Proposal for a Council Decision authorising France to apply differentiated levels of taxation to motor fuels under Article 19 of Directive 2003/96/EC
Date: 2004-09-14
Institutions: European Commission
Subjects: France, decentralisation, derogation from EU law, diesel fuel, fuel tax, lead-free petrol

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.9.2004 
COM(2004) 597 final 

Proposal for a 

COUNCIL DECISION 

authorising France to apply differentiated levels of taxation to motor fuels  
under Article 19 of Directive 2003/96/EC 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

SUBMISSION OF THE REQUEST 

By  letter  dated  16  June  2004,  under  Article  19  of  Council  Directive  2003/96/EC  of 
27 October 2003 restructuring the Community framework for the taxation of energy products 
and electricity,1 the French authorities informed the Commission that they intended to apply 
differentiated  levels  of  taxation  to  gas  oil  and  unleaded  petrol  for  the  purposes  of  an 
administrative reform involving the decentralisation of powers currently exercised by central 
government. 

1.1. 

General context of the request 

The  French  Government  has  started  on  a  new  stage  of  decentralisation  of  powers  hitherto 
exercised at national level. The constitutional reform of March 2003 provides the framework 
for  transfers  of  State  powers  and  responsibilities  to  territorial  authorities  (communes, 
departments, regions) and for these authorities to conduct experiments. 

Under the act, the transfer of powers is to be accompanied by appropriate financing. For this 
purpose,  after  in-depth  study  of  the  issues,  the  French  Government  has  chosen  the  Taxe 
Intérieure sur les Produits Pétroliers - Domestic Tax on Petroleum Products (TIPP); this is an 
excise duty. Two different but complementary measures will be implemented.  

The first is that a fraction of the domestic excise duty currently levied on the two most-used 
fuels,  which  are  gas  oil  and  unleaded  petrol,  will  be  transferred  to  the  regions.  The  amount 
would be the same for each region and the funds allocated to each region would depend on 
the fuel consumption actually recorded on its territory. The transfer of taxation would partly 
depend on the level of powers transferred and the current situations of the regions in terms of 
the  powers  devolved  to  them.  The  objective  is  thus  to  achieve  a  better  quality  of  public 
service  at  lower  cost  through  local  management  and  application  of  the  principle  of 
subsidiarity.  

The second measure, intended to adapt the arrangements to the regions' different current 
economic  situations,  would  authorise  the  regional  Councils  (local  executive  bodies)  to 
vote  for  a  reduction  in  the  excise  duty  applicable  to  fuels  consumed  on  their  territory. 
This right of regional differentiation of the TIPP is the only subject of the request for a 
derogation. This regional variation enables the transferred powers to be used in a way better 
adapted  to  each  region's  specific  characteristics,  needs  and  expectations.  The  measure 
corresponds in practice to the objective differences in the regions' socio-economic situations. 
These differences are apparent from a number of indicators.  For  instance, the gaps between 
maximum and maximum tax revenue - a difference of €42.3 per inhabitant - and maximum 
and minimum tax burden - a difference of 0.79 for a national average of 1 - show the  gaps 
between  the  richest  and  the  poorest  regions.  Of  the  22  regions,  15  have  tax  ratio  indicators 
above  the  national  average  and  so  have  to  impose  a  heavier  tax  burden  than  the  national 
average to obtain the same tax revenue per inhabitant. This means that not all French regions 
have  the  same  room  for  manoeuvre  when  it  comes  to  improving  the  quality  of  services 
provided. 

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OJ L 283, 31.10.2003, p. 51. 

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The tax expenditure concerned would, from 2006, be less than €700 million. 

1.2.  Mechanics of the measure 

The  right  of  regions  to  reduce  the  TIPP  would  be  granted  from  1 January 2006  to 
31 December 2011. The regional Councils would decide the amount of the reduction by vote, 
within the limits set by the law and in compliance with the derogation granted. 

The  reduction  would  not  exceed  €3.54  per  hectolitre  for  unleaded  petrol  or  €2.30  per 
hectolitre  for  gas  oil  throughout  the  derogation  period.  The  amount  of  excise  duty  before 
reduction would be set at €60.69 per hectolitre of unleaded petrol and €42.84 per hectolitre 
for  gas  oil,  but  these  levels  could  change  over  time.  The  level  of  taxation  after  reductions 
would never be lower than the Community minima set in Directive 2003/96/EC. 

The reduction would not apply to gas oil for commercial use.  

1.3. 

Control and movement measures for the products concerned 

Central government would retain responsibility for collecting and controlling excise duty on 
gas oil and unleaded petrol, irrespective of the reductions adopted by the regions. 

The products would be moved under duty-paid arrangements; the fuels would be taxed when 
released  for  consumption  at  the  rate  of  duty  in  force  in  the  region  to  which  they  were 
supplied. 

To  respond  to  the  specific  fraud  risk  identified  (diversion  of  deliveries  to  benefit  from  tax 
differentials between two regions), the logistical chain would be supervised by means of prior 
identification  of  recipients  by  suppliers  and  notification  of  this  information  to  the  customs 
administration.  The  risk  analysis  indicates  that  recipients  should  be  divided  into  three 
categories:  end  users  with  the  capacity  for  bulk  storage,  service  stations  and  distributors  of 
duty-paid fuel. To help identify distributors, whose job it is to deliver fuel between regions, 
they would be individually issued with status certification by the customs administration. All 
suppliers  would  then  have  to  do  would  be  to  ask  distributors  for  this  certification  of  status 
and, in the case of their other customers, ask whether they were service stations or end-users.  

In the case of a domestic movement of fuel duty-paid, customs could verify the origin of the 
product and its region of destination. In cases of atypical routes or inexplicably long transport 
times, customs could investigate whether consignments had been diverted from the regional 
destination initially declared. 

As regards the exclusion of gas oil for commercial use from the scope of the measure, French 
or Community road hauliers who meet the conditions for partial refund of excise on gas oil 
for commercial use would be subject to the same rate of excise duty, irrespective of the region 
in which they bought the fuel. The planned arrangements would maintain the current refund 
procedure and completely offset the effects of the rate reductions decided on by the regions 
through equivalent reductions in the amount of the refund on gas oil for commercial use. 

1.4. 

Impact on the internal market 

The  French  authorities  say  that  the  measure  would  not  affect  the  proper  functioning  of  the 
internal  market,  in  particular  since  the  scope  of  the  measure  is  confined  to  fuels  for 
non-commercial  use.  Moreover,  the  variations  between  distribution  networks  in  the  retail 

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price of fuel for non-commercial use are greater than the amount of variations involved in the 
planned measure. 

The  planned  rate  reduction  would  not  constitute  a  state  aid  since  road  haulage  companies 
would be subject to the same rate of excise duty on gas oil for commercial use irrespective of 
the region in which they bought it.  

The  proposed  measure  would  not  therefore  distort  competition  in  the  transport  sector  and 
would not affect trade within the Community. 

2. 

EVALUATION BY THE COMMISSION 

2.1. 

Subject of the request and legal basis 

The Commission would first point out that the French plan primarily  concerns a transfer of 
excise  revenue.  This  poses  no  problem  in  terms  of  Community  law.  Of  the  measures 
contained  in  France's  request,  the  only  one  to  be  evaluated  by  the  Commission  is  the 
reduction  of  TIPP  which  could  be  varied  from  one  French  administrative  region  to 
another. 

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

A  request  for  a  derogation  under  Article  19  of  Directive  2003/96/EC  must  be  based  on  a 
general analysis of conformity with Community policy. 

2.2. 

Applicable rates 

The  Commission  notes  that  the  TIPP  reductions  planned  by  the  French  authorities  produce 
excise rates higher than the applicable Community minima. The Commission could not accept 
reduced rates that were lower than these minima. 

2.3. 

Duration of the measure 

The  Commission  notes  that  the  measure  is  planned  for  a  period  of  six  years,  which  complies 
with Article 19 of Directive 2003/96/EC. 

2.4. 

Tax base/distortion of competition 

Having conducted an in-depth examination, the Commission is of the view that the low level 
of differentiation of the excise rates between regions and, on the other hand, the differences in 
retail  prices  among  distribution  networks,  imply  that  the  risk  of  traffic  detours  (and 
consequently  the  risk  of  increase  in  environmental  damaging  emissions)  will  be  very  low. 
Moreover,  the  Commission  notes  that  the  regional  differentiation  is  combined  with  an 
increase  in  the  nominal  tax  rate;  this  will  be  an  incentive  for  a  more  efficient  use  of  motor 
fuels. 

Under the proposed arrangements, the amount of the tax refund on gas oil for commercial use 
will  be  reduced  by  the  amount  of  the  reduction  of  the  regional  excise  duty  on  gas  oil. 
However,  it  must  be  specified  in  the  relevant  act  that  the  maximum  amount  of  the  regional 

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reduction must not be greater than the difference between the national rates applicable to gas 
oil for non-commercial use and gas oil for commercial use. 

The  intra-community  commercial  circulation  of  diesel  and  unleaded  petrol  is  almost 
completely done in duty suspension. This form of intra-community circulation is not affected 
by  the  devolution  of  excise  duties  contemplated  by  France.  For  the  very  limited  number  of 
cases where commercial circulation is done duty-paid, the planned procedures of control are 
of  non  discriminatory  nature,  and,  according  to  estimates,  without  negative  impacts  on  the 
intra-community circulation of duty paid products. Under these conditions, the excise duties 
decentralisation will not hamper the good functioning of the internal market. 

The very tight limits set for the differentiation of duty rates between regions ensure that the 
decentralisation  will  not  create  distortion  of  competition  on  the  oil  products  market. 
Moreover,  the  differentiation  would  be  compensated  by  the  large  price  differences  among 
distribution  networks.  As  the  requested  measure  does  not  apply  to  commercial  diesel,  any 
distortion of competition on the markets of freight and passenger transport is excluded. 

The  Commission  has  also  concluded  that  the  regional  differentiation  does  not  constitute  a 
state aid. 

2.5. 

Specific policy objectives 

After  examining  the  information  supplied  by  France,  the  Commission  finds  that  the 
decentralisation planned by France is part of an approach designed to increase administrative 
effectiveness  by  improving  the  quality  and  reducing  the  cost  of  public  services.  France's 
experience  of  decentralisation,  which  has  enabled  the  regional  authorities  to  acquire 
management expertise, seems to confirm the value of this approach. Decentralisation is also a 
growth  factor  for  the  national  economy.  The  gross  fixed  capital  formation  of  local  public 
authorities  represents  2%  of  French  GDP,  whereas  that  of  the  State  represents  0.5%,  i.e.  a 
ratio of 1 to 4 in favour of the local public sector. 

Furthermore,  the  requested  measure  provides  an  additional  incentive  for  the  regions  to 
improve  the  quality  of  their  administration  in  a  transparent  manner  while  responding  in  a 
differentiated  fashion  to  the  socio-economic  situation.  In  this  respect  the  proposal  for  a 
Decision  must  stipulate  that  the  reductions  are  linked  to  the  economic  conditions  in  the 
regions. 

The decentralisation is part of a policy of subsidiarity, allowing for decisions to be adopted at 
an  adequate  level  in  many  areas  (vocational  training,  economic  development,  health, 
education, management of infrastructures, culture). 

The  Commission  therefore  concludes  that  the  requested  regional  differentiation  serves  a 
specific policy consideration within the meaning of Article 19 of Directive 2003/96/EC. 

2.6. 

Control and movement rules 

The  administrative  supervision  arrangements  provided  for  by  the  French  authorities  comply 
with  the  control  and  movement  rules  laid  down  in  Directive  2003/96/EC  and  Council 
Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to 

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excise  duty  and  on  the  holding,  movement  and  monitoring  of  such  products.2  The  planned 
control measures are proportionate. 

DECISION 

The  Commission  proposes  that  under  Article  19  of  Directive  2003/96/EC  the  Council 
authorise France to apply reduced rates of taxation on unleaded petrol and gas oil used as fuel 
from  1 January  2006  to  31  December  2011.  These  reductions  may  be  differentiated  by 
administrative region provided the following conditions are fulfilled: 

– 

– 

– 

the reductions are no greater than €35.4 per 1000 litres of unleaded petrol or € 
23.0 per 1000 litres of gas oil; 

the reductions are no greater than the difference between the levels of taxation 
of gas oil for non-commercial use and gas oil for commercial use;  

the  reductions  are  linked  to  the  objective  socio-economic  conditions  of  the 
regions in which they are applied. 

The  reduced  rates  must  comply  with  the  requirements  of  Directive  2003/96/EC,  and  in 
particular the minimum rates laid down in Article 7. 

Gas oil for commercial use within the meaning of Article 7(2) of Directive 2003/96/EC is not 
eligible for the reductions authorised. 

2 

OJ  L  76,  23.3.1992,  p.  1.  Directive  as  last  amended  by  Directive  2000/47/EC  (OJ  L  193,  29.7.2000, 
p. 73). 

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Proposal for a 

COUNCIL DECISION 

authorising France to apply differentiated levels of taxation to motor fuels  
under Article 19 of Directive 2003/96/EC 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  Council  Directive  2003/96/EC  of  27  October  2003  restructuring  the 
Community framework for the taxation of energy products and electricity3, and in particular 
Article 19 thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

By letter of 16 June 2004 France requested authorisation to apply differentiated levels 
of taxation to gas oil and unleaded petrol for the purposes of an administrative reform 
involving the decentralisation of certain specific powers currently exercised by central 
government. 

The  decentralisation  planned  by  France  is  part  of  an  approach  designed  to  increase 
administrative effectiveness by improving the quality and reducing the cost of public 
services. It is also part of a policy of subsidiarity, allowing for decisions to be adopted 
on  many  domains  at  the  appropriate  level.  The  possibility  of  regional  differentiation 
offers regions an additional incentive to improve the quality of their administration in 
a transparent fashion. The reductions are to be linked to the socio-economic conditions 
of the regions in which they are applied. 

Derogations  cannot  be  authorised  for  indefinite  periods.  Article  19(2)  of  Directive 
2003/96/EC  restricts  the  duration  of  further  exemptions  or  reductions  of  taxation 
applicable to energy and electricity products to six years with a possibility of renewal. 

The low level of differentiation of the excise rates between regions and, on the other 
hand, the differences in retail prices among distribution networks, imply that the risk 
of  traffic  detours  (and  consequently  the  risk  of  increase  in  environmental  damaging 
emissions) will be very low. This will also meet the needs of the energy policy. 

The  intra-community  commercial  circulation  of  diesel  and  unleaded  petrol  is  almost 
completely done in duty suspension. This form of intra-community circulation is not 
affected  by  the  devolution  of  excise  duties  contemplated  by  France.  For  the  very 

3 

OJ L 283, 31.10.2003, p. 51. 

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limited number of cases where commercial circulation is done duty-paid, the planned 
procedures of control are of non discriminatory nature, and, subject to a regular review 
of their practicalities, without real impact on the intra-community circulation of duty 
paid products. Under these conditions, the excise duties decentralisation does not seem 
to hinder the good functioning of the internal market. 

(6) 

(7) 

The  very  tight  limits  set  for  the  differentiation  of  duty  rates  between  regions  would 
ensure  that  the  decentralisation  of  excise  duties  does  not  create  distortion  of 
competition  on  the  oil  products  market.  Moreover,  the  differentiation  would  be 
compensated  by  the  large  price  differences  among  distribution  networks.  As  the 
requested measure does not apply to commercial diesel, any distortion of competition 
on the markets of freight and passenger transport is excluded. 

The  Commission  regularly  reviews  reductions  and  exemptions  to  check  that  they  do 
not  distort  competition  or  hinder  the  operation  of  the  internal  market  and  are  not 
incompatible  with  Community  policy  on  protection  of  the  environment,  energy  and 
transport, 

HAS ADOPTED THIS DECISION: 

Article 1 

1. 

2. 

France is hereby authorised to apply reduced rates of taxation to unleaded petrol and 
gas oil used as fuel. Gas oil for commercial use within the meaning of Article 7(2) of 
Directive 2003/96/EC shall not be eligible for any such reductions. 

These  reductions  may  be  differentiated  by  administrative  region  provided  the 
following conditions are fulfilled: 

– 

– 

– 

 the  reductions  are  no greater  than  €35.4 per  1000  litres of unleaded  petrol or 
€23.0 per 1000 litres of gas oil; 

the reductions are no greater than the difference between the levels of taxation 
of gas oil for non-commercial use and gas oil for commercial use;  

the  reductions  are  linked  to  the  objective  socio-economic  conditions  of  the 
regions in which they are applied. 

3. 

The reduced rates must comply with the requirements of Directive 2003/96/EC, and 
in particular the minimum rates laid down in Article 7. 

Article 2 

This Decision shall expire on 31 December 2011. 

It shall apply from 1 January 2006. 

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Article 3 

This Decision is addressed to the French Republic. 

Done at Brussels, 

For the Council 
The President 

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