Opinion of the European Economic and Social Committee on a
Date: 2004-03-31
Institutions: European Economic and Social Committee
Subjects: Cyprus, accession to the European Union, electrical energy, energy-generating product, tax exemption, tax system

C 112/102

EN

Official Journal of the European Union

30.4.2004

Opinion of the European Economic and Social Committee on a

— ‘proposal for a Council Directive amending Directive 2003/96/EC as regards the possibility for
in respect of energy products and electricity, temporary

certain Member States to apply,
exemptions or reductions in the levels of taxation’

(COM(2004) 42 final -2004/0016 (CNS))

and on a

— ‘proposal for a Council Directive amending Directive 2003/96/EC as regards the possibility for
Cyprus to apply, in respect of energy products and electricity, temporary exemptions or reduc-
tions in the levels of taxation’

(COM(2004) 185 final - 2004/0067 (CNS))

(2004/C 112/26)

On 18 February 2004 the Council decided to consult the European Parliament and the European Economic
and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

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

COM(2004) 42 final - 2004/0016 (CNS)

and on 31 March 2004, the Council decided to consult the European Parliament and the European
Economic and Social Committee on the

Proposal for a Council Directive amending Directive 2003/96/EC as regards the possibility for Cyprus to
apply, in respect of energy products and electricity, temporary exemptions or reductions in the levels of
taxation

(COM(2004) 185 final - 2004/0067 (CNS).

In view of the urgent nature of the work, the Committee decided at its 407th plenary session (meeting of
31 March 2004) to appoint Mr Allen as rapporteur-general and adopted the following opinion by 33 votes
in favour, one vote against with one abstention.

1.

Introduction

1.1
Council Directive 2003/96/EC (adopted on the 27
October 2003) on the restructuring of the Community frame-
work for the taxation of energy products came into force on 1
January 2004. Directives 92/81/EEC and 92/82/EEC were
repealed as from 31 December 2003.

1.1.1 Directive 92/81/EEC and 92/82/EEC applied minimum
rates of excise duty to mineral oils. The new Energy Tax Direc-
tive 2003/96/EC applies minimum rates of excise duty to
nearly all energy products including coal, gas and electricity. It
also updates the minimum rates of excise duty for mineral oils
which remained unchanged since 1992.

The Energy Tax Directive was intended to reduce the
1.1.2
distortions of competition between Member States as a result
of divergent rates of tax: reduce distortions of competition
between mineral oils and other energy products that were not

previously subject to EU tax legislation: increase the incentive
to use energy more efficiently (so as to reduce dependency on
imported energy and cut carbon dioxide emissions); and allow
Member States to offer companies tax incentives in return for
specific undertakings to reduce emissions.

1.2
The level of excise duties applied by many of the Acces-
sion countries is, in some cases, significantly lower than in the
EU. Some Accession countries already comply with the
minimum rate set by Directive 92/82/EEC, others are preparing
to comply with their commitment to apply the minimum rates
contained in 92/82/EEC by 1 May 2004. Poland and Cyprus
negotiated some derogations from this in the Treaty of Acces-
sion. The minimum excise duty for unleaded petrol under
92/82/EEC is EUR 287 per 1,000 litres but under the new
energy tax Directive the minimum rate becomes EUR 359 per
1,000 litres.

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C 112/103

1.3
Unless the energy tax Directive is amended the Acces-
sion member states will have to adopt its provisions from 1
May 2004. The effect of this on their economies (i.e. taxation
of energy products and electricity) could have serious social
and economic consequences given the much lower duties on
energy products that they apply at present. The massive cost
increases that would result could cripple their SMEs as well as
putting a huge burden on industry and consumers. Poorer
households would be particularly badly affected. Therefore,
they have sought temporary exemptions or reductions on the
levels of taxation on energy products and electricity which they
must charge.

2. Gist of the proposals

to EU legislation adopted after 16.5.2003 that

2.1
In November 2003 the Accession member states, except
Cyprus, submitted requests to the Commission for certain
exemptions from the requirements of the Energy Tax Directive.
The Accession Treaty of the 16.4.2003 provides that with
respect
the
Accession countries must have the opportunity to submit
requests for any exemptions with respect to such legislation
that they regard as necessary. The Commission must examine
such requests and if found to be justified make a proposal to
the Council. The Commission require a detailed justification for
every demand submitted.

2.1.1.1
Cyprus did not submit at that time any request for
transitional arrangements. However, the situation in Cyprus has
introduced in early
evolved, and the Cyprus authorities
February 2004 specific demands for transitional periods. The
Commission, therefore, has to propose a directive (1), based on
Article 93 of the EC Treaty, to amend the Energy Tax Direc-
tive.

2.1.2
The Commission viewed as acceptable most of the
requests received in the case of the Energy Tax Directive to
allow exemptions from the EU minimum rates. The Commis-
sion proposed that a few exemptions requested for either
unlimited or for excessively long periods of time should be
subject to proportionate time limits. The Commission rejected
a request for a tax exemption for waste oils as it would have
contradicted EU environmental policy.

2.2
The proposed Council Directive would ensure that the
principles which governed the granting of transitional periods
for existing Member States would apply equally to the Acces-
sion member states. The measures proposed would therefore
be:

— include, where relevant, a progressive alignment towards

the EU applicable minimum rates.

2.3 Given that existing EU Member States have been granted
temporary exemptions from the Directive's obligations the
European Commission has accepted that the candidate coun-
tries may need a longer time-frame in which to apply the
Directive's provisions. The purpose of this proposal is therefore
to set out
time-frame and scope on temporary
exemption or reductions in the levels of taxation on energy
products and electricity in each of the ten candidate countries.
Each individual country is assessed separately based on their
unique needs.

the exact

2.4
To conclude, the Commission argues that the proposed
revision is both reasoned and proportionate and in favour of
the acceding Member States.
It therefore calls for a speedy
application of the proposal in order to avoid any legal vacuum
at the time of enlargement.

3. Comments

The EESC in its earlier opinion on the Proposal for a
3.1
Council Directive on restructuring the Community framework
for the taxation of energy products (CESE 1194/1997) strongly
agrees with the idea that eco-taxes must not be allowed to lead
to a higher overall tax burden. To ensure tax neutrality taxation
of the labour factor must be reduced proportionally. Eco-taxes
must not lead to European firms becoming less competitive
and jobs being lost. Low income groups must not have to face
greater hardship. These views are also relevant to the Accession
states.

The EESC is satisfied that

3.2
the Commission sought a
detailed justification for every demand made by the Accession
states and that the Commission did a proper and consistent
evaluation of the requests.

It

is clear

In the majority of the Accession states electricity and
3.3
energy products used for heating are not subject to excise
duties.
the EU
minimum rates of excise duties could cause significant inflation
and also a sudden increase in household costs. This would lead
to a very negative reaction among the majority of citizens in
the Accession states towards the EU project.

the sudden imposition of

that

— strictly limited in time and generally last no longer than

2012;

— proportionate to the effective problem they address;

(1) Directive COM(2004) 185 final.

3.4
The economies of the Accession states require major
financial assistance to get them on the road to development
and integration with the existing EU15. A sudden imposition
of EU minimum rates of excise duties would hinder social and
economic development especially in the poorer areas. This
would lead to a widening of the gap between the well devel-
oped and the less developed areas; consequently we could see
widespread social unrest.

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30.4.2004

3.4.1
From figures recently published for 2001, regional
GDP per capita in 90 % of the regions in the Accession coun-
tries is below 75 % of the EU15 average. There are ten regions
where the regional GDP per capita is less than 35 % of the
EU15 average. In Poland there are five regions where regional
GDP per capita is less than 32 % of the EU15 average.

3.4.2
Five of the Accession states have been allowed transi-
tion periods to reach the minimum tax rate under the Energy
Tax Directive for motor fuels. This will cause serious distortion
of the motor fuels market especially in border areas where
motor fuel
is far cheaper in the Accession state side of the
border. Many Motor fuel retailers on the side of the border
where higher tax rates apply will go out of business while
those at the other side will experience windfall profits.

4. Conclusions

The EESC recommends that the Commission monitor
4.1
the motor fuel situation carefully and if necessary review the

fuel concessions

motor
becomes excessive.

if

the distortion in competition

The EESC recommends to the Commission that in the
4.2
case of the long-term concessions a periodic review should take
place to establish that these concessions continue to ensure the
efficient use of energy, the need to cut carbon dioxide emis-
sions and the need for incentives to cut emissions.

4.3 Given that existing EU members have been granted
temporary exemptions in this area, it is only fair and reason-
able both in terms of principle and precedent that Accession
states should be able to avail of temporary exemptions over a
slightly longer time-frame where this can be justified.

4.4
The approval of this Directive before 1 May will give an
essential political signal to the Accession states that we are fully
committed to their development.

4.5

The EESC recommends the approval of these directives.

Brussels, 31 March 2004

The President

of the European Economic and Social Committee

Roger BRIESCH