increased  unemployment,  thus 
leading to risks of social unrest. 

The Hungarian authorities do not consider that such exemption would distort the functioning 
of the internal market. 

By the end of the requested transitional period, 31 December 2009, Hungary notes that it will 
be ready to create an effective system of taxation of coal, as well as an efficient enforcement 
infrastructure. 

Assessment 

The Commission is of the view that the request is proportionate if limited to 2008. Due to the 
specific  problems  to  be  tackled,  in  particular  administrative  costs,  progressive  alignment 
should not be required.  

The Commission concludes that Hungary should be authorised to exempt coal and coke from 
taxation until 1 January 2009. 

3.7.  Malta 

By  letter  dated  10  December  2003,  the  Maltese  authorities  recall  that  Malta's  economic 
activities  are  small.  If  the  Directive  were  strictly  applied,  a  number  of  economic  activities 
would be in jeopardy. A phased introduction of the energy taxes would help the economy to 
adjust slowly to the new costs of production. Malta considers that it is unlikely that specific 
derogations would have any impact on Community trade.  

Malta  requests  transitional  periods  for  i)  electricity  and  ii)  all  other  energy  products.  Malta 
asks also for an unlimited derogation for navigation in private pleasure craft and for private 
pleasure flying. 

3.7.1.  Electricity taxation 

The Maltese authorities state that Malta neither imports nor exports electricity. They request a 
derogation to introduce, in various phases, the taxation on electricity to reach full compliance 
by 1 January 2010. 

18 

 
 
  
 
Assessment 

The Commission is of the view that the request is proportionate. However, it has to include a 
progressive phasing in, in order to smoothly reach the minimum levels set by the directive. 

The  Commission  concludes  that  Malta  should  be  authorised  to  apply  a  transitional  period 
until  1  January  2010  to  adjust  its  national  level  of  taxation  on  electricity.  However,  the 
effective  tax  rate  applied  to  electricity  cannot  be  less  than  50%  of  the  relevant  Community 
minimum rates as from 1 January 2007. 

3.7.2.  Other energy products 

The Maltese authorities ask for a derogation to implement the new minimum rates on all other 
energy products (i.e. except electricity) in various phases by 1 January 2010. 

Assessment 

Considering  the  unique  features  of  the  Maltese  economy,  the  Commission  considers  that 
some  flexibility  is  needed  for  Malta  to  reach  the  new  minimum  rates  on  motor  fuels  and 
heating fuels. As proposed by the Maltese authorities, the transition periods have to include a 
progressive phasing in, in order to smoothly reach the minimum levels set by the Directive. 

Regarding liquid petroleum gas (LPG) distributed to households in cylinders, the Commission 
recalls  that  the  minimum  level  of  taxation  applicable  to  LPG  used  for  heating  purposes  is 
zero. 

For  solid  fuels,  the  Commission  considers  that  the  transitional  arrangement  should  end  in 
2008 at the latest.  

Progressive phasing in of taxation has to be included, in order to smoothly reach the minimum 
levels set by the directive. 

However,  for  heavy  fuel  oil,  the  tax  rate  currently  applied  in  Malta  is  14  EUR  /1000  kg, 
whereas the minimum rate set by the Directive is 15 EUR / 1000 kg. A transition period until 
2010 does not, therefore, appear proportionate. 

The  Commission  concludes  that  Malta  should  be  authorised  to  apply  a  transitional  period 
until 1 January 2010 to adjust its national level of taxation on gas oil and kerosene used as 
propellant to the minimum levels of EUR 330 per 1000 l. 

Malta should also be authorised to apply a transitional period until 1 January 2010 to adjust its 
national  level  of  taxation  on  unleaded  petrol  and  leaded  petrol  used  as  propellant  to  the 
relevant minimum levels of taxation. 

Malta  should  be  authorised  to  apply  a  transitional  period  until  1  January  2010  to  adjust  its 
national level of taxation on natural gas used as heating fuel to the relevant minimum levels of 
taxation. However, the effective tax rates applied to natural gas used as heating fuel cannot be 
less than 50% of the relevant Community minimum rates as from 1 January 2007. 

Malta should finally be authorised to apply a transitional period until 1 January 2009 to adjust 
its  national  level  of  taxation  on  solid  fuels  used  as  heating  fuels  to  the  relevant  minimum 
levels of taxation. However, the effective tax rates applied to the energy products concerned 
cannot be less than 50% of the relevant Community minimum rates as from 1 January 2007. 

19 

 
 
  
 
3.7.3.  Navigation in private pleasure craft and private pleasure flying 

The Maltese authorities state that many aircraft and sea craft stop-over in Malta to replenish 
their onboard stores and other requirements. Particularly in the yachting industry, the supply 
of duty exempt fuel is offered as an all-inclusive package, which includes also ship stores and 
maintenance  work.  This  is  a  significant  tourist  attraction  for  Malta.  Stopping  the  fuel 
derogation would lead to job losses in the bunkering industry. 

Assessment 

The request for an unlimited derogation cannot be accepted as a matter of principle. 

According  to  Article  14(1)(b)  and  (c)  of  the  Directive,  Member  States  shall  exempt  from 
taxation energy products supplied for use as fuel for the purpose of air navigation other than 
in  private  pleasure  flying,  and  energy  products  supplied  for  use  as  fuel  for  the  purposes  of 
navigation  within  Community  waters  (including  fishing),  other  than  private  pleasure  craft, 
and electricity produced on board a craft. 

Moreover, the Commission notes that several of the present Member States have been granted 
similar tax reductions /exemptions in Annex II of the Directive.  

Therefore, the Commission could accept a time-limited derogation, until 31 December 2006, 
in favour of navigation in private pleasure craft and private pleasure flying. 

3.8. 

Poland 

By  letter  dated  14  November  2003,  pursuant  to  Article  57  of  the  Accession  Treaty,  Poland 
requested transitional periods: i) for propellants, ii) for heavy fuel oil, iii) for gas oil used as 
heating fuel, iv) for natural gas, v) for coal, and vi) for electricity. 

In  addition,  Poland  refers  to  specific  derogations  to  be  granted  under  Article  18(1)  of  the 
Directive. 

3.8.1.  Propellants 

The Polish authorities note that the Parliamentary debate in the Sejm on the new excise duty 
law is not yet finalised. Therefore, the Polish law is not yet fully in line with EU law in that 
field. In addition, duty rates on fuels are often significantly lower than the minimum rates set 
by  the  energy  tax  Directive  and,  for  diesel,  lower  than  the  minimum  rate  set  by  Directive 
92/82/EEC.  The  required 
to  adverse  socio-economic 
consequences. 

taxes  may 

increases 

lead 

in 

Poland also asks to be allowed to use the exchange rate of the zloty vs. euro as of 1 October 
2002, instead of 1 October 2003.  

Poland is willing to gradually align the national rates to the Community minimum rates under 
the following agenda: 

– 

– 

– 

for LPG: until 1 January 2009; 

for leaded petrol: until 1 January 2005; 

for unleaded petrol: until 1 January 2009; 

20 

 
 
  
 
– 

for gas oil: until 1 January 2012 to reach the new minimum rate of EUR 302 
and until 1 January 2015 to reach the minimum rate of EUR 330. 

Assessment 

Article  13(1)  states  that  the  exchange  rate  to  be  used  for  the  conversion  PLN  /  EUR  at  the 
time of accession is that of 1 October 2003. The provision of Article 13(2) does not apply as 
the  relevant  exchange  rate  varied  by  more than 5% between 1 October 2002 and  1  October 
2003. 

According to Article 15(1)(i) of the Directive, Member States may apply, under fiscal control, 
total or partial exemptions or reductions in the level of taxation to natural gas and LPG used 
as propellant. No specific arrangement is, therefore, necessary. 

Regarding leaded petrol, the tax increase required to reach the minimum rate of EUR 421 (per 
1000 litres), would be 15%. According to Article 18(2) of the Directive, Member States with 
difficulties  in  implementing  the  new  minimum  levels  of  taxation  are  allowed  a  transitional 
period until 1 January 2007, in order to avoid jeopardising price stability, provided that this 
does  not  significantly  distort  competition.  The  Commission  acknowledges  that  the  two 
conditions set by this article are met. In conclusion, there is no need for a specific transitional 
arrangement in this case. 

For  unleaded  petrol,  the  tax  increase  required  to  reach  the  minimum  rate  of  EUR  359  (per 
1000 litres), would be 9.5%. Poland should also be authorised to apply a transitional period 
until  1  January  2009  to  adjust  its  national  level  of  taxation  on  unleaded  petrol  used  as 
propellant to the new minimum level of EUR 359 per 1000 l. 

For low sulphur gas oil, the tax increase required to reach the minimum rate of EUR 330 (per 
1000  litres),  would  be  50%.  The  lengthiest  transitional  period  contemplated  in  the  present 
proposal for this product is until 1 January 2011 to reach the new minimum rate of EUR 302 
and until 1 January 2013 to reach the minimum rate of EUR 330. To allow similar treatment 
for the accession Member States, taking into account the low present duty rates on gas oil, the 
Commission  acknowledges  that  such  transitional  arrangement  could  also  be  granted  to 
Poland.  An  intermediate  step  increase  of  the  national  tax  rates  should  then  be  planned.  The 
Commission  concludes  that  Poland  should  be  authorised  to  apply  a  transitional  period  until  
1 January 2011 to adjust its national level of taxation on gas oil used as propellant to the new 
minimum level of EUR 302 per 1000 l and until 1 January 2013 to reach EUR 330. However, 
the  effective  tax  rate  applied  to  gas  oil  cannot  be  less  than  EUR  274  per  1000  l  as  from  
1 January 2008. 

3.8.2.  Heavy fuel oil 

In  Poland,  heavy  fuel  oil  would  be  used  on  a  vast  scale  in  heat  and  power  co-generation 
plants, in local heat generation plants and in industrial heating plants, to generate heat used as 
a source of central heating and hot water in the municipal economy. It is also used in other 
industries,  in  technological  processes  requiring  heat  energy  e.g.  in  cement  plants,  or  for 
production  of  other  building  materials.  Moreover,  the  various  possibilities,  given  by  the 
Directive,  to  differentiate  tax  rates  according  to  uses  (for  instance  in  Article  15  and  Article 
17), would require time to be implemented 

Poland requests until 1 January 2008 for the gradual adjustment of the taxation on heavy fuel 
oil to the minimum level of EUR 15 per 1000 kg. 

21 

 
 
  
 
Assessment 

The Commission is of the view that the request is proportionate. Poland should be authorised 
to apply a transitional period until 1 January 2008 to adjust its national level of taxation on 
heavy fuel oil to the new minimum level of EUR 15 per 1000 kg. 

3.8.3.  Gas oil used as heating fuel 

According to the Polish authorities, the particular significance of gas oil used as heating fuel 
in the economy requires a transitional period due to (a) the possibility of reducing the present 
excise duty rate on gas oil used as heating fuel and (b) lack of differentiation of excise duty on 
gas oil used as heating fuel in Poland to reflect its use.  

Poland refers also to the possibility of applying lower rates on gas oil used as heating fuel for 
specific appropriation e.g. for heating purposes of schools, nursery schools and other public 
utilities. 

Poland requests until 1 January 2008 for the gradual adjustment of the taxation on gas oil used 
as heating fuel to the minimum level of EUR 21 per 1000 l. 

Assessment 

The  present  rate  applied  to  gas  oil  used  as  heating  fuel  in  Poland  is  42.7  euros  per  1000  l, 
which is well above the minimum rate set by the Directive (21 euros / 1000 l). 

The Commission is of the view that Poland refers firstly to an issue connected to the marking 
of gas oil. The Commission recalls that Poland will have to mark gas oil when this product is 
released  for  consumption  and  taxed  at  a  level  different  from  the  normal  rate15.  No  specific 
arrangement is therefore necessary. 

Secondly, the Commission understands that Poland requests the possibility to apply a reduced 
rate  of  excise  duty  to  gas  oil  used  by  schools,  nursery  schools  and  other  public  utilities.  A 
similar possibility is granted in the Directive – see Article 18(10). 

The  Commission  concludes  that  Poland  should  be  authorised  to  apply  total  or  partial 
exemptions  or  reductions  for  gas  oil  used  as  heating  fuel  by  schools,  nursery  schools  and 
other public utilities, in respect of the activities or transactions in which they engage as public 
authorities until 1 January 2008. 

3.8.4.  Natural gas  

Natural  gas  is  at  present  not  subject  to  excise  duty  in  Poland.  According  to  the  Polish 
authorities,  the  share  of  natural  gas  in  final  energy  consumption  slightly  exceeded  11%  in 
2000. Poland would, therefore, be eligible to the possibility of a tax exemption laid down in 
Article 15(1)(g) of the Directive.  

However, imposing excise duty on natural gas would pose a direct burden on buyers of this 
energy  product,  which  might  result  in  their  withdrawal  from  using  this  environmentally-
friendly  energy  carrier.  Inflation  would  rise  by  2%.  Bearing  in  mind  that  Polish  citizens’ 

15 

See  Council  Directive  95/60/EC  of  27  November  1995  on  fiscal  marking  of  gas  oils  and  kerosene 
(OJ L 291 of 6.12.1995, p. 46). 

22 

 
 
  
 
                                                 
incomes are lower than the European Union average, the imposition of excise duty on natural 
gas  would,  in  particular,  slow  down  the  rate  of  gas  industry  development.  An  additional 
consequence would be a deterioration of competitiveness of products generated by the Polish 
economy.  Finally,  the  Polish  excise  duty  administration  would  be  confronted  with  huge 
difficulties. 

Therefore,  Poland  requests  a  permanent  derogation  or  a  transitional  period  to  adjust  the 
national level of taxation on natural gas to the minimum levels until 31 December 2018, or 
until the national share of natural gas in final energy consumption reaches 25%.  

Assessment 

The request for an unlimited derogation cannot be accepted as a matter of principle. 

The estimates put forward by the Polish authorities do not seem to include the possibilities of 
tax exemption given by the Directive. For instance, natural gas used by households could be 
exempted.  

The Commission does not see any specific argument, which would make the Polish situation 
different  from  the  situations  met  in  other  Member  States,  as  far  as  natural  gas  taxation  is 
concerned.  The  Commission  considers  that  the  long-term  possibility  of  applying  a  tax 
exemption  to  natural  gas,  given  by  Article  15(1)(g),  strikes  an  adequate  balance  between 
internal  market,  economic,  environmental  and  energy  policy  objectives.  No  specific 
transitional arrangement is proposed by the Commission. 

3.8.5.  Coal 

At  present,  coal  is  not  an  excisable  commodity  in  Poland.  The  Polish  authorities  argue  that 
imposing excise duty on this product would have a huge impact on the energy and industrial 
sector. The length of the transitional periods for fuels that Poland requires would have to be 
granted  in  connection  with  the  purchasing  power  of  the  Polish  population.  The  hard  coal 
sector in Poland has been undergoing a process of restructuring. The aim of restructuring is, 
inter alia, to adjust the existing production capacities to provide opportunities for profitable 
coal  sales.  A  rise  in  coal  prices  due  to  taxation  would  undoubtedly  affect  coal  sales,  thus 
exacerbating the sector’s financial position and complicating the process of its restructuring. 
The  coal  sector  reform  is  a  lengthy  and  costly  process,  and  the  necessity  of  cutting 
employment  in  collieries  would  result  in  unemployment  growth  in  the  Silesian  region  so 
giving  rise  to  social  discontent.  Therefore,  any  additional  tax  burdens  would  be  seen  as  an 
obstacle to the restructuring of the mining industry. District heating represents 3% of Polish 
consumption of coal. Finally, the Polish excise duty administration would be confronted with 
huge difficulties. 

Therefore,  Poland  requests  a  permanent  derogation  or  a  transitional  period  to  adjust  the 
national level of taxation on coal to the minimum levels until 1 January 2018. 

Assessment 

The request for an unlimited derogation cannot be accepted as a matter of principle. 

The estimates put forward by the Polish authorities do not seem to include the possibilities of 
tax  exemption  given  by  the  Directive.  For  instance,  coal  used  by  households  could  be 
exempted.  Coal  used  to  produce  electricity  should,  in  principle,  be  exempted.  The 
Commission considers that the bulk of Polish coal consumption enjoys a possibility for a tax 

23 

 
 
  
 
exemption according to the Directive. This view is confirmed by the data annexed to the letter 
of the Polish authorities of 14 November 2003. District heating deserves specific attention. 

The  Commission  concludes  that  Poland  should  be  authorised  to  apply  a  transitional  period 
until 1 January 2010 to adjust its national level of taxation  on coal  used for district  heating 
purposes to the relevant minimum level of taxation. However, the effective tax rate applied to 
the energy product concerned cannot be less than 50% of the relevant Community minimum 
rate as from 1 January 2007. 

Poland should be authorised to apply a transitional period until 1 January 2009 to adjust its 
national level of taxation on coal used for other purposes than district heating to the relevant 
minimum levels of taxation. However, the effective tax rates applied to such product cannot 
be less than 50% of the relevant Community minimum rates as from 1 January 2007. 

3.8.6.  Electricity 

Excise  duties  on  electricity  are  well  above  the  minimum  rates  set  by  the  Directive.  Poland 
requests until 1 January 2008 to implement the Community electricity taxation system. 

Assessment 

The  request  relates  to  the  time  period  required  to  transpose  the  measures  concerning 
electricity in the energy tax Directive in Polish legislation. 

The Directive contains provisions, which make electricity taxation rather simple to manage. 
For  instance,  there  is  no  suspension  regime  because  electricity  is  subject  to  taxation  and 
becomes chargeable at the same time.  

However, the Commission considers that Poland should be authorised to apply a transitional 
period  until  1  January  2006  to  align  its  current  electricity  taxation  system  with  the 
Community framework. 

3.8.7.  Derogations under Article 18(1) of the Directive 

The Polish authorities are of the view that the following exemptions, which are presently in 
force, are consistent with Community law: 

aviation fuel and turbo-combustion engine fuels and engine oils for aviation engines, sold by 
the producer of such fuels to the order of: 

– 

– 

– 

– 

the  Minister  of  National  Defence  or  the  competent  minister  for  internal  affairs,  for 
purposes of the aviation industry; 

the Agency of Material Reserves to supplement state reserves; 

organisational units of sanitary aviation for purposes of such units; 

gas  oil  for  ships  engines  and  engines  for  sea  technology  and  engine  oils  for  ship 
engines and for sea technology sold by the producer of such fuel to the order of the 
Agency  of  Stock  Reserves  to  supplement  state  reserves,  and  to  the  order  of  the 
Minister of National Defence to be used for purposes of the navy, and to the order of 
the competent minister for internal affairs to be used for sea engineering; 

24 

 
 
  
 
– 

aviation fuel, turbo-combustion engine fuel and gas oil for ship engines and engines 
for  sea  technology  and  oils  for  aviation  engines,  ship  engines  and  engines  for  sea 
technology,  sold  by  the  Agency  of  Stock  Reserves  to  the  order  of  the  Minister  of 
National Defence or the competent minister for internal affairs. 

Leaded petrol and unleaded petrol with an ethyl alcohol content between 4,5 % and 5 % with 
respect to the portion equal to amount for each 1 000 litres of such fuels. 

Leaded petrol with an ethyl ter[tiary] butyl ether (ETBE) content to 8 % and unleaded petrol 
with an ETBE content to 5 % obtained from ethyl alcohol with respect to the portion equal to 
amount for each 1 000 litres of such fuels. 

Poland  requests  the  application  of  Article  18(1)  of  the  Directive  to  continue  to  apply  these 
exemptions. 

Assessment 

Regarding  derogations  1),  2)  and  3),  the  Commission  considers  that  their  scope  largely 
reflects  the  scope  of  Articles  14(1)(b),  14(1)(c)  and  15(1)(j)  of  the  Directive.  For  the  part, 
which would not be covered by the above-mentioned articles, the Commission could accept a 
time-limited derogation. 

Regarding  derogations  4  and  5),  the  Commission  notes  that  Poland  enjoys  a  transitional 
measure  in  the  Treaty  of  Accession.  Furthermore,  Article  16  of  the  Directive  sets  the 
conditions  under  which  tax  exemptions  may  be  granted,  under  fiscal  control,  in  favour  of 
biofuels.  Such  exemptions  must  of  course  also  respect  other  provisions  of  the  Treaty,  as 
Article 90. No specific transitional arrangement is proposed by the Commission. 

3.9. 

Slovenia 

By  letter  dated  10  November  2003,  Slovenia  requests  two  transitional  periods:  for  i) 
electricity,  and  ii)  for  natural  gas.  Slovenia  argues  that  these  transitional  periods  will  not 
impede the functioning of the internal market. 

3.9.1.  Electricity 

According to the Slovenian authorities, the full implementation of minimum level of taxation 
would  exert  additional  pressure  on  prices  and 
jeopardise 
macroeconomic  goals  of  the  Slovenian  Government,  which  strive  for  the  reduction  of 
inflation  in  line  with  the  Maastricht  criterion  as  well  as  entering  ERM  II.  Slovenia  is  also 
willing to encourage rational use of electricity by influencing its price. Slovenia considers that 
introducing  excise  duty  and  gradually  increasing  the  taxation  of  electricity  over  a  limited 
period  of  time  would  achieve  an  appropriate  balance  between  the  environmental  and 
economic  policies.  Slovenia  requests  a  transitional  period  to  reach  the  minimum  level  of 
taxation of electricity until 1 January 2007. 

inflation.  This  would 

Assessment 

According  to  Article  18(2)  of  the  energy  tax  Directive,  Member  States  with  difficulties  in 
implementing  the  new  minimum  levels  of  taxation  are  allowed  a  transitional  period  until  1 
January  2007,  in  order  to  avoid  jeopardising  price  stability,  provided  that  this  does  not 
significantly distort competition. 

25 

 
 
  
 
The Commission acknowledges that the two conditions set by this article are met in the case 
of electricity taxation in Slovenia. Therefore, no specific transitional arrangement is necessary 
in this case. 

3.9.2.  Natural gas 

In Slovenia, supplies of natural gas are subject to excise duty and to a CO2 tax. The total tax 
burden  on  natural  gas  (excluding  VAT)  would  range  from  44.12  to  211.8  SIT/GJ 
(approximately 0.19 to 0.93 EUR/GJ16). 

Natural gas is the key fossil fuel for meeting the goals of the National Energy Programme and 
the Operational Programme for Reduction in Emissions of Greenhouse Gases. The tax policy 
represents a very important element in the goals set out in the above areas.  

Slovenia  endeavours  to  increase  the  use  of  natural  gas  both  to  meet  the  increasing  need  for 
electricity and heat and also to replace fossil fuels (coal, fuel oil). The immediate introduction 
of the minimum excise duty at the prescribed rate could set back the achievement of the goal 
and jeopardise fulfilment of the commitments that Slovenia has undertaken in connection with 
the Kyoto protocol.  

The  Slovenian  authorities  refer  to  Article  15(1)(g)  of  the  energy  tax  Directive,  pointing  out 
that the share of natural gas in final energy consumption was 15.1% in 2000. 

Slovenia requests a transitional period of 10 years to reach the minimum level of taxation of 
natural gas, i. e. until 1 May 2014. 

Assessment 

The  Commission  is  of  the  view  that  the  request  is  proportionate.  The  possibility  given  by 
Article  15(1)(g),  which  meets  the  request  in  substance,  should  be  granted  to  Slovenia.  In 
particular, the share of natural gas in final energy consumption is very close to the threshold 
set by the Directive (15%). 

The Commission concludes that Slovenia should be authorised to apply, under fiscal control, 
total  or  partial  exemptions  or  reductions  in  the  level  of  taxation  to  natural  gas.  The  total  or 
partial  exemptions  or  reductions  may  apply  until  May  2014  or  until  the  national  share  of 
natural gas in final energy consumption reaches 25%, whichever is the sooner. However, as 
soon as the national share of natural gas in final energy consumption reaches 20%, Slovenia 
should  apply  a  strictly  positive  level  of  taxation,  which  shall  increase  on  a  yearly  basis  in 
order to reach at least the minimum rate at the end of the period referred to above. 

3.10. 

Slovakia 

According to the Slovakian authorities, in their letter of 21 November 2003, natural gas, coal, 
coke and electricity are not subject to excise duties in their present national legislation.  

Immediate  application  of  the  minimum  rates  set  by  the  Directive  for  these  products  would 
mainly lead to an unbearable burden for households. Natural gas is used in particular for both 
central  and  individual  production  of  heat  for  households.  Substantial  increases  in  prices  of 

16 

This calculation uses the EUR exchange rate applicable of 1 October 2002. 

26 

 
 
  
 
                                                 
energies have recently occurred. Notably, the sale prices of natural gas for households have 
already increased by 40%, not considering the future introduction of excise duties.  

Use  of  natural  gas  as  fuel  is  in  its  infancy.  The  introduction  of  excise  duties  would 
substantially  reduce  the  current  competitive  advantage  of  natural  gas  as  being  the  more 
environment-friendly fuel compared to diesel oil.  

In addition, this would mean a loss in competitiveness of Slovakian products on the common 
market,  since  the  price  of  electricity  and  natural  gas  is  even  today  higher  or  equal  to  the 
commodity prices in EU Member States. 

Moreover, Slovakia would need a transitional period for the transposition of the Directive.  

Therefore, Slovakia requests transitional periods for i) electricity, natural gas and solid fuels, 
ii) for LPG, and iii) for waste oils and any environment-safe wastes used as fuel. 

3.10.1.  Electricity, natural gas and solid fuels 

Slovakia  asks  for  a  transitional  period  until  31  December  2009  for  the  exemption  of  excise 
duties for electricity, natural gas and solid fuels.  

Assessment 

The main reason put forward by Slovakia to justify the need for transitional arrangements for 
electricity, natural gas and solid fuels is the social impact of price increases due to taxes. The 
Commission  recalls  that,  pursuant  to  Article  15(1)(h)  of  the  Directive,  Member  States  may 
apply, under fiscal control, total or partial exemptions or reductions in the level of taxation to 
electricity, natural gas, coal and solid fuels used by households. 

The Commission also notes that the share of natural gas in final energy consumption is well 
above 15% in Slovakia in 2000. 

For  solid  fuels,  the  Commission  considers  that  the  transitional  arrangement  should  end  in 
2008 at the latest.  

Finally, the request can only be regarded as proportionate if it includes a progressive phasing 
in, in order to smoothly reach the minimum levels set by the directive. 

The Commission concludes that Slovakia should be authorised to apply a transitional period 
until 1 January 2010 to adjust its national level of taxation on electricity and natural gas used 
as  heating  fuel  to  the  relevant  minimum  levels  of  taxation.  However,  the  effective  tax  rates 
applied  to  electricity  and  natural  gas  used  as  heating  fuel  cannot  be  less  than  50%  of  the 
relevant Community minimum rates as from 1 January 2007. 

Slovakia should be authorised to apply a transitional period until 1 January 2009 to adjust its 
national level of taxation on solid fuels to the relevant minimum levels of taxation. However, 
the  effective  tax  rates  applied  to  solid  cannot  be  less  than  50%  of  the  relevant  Community 
minimum rates as from 1 January 2007. 

3.10.2.  LPG 

Slovakia asks for the prolongation of the present exemption from taxation on liquid petroleum 
gas (LPG) used as fuel. 

27 

 
 
  
 
Assessment 

According to Article 15(1)(i) of the Directive, Member States may apply, under fiscal control, 
total or partial exemptions or reductions in the level of taxation to natural gas and LPG used 
as propellant. Furthermore, the minimum rate for LPG used as heating fuel is zero. 

No specific arrangement is therefore required. 

3.10.3.  Waste oils and any environment-safe wastes used as fuel 

Slovakia asks for a derogation in favour of waste oils and any environment-safe wastes used 
as fuel.  

Assessment 

The  Commission  received  the  information  that  the  so-called  "environment-safe  wastes"  are 
also  mineral  oil  wastes.  The  amended  Directive  75/439/EEC17  on  the  disposal  of  waste  oils 
requires  the  Member  States  to  take  the  necessary  steps  to  give  priority  to  the  processing  of 
waste  oils  by  regeneration.  The  Court  of  Justice  has  confirmed  that  priority18.  Authorising 
exemptions and reductions in respect of the use of waste oils as fuel is therefore contrary to 
the objectives of the above Directive in that it encourages the incineration of such oils and, 
therefore, hinders the development of a market for their regeneration. 

The  fact  that  the  Council  authorised  several  Member  States  to  continue  to  apply  tax 
reductions / exemptions in favour of waste oils until 2006 does not change the position of the 
Commission on that matter. 

No specific arrangement is therefore proposed by the Commission. 

4. 

CONCLUSION 

The proposed tax Directive puts forward reasoned and proportionate transitional arrangements 
in favour of the acceding Member States. It should be dealt with as quickly as possible by the 
European  Parliament,  the  Council  and  the  European  Economic  and  Social  Committee,  in 
order to avoid any legal vacuum at the time of enlargement. 

Finally,  the  Commission  recalls  the  obligations  resulting  from  the  application  of  Council 
regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application 
of Article 88 (ex 93) of the EC Treaty19, and in particular the rules on existing aids and on 
new  aids.  The  Commission  recommends  that  acceding  States  notify  the  Commission  of 
possible State aid elements in these tax measures under the interim procedure for existing aid 
laid down in Annex IV, point 3 of the Accession Treaty. 

17 

18 
19 

Council  Directive  75/439/EEC,  16.6.1975  (OJ  L  194,  25.7.1975,  p.  23)  as  amended  by  Council 
Directive 87/101/EEC, 22.12.1986 (OJ L 42, 12.2.1987, p. 43). 
Case C-102/97 Commission v. Germany [1999] ECR I-5051. 
OJ L 83 of 27.3.1999, p. 1. 

28 

 
 
  
 
                                                 
2004/0016 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2003/96/EC as regards the possibility for certain Member States  
to apply, in respect of energy products and electricity, temporary exemptions 
or reductions in the levels of taxation 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 93 thereof, 

Having regard to the proposal from the Commission20, 

Having regard to the opinion of the European Parliament21, 

Having regard to the opinion of the European Economic and Social Committee22, 

Whereas: 

(1) 

(2) 

20 
21 
22 
23 
24 

25 

Council  Directive  2003/96/EC  of  27  October  2003  restructuring  the  Community 
framework  for  the  taxation  of  energy  products  and  electricity23  replaced,  with  effect 
from  1  January  2004,  Council  Directive  92/81/EEC  of  19  October  1992  on  the 
harmonisation  of  the  structures  of  excise  duties  on  mineral  oils24  and  Council 
Directive 92/82/EEC of 19 October 1992 on the approximation of the rates of excise 
duties on mineral oils25. It defines the fiscal structures and the levels of taxation to be 
imposed on energy products and electricity. 

The minimum rates set by Directive 2003/96/EC are liable to create serious economic 
and social difficulties for certain Member States, namely the Czech Republic, Estonia, 
Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia, in view of 
the comparatively low level of excise duties previously applied, the ongoing economic 
transition of those Member States, their relatively low income levels and their limited 
ability  to  offset  that  additional  tax  burden  by  reducing  other  taxes.  In  particular  the 
price  increases  brought  about  by  application  of  the  minimum  rates  set  by  Directive 
2003/96/EC are likely to have adverse effect on their citizens and national economies, 
creating for instance an unbearable burden for small and medium-sized enterprises. 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L 283 of 31.10.2003, p. 51. 
OJ  L 
31.10.1992, 
(OJ L 365, 31.12.1994, p. 46). 
OJ L 316, 31.10.1992, p. 19. Directive as amended by Directive 94/74/EC. 

12.  Directive 

amended 

316, 

as 

p. 

by  Directive 

94/74/EC  

29 

 
 
  
 
                                                 
(3) 

(4) 

(5) 

Those  Member  States  should  therefore  be  permitted,  on  a  temporary  basis,  to  apply 
additional exemptions or reduced levels of taxation, where it will not be detrimental to 
the  proper  functioning  of  the  internal  market  and  will  not  result  in  the  distortion  of 
competition.  Moreover,  consistent  with  the  principles  in  accordance  with  which 
transitional  periods  were  originally  granted  under  Directive  2003/96/EC,  any  such 
measures  should  be  designed  to  bring  about  a  progressive  alignment  with  the 
applicable Community minimum rates. 

The  Treaty  of  Accession  to  the  European  Union  200326  provides  for  transitional 
arrangements, in the case of Poland and Cyprus, for the implementation of Directive 
92/81/EEC  and  of  Directive  92/82/EEC.  The  Treaty  also  provides  for  specific 
measures on issues relating to energy in Lithuania and Estonia. Those measures should 
be  adequately  taken  into  account  in  the  context  of  permitting  dedicated  tax 
exemptions. 

This Directive does not prejudice the outcome of any procedures relating to distortions 
of  the  operation  of  the  single  market  that  may  be  undertaken,  in  particular  under 
Articles  87  and  88  of  the  Treaty.  It  does  not  override  the  requirement  for  Member 
States to notify instances of potential State aid to the Commission under Article 88 of 
the Treaty.  

(6) 

The  wording  of  Art.  18  (2)  should  be  clarified  as  regards  the  references  to  the 
transitional period set out in that article. 

(7) 

Directive 2003/96/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Directive 2003/96/EC is amended as follows: 

Article 1 

1) 

(a) 

Article 18 is amended as follows: 

In paragraph 1, the first subparagraph is replaced by the following:  

"By  way  of  derogation  from  the  provisions  of  the  present  Directive,  the  Member 
States specified in Annex II are authorised to continue to apply the reductions in the 
levels of taxation or the exemptions set out in that Annex ." 

(b) 

In  paragraph  2,  the  words  "in  paragraphs  3  to  12"  are  replaced  by  the  words  "in 
paragraphs 3 to 13". 

26 

O J L 236, 23.9.2003, p. 17. 

30 

 
 
  
 
                                                 
2) 

The following Article 18a is inserted 

"Article 18a 

1. 

2. 

3. 

4. 

By  way  of  derogation  from  the  provisions  of  the  present  Directive,  the  Member 
States specified in Annex III are authorised to apply the reductions in the levels of 
taxation or the exemptions set out in that Annex. 

Subject  to  a  prior  review  by  the  Council,  on  the  basis  of  a  proposal  from  the 
Commission,  this  authorisation  shall  expire  on  31  December  2006  or  on  the  date 
specified in Annex III." 

Notwithstanding the periods set out in paragraphs 3 to 11 and provided that this does 
not  significantly  distort  competition,  Member  States  with  difficulties 
in 
implementing  the  new  minimum  levels  of  taxation  shall  be  allowed  a  transitional 
period until 1 January 2007, particularly in order to avoid jeopardising price stability. 

The Czech Republic may apply total or partial exemptions or reductions in the level 
of  taxation  of  electricity,  and  solid  fuels,  and  natural  gas  used  for  district  heating 
purpose, until 1 January 2008. 

The  Republic  of  Estonia  may  apply  a  transitional  period  until  1  January  2010  to 
adjust its national level of taxation on gas oil used as propellant to the new minimum 
level  of  EUR  330  per  1000  l.  However,  the  level  of  taxation  on  gas  oil  used  as 
propellant shall be not less than EUR 245 per 1000 l as from 1 May 2004. 

The  Republic  of  Estonia  may  apply  a  transitional  period  until  1  January  2010  to 
adjust its national level of taxation on unleaded petrol used as propellant to the new 
minimum level of EUR 359 per 1000 l. However, the level of taxation on unleaded 
petrol shall be not less than EUR 287 per 1000 l as from 1 May 2004. 

The Republic of Estonia may apply a total exemption of taxation of oil shale until 1 
January 2009. Until 1 January 2013, it may furthermore apply a reduced rate in the 
level of taxation of oil shale, provided that it does not result in taxation at below 50% 
of the relevant Community minimum rate as from 1 January 2011. 

The  Republic  of  Estonia  may  apply  a  transitional  period  until  1  January  2010  to 
adjust its national level of taxation on shale oil used for district heating purposes to 
the minimum level of taxation. However, the level of taxation on shale oil used for 
district  heating  purposes  shall  be  not  less  than  50%  of  the  relevant  Community 
minimum rate as from 1 January 2007. 

The  Republic  of  Estonia  may  apply  a  transitional  period  until  1  January  2010  to 
convert its current input electricity taxation system into an output taxation system. 

5. 

The Republic of Latvia may apply a transitional period until 1 January 2011 to adjust 
its  national  level  of  taxation  on  gas  oil  and  kerosene  used  as  propellant  to  the  new 
minimum level of EUR 302 per 1000 l and until 1 January 2013 to reach EUR 330. 
However,  the  level  of  taxation  on  gas  oil  and  kerosene  shall  be  not  less  than  EUR 
245 per 1000 l as from 1 May 2004 and not less than EUR 274 per 1000 l as from 1 
January 2008. 

31 

 
 
  
 
The Republic of Latvia may apply a transitional period until 1 January 2011 to adjust 
its  national  level  of  taxation  on  unleaded  petrol  used  as  propellant  to  the  new 
minimum level of EUR 359 per 1000 l. However, the level of taxation on unleaded 
petrol cannot be less than EUR 287 per 1000 l as from 1 May 2004 and not less than 
EUR 323 per 1000 l as from 1 January 2008. 

The Republic of Latvia may apply a transitional period until 1 January 2010 to adjust 
its national level of taxation on heavy fuel oil used for district heating purposes to the 
minimum level of taxation. However, the level of taxation on heavy fuel oil used for 
district heating purposes cannot be less than 50% of the Community minimum rate as 
from 1 January 2007. 

The Republic of Latvia may apply a transitional period until 1 January 2010 to adjust 
its national level of taxation on electricity to the relevant minimum levels of taxation. 
However,  the  level  of  taxation  on  electricity  shall  be  not  less  than  50%  of  the 
relevant Community minimum rates as from 1 January 2007. 

The Republic of Latvia may apply a transitional period until 1 January 2009 to adjust 
its  national  level  of  taxation  on  coal  and  coke  to  the  relevant  minimum  levels  of 
taxation. However, the level of taxation on coal and coke shall be not less than 50% 
of the relevant Community minimum rates as from 1 January 2007. 

The  Republic  of  Lithuania  may  apply  a  transitional  period  until  1  January  2011  to 
adjust its national level of taxation on gas oil and kerosene used as propellant to the 
new minimum level of EUR 302 per 1000 l and until 1 January 2013 to reach EUR 
330.  However,  the  level  of  taxation  on  gas  oil  and  kerosene  shall  be  not  less  than 
EUR 245 per 1000 l as from 1 May 2004 and not less than EUR 274 per 1000 l as 
from 1 January 2008. 

The  Republic  of  Lithuania  may  apply  a  transitional  period  until  1  January  2011  to 
adjust its national level of taxation on unleaded petrol used as propellant to the new 
minimum level of EUR 359 per 1000 l. However, the level of taxation on unleaded 
petrol shall be not less than EUR 287 per 1000 l as from 1 May 2004 and not less 
than EUR 323 per 1000 l as from 1 January 2008. 

The  Republic  of  Hungary  may  apply  a  transitional  period  until  1  January  2010  to 
adjust its national level of taxation on electricity, natural gas, coal and coke used for 
district heating  purposes, to the relevant  minimum levels of taxation. However, the 
level  of  taxation  on  the  energy  products  concerned,  and  on  electricity,  used  for 
district  heating  purposes,  shall  be  not  less  than  50%  of  the  relevant  Community 
minimum rates as from 1 January 2007. 

The Republic of Malta may apply a transitional period until 1 January 2010 to adjust 
its  national  level  of  taxation  on  electricity.  However,  the  levels  of  taxation  on 
electricity shall be not less than 50% of the relevant Community minimum rates as 
from 1 January 2007. 

The Republic of Malta may apply a transitional period until 1 January 2010 to adjust 
its  national  level  of  taxation  on  gas  oil  and  kerosene  used  as  propellant  to  the 
minimum levels of EUR 330 per 1000 l. However, the levels of taxation on gas oil 
and kerosene used as propellant shall be not less than EUR 245 per 1000 l as from 1 
May 2004. 

32 

6. 

7. 

8. 

 
 
  
 
The Republic of Malta may apply a transitional period until 1 January 2010 to adjust 
its national level of taxation on unleaded petrol and leaded petrol used as propellant 
to  the  relevant  minimum  levels  of  taxation.  However,  the  levels  of  taxation  on 
unleaded petrol and leaded petrol shall be not less than EUR 287 per 1000 l and EUR 
337 per 1000 l respectively as from 1 May 2004. 

The Republic of Malta may apply a transitional period until 1 January 2010 to adjust 
its  national  level  of  taxation  on  natural  gas  used  as  heating  fuels  to  the  relevant 
minimum levels of taxation. However, the effective tax rates applied to natural gas 
shall  be  not  less  than  50%  of  the  relevant  Community  minimum  rates  as  from  1 
January 2007. 

The Republic of Malta may apply a transitional period until 1 January 2009 to adjust 
its  national  level  of  taxation  on  solid  fuels  to  the  relevant  minimum  levels  of 
taxation. However, the effective tax rates applied to the energy products concerned 
shall  be  not  less  than  50%  of  the  relevant  Community  minimum  rates  as  from  1 
January 2007. 

9. 

The  Republic  of  Poland  may  apply  a  transitional  period  until  1  January  2009  to 
adjust its national level of taxation on unleaded petrol used as propellant to the new 
minimum level of EUR 359 per 1000 l. However, the level of taxation on unleaded 
petrol shall be not less than EUR 287 per 1000 l as from 1 May 2004. 

The  Republic  of  Poland  may  apply  a  transitional  period  until  1  January  2011  to 
adjust its national level of taxation on gas oil used as propellant to the new minimum 
level of EUR 302 per 1000 l and until 1 January 2013 to reach EUR 330. However, 
the level of taxation on gas oil shall be not less than EUR 245 per 1000 l as from 1 
May 2004 and not less than EUR 274 per 1000 l as from 1 January 2008. 

The  Republic  of  Poland  may  apply  a  transitional  period  until  1  January  2008  to 
adjust  its  national  level  of  taxation  on  heavy  fuel  oil  to  the  new  minimum  level  of 
EUR 15 per 1000 kg. However, the level of taxation on heavy fuel oil shall be not 
less than EUR 13 per 1000 kg as from 1 May 2004. 

The  Republic  of  Poland  may  apply  a  transitional  period  until  1  January  2010  to 
adjust  its  national  level  of  taxation  on  coal  used  for  district  heating  to  the  relevant 
minimum level of taxation. However, the level of taxation on coal used for district 
heating shall be not less than 50% of the relevant Community minimum rate as from 
1 January 2007. 

The  Republic  of  Poland  may  apply  a  transitional  period  until  1  January  2009  to 
adjust  its  national  level  of  taxation  on  coal  used  for  heating  purposes  other  than 
district  heating  to  the  relevant  minimum  levels  of  taxation.  However,  the  level  of 
taxation on coal used for heating purposes other than district heating shall be not less 
than 50% of the relevant Community minimum rates as from 1 January 2007. 

The Republic of Poland may, until 1 January 2008, apply total or partial exemptions 
or reductions for gas oil used as heating fuel by schools, nursery schools and other 
public  utilities,  in  respect  of  the  activities  or  transactions  in  which  they  engage  as 
public authorities. 

33 

 
 
  
 
10. 

11. 

12. 

The Republic of Poland may apply a transitional period until 1 January 2006 to align 
its electricity taxation system with the Community framework. 

The Republic of Slovenia may apply, under fiscal control, total or partial exemption 
or reduction in the level of taxation to natural gas. The total or partial exemption or 
reduction may apply until May 2014 or until the national share of natural gas in final 
energy consumption reaches 25%, whichever is the sooner. However, as soon as the 
national share of natural gas in final energy consumption reaches 20%, it shall apply 
a strictly positive level of taxation, which shall increase on a yearly basis in order to 
reach at least the minimum rate at the end of the period referred to above. 

The Slovak Republic may apply a transitional period until 1 January 2010 to adjust 
its national level of taxation on electricity and natural gas used as heating fuel to the 
relevant  minimum  levels  of  taxation.  However,  the  level  of  taxation  on  electricity 
and  natural  gas  used  as  heating  fuel  shall  be  not  less  than  50%  of  the  relevant 
Community minimum rates as from 1 January 2007. 

The Slovak Republic may apply a transitional period until 1 January 2009 to adjust 
its  national  level  of  taxation  on  solid  fuels  to  the  relevant  minimum  levels  of 
taxation. However, the level of taxation on solid fuels shall be not less than 50% of 
the relevant Community minimum rates as from 1 January 2007. 

Within the transitional periods established, Member States shall progressively reduce 
their respective gaps with respect to the new minimum levels of taxation. However, 
where  the  difference  between  the  national  level  and  the  minimum  level  does  not 
exceed 3% of that minimum level, the Member State concerned may wait until the 
end of the period to adjust its national level." 

3) 

An Annex III, the text of which is set out in the Annex to this Directive, is added. 

Article 2 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions necessary to comply with this Directive by 2 May 2004 at the latest. They 
shall  forthwith  communicate  to  the  Commission  the  text  of  those  provisions  and  a 
correlation table between those provisions and this Directive. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

This Directive shall enter into force on 1 May 2004. 

Article 3 

34 

 
 
  
 
 
Article 4 

This Directive is addressed to the Member States.  

Done at Brussels, […] 

For the Council 
The President 

35 

 
 
  
 
 
 
“ANNEX III 

ANNEX 

Reduced rates of taxation and exemptions from such taxation referred to in Article 18a(1): 

1) 

– 

2) 

– 

– 

– 

3) 

– 

4) 

– 

– 

5) 

– 

– 

– 

Latvia 

for energy products and electricity used in local public passenger transport vehicles. 

Lithuania 

for coal, coke and lignite until 1 January 2007; 

for natural gas and electricity until 1 January 2010; 

for  orimulsion  used  for  purposes  other  than  to  produce  electricity  or  heat  until  
1 January 2010. 

Hungary 

for coal and coke until 1 January 2009. 

Malta 

for navigation in private pleasure craft; 

for  air  navigation  other  than  that  covered  by  Article  14(1)(b)  of  Directive 
2003/96/EC. 

Poland 

for  aviation  fuel  and  turbo-combustion  engine  fuels  and  engine  oils  for  aviation 
engines, sold by the producer of such fuels to the order of the Minister of National 
Defence  or  the  competent  minister  for  internal  affairs,  for  purposes  of  the  aviation 
industry,  or  the  Agency  of  Material  Reserves  to  supplement  state  reserves,  or 
organisational units of sanitary aviation for purposes of such units; 

gas  oil  for  ship  engines  and  engines  for  sea  technology  and  engine  oils  for  ship 
engines and for sea technology, sold by the producer of such fuel to the order of the 
Agency  of  Stock  Reserves  to  supplement  state  reserves,  or  to  the  order  of  the 
Minister of National Defence to be used for purposes of the navy, or to the order of 
the competent minister for internal affairs to be used for sea engineering; 

aviation fuel, turbo-combustion engine fuel and gas oil for ship engines and engines 
for  sea  technology  and  oils  for  aviation  engines,  ship  engines  and  engines  for  sea 
technology,  sold  by  the  Agency  of  Stock  Reserves  to  the  order  of  the  Minister  of 
National Defence or the competent minister for internal affairs.” 

36