Communication from the Commission to the Council - Review of the derogations in Annexes II and III of Council Directive 2003/96/EC that expire by the end of 2006
Date: 2006-06-30
Institutions: European Commission
Subjects: Council of the European Union, EC Directive, EU Member State, derogation from EU law, electrical energy, energy-generating product, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.06.2006 
COM(2006) 342 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Review of the derogations  
in Annexes II and III of Council Directive 2003/96/EC 
that expire by the end of 2006 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Review of the derogations  
in Annexes II and III of Council Directive 2003/96/EC 
that expire by the end of 2006 

TABLE OF CONTENTS 

1. 

2. 

2.1. 

Introduction .................................................................................................................. 3 

Assessment of the derogations ..................................................................................... 4 

Derogations whose objectives are taken into account through the flexibility offered 
by the general provisions of the Energy Tax Directive................................................ 5 

2.1.1.  Differentiation in rates according to Article 5 ............................................................. 6 

2.1.2.  The specific case of public transport............................................................................ 6 

2.1.3.  Tax differentiation applicable to certain energy products (in particular Articles 15 

and 16).......................................................................................................................... 6 

2.1.4.  Tax differentiation for commercial/industrial and business uses................................. 7 

2.2. 

Derogations corresponding to objectives not taken into account by the general 
provisions of the Directive ........................................................................................... 8 

2.2.1.  Fuel used in private pleasure air navigation................................................................. 8 

2.2.2.  Fuel used by private pleasure craft............................................................................. 10 

2.2.3.  Waste oils ................................................................................................................... 11 

2.2.4.  Derogations with regional scope................................................................................ 12 

2.2.5.  Miscellaneous derogations ......................................................................................... 13 

3. 

Conclusions ................................................................................................................ 13 

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1. 

INTRODUCTION 

The  taxation  of  energy  products  and  electricity  in  the  Community  is  governed  by  the 
provisions  of  Council  Directive  2003/96/EC1  restructuring  the  Community  framework  for 
taxation  of  energy  products  and  electricity  (hereafter  referred  to  as  the  “Energy  Tax 
Directive” or the "Directive"). This Directive lays down the taxable products concerned, the 
uses  that  make  them  liable  to  tax  and  the  minimum  rates  of  taxation  applicable  to  each 
product depending on whether it is used as propellant, for certain industrial and commercial 
purposes or for heating. It also lays down some compulsory exemptions from the normal rules 
on taxation, and in addition, contains a wide range of optional provisions that give Member 
States the possibility to apply reduced rates of taxation or exemption from taxation for certain 
policy purposes. 

Moreover, in its Annexes II and III, the Directive contains additional 127 derogations further 
authorising  Member  States  to  apply  reduced  rates  or  exemptions  from  energy  taxation  for 
various products and purposes2. Some of the derogations have already expired, and a further 
111 will expire on 31 December 2006.  

Most of the derogations in Annex II of the Energy Tax Directive were originally authorised 
under Article 8(4) of Council Directive 92/81/EEC on the harmonisation of the structures of 
excise duties on mineral oils3 (hereafter referred to as "the Mineral Oils Directive"); they were 
extended for the last time in 20014 and (with minor amendments) were incorporated into the 
Energy Tax Directive with a view to expire, most frequently, by the end of 2006. A similar 
scheme has been put into place in Annex III of the Directive for the Member States having 
joined the Community in 20045. 

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Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for taxation 
of energy products and electricity (OJ L 283 of 31.10.2003 p. 51; Directive last amended by Directives 
2004/74/EC and 2004/75/EC (OJ L 157 of 30 April 2004, p. 87 and p.100). 
It has to be added that under Article 19 of the Directive three derogations have been granted to France, 
Sweden  and  the  UK  since  the  entry  into  force  of  the  Directive.  They  are  not  subject  to  the  present 
review. 
Council  Directive  92/81/EEC  of  19  October  1992  on  the  harmonization  of  the  structures  of  excise 
duties  on  mineral  oils  (OJ  L  316  of  31.10.1992);  Directive  repealed  together  with  Council  Directive 
92/82/EEC  of  19  October  1992  on  the  approximation  of  the  rates  of  excise  duties  on  mineral  oils  as 
from 31 December 2003 by means of Council Directive 2003/96/EC. 
Council  Decision  2001/224/EEC  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 March 2001, p. 23). 
Council  Directive  2004/74/EC  of  29  April  2004  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. Furthermore, two new Member States were granted 
one-year  transitional  periods  directly  in  the  Accession  Treaty  (these  are  outside  the  scope  of  this 
review). 

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This Communication analyses the derogations expiring by the end of 2006, in the framework 
of Articles 18(1), subparagraph 2, and 18a(1), subparagraph 2, of the Directive6. In preparing 
this  Communication  the  Commission  services  have  carried  out  a  detailed  review  of all  the 
derogations  following  a  consultation  with  the  Member  States  concerned.  In  the  light  of  this 
review,  the  Commission  concludes  that  the  general  provisions  of  the  Directive  (outside 
Annexes  II  and  III)  take  appropriately  account  of  most  situations  meriting  particular 
treatment.  This  notwithstanding,  Member  States  are  free  to  consider  under  their  own 
responsibility,  and  in  the  light  of  this  Communication,  whether  they  wish  to  apply  for  an 
extension  of  any  of  the  derogations  using  the  possibilities  offered  by  the  new  legal  basis 
(Article 19). 

2. 

ASSESSMENT OF THE DEROGATIONS 

The derogations in Annexes II and III that expire by the end of 2006 can be divided into four 
categories7: 

(1) 

Derogations relating to situations outside the scope of the Directive 

This  category  concerns  non-fuel  uses  of  energy  products;  Article  2(4)  of the  Energy  Tax 
Directive excludes such uses from the scope of the Directive. The relating (five) derogations 
will not need to be considered further. 

(2) 

Derogations having become obsolete 

Following the consultation with Member States, it has emerged that at least 8 derogations are 
no  longer  applied  although  the  Member  States  concerned  were  authorised  to  apply  the 
derogations  in  question  until  the  end  of  2006.  It  is  considered  that  these  do  no  longer 
correspond  to  concrete  policy  needs.  No  particular  analysis  needs  to  be  devoted  to  these 
derogations either.  

(3) 

Derogations currently used but whose objectives are taken into account through 
the flexibility offered by the general provisions of the Directive 

In a large number of cases (so far covered by derogations) a specific tax treatment could be 
granted  by  Member  States  in  one  way  or  another  under  various  articles  of  the  Energy  Tax 
Directive  (without  prejudice  to  the  State  aid  provisions  of  the  Treaty).  In  some  cases, 
however,  adjustments  to  the  schemes  will  be  necessary  in  order  to  bring  them  fully  in  line 
with the Directive. 

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The  wording  of  Articles  18(1)  and  18a(1)  is  inspired  by  Article  1  of  Council  Decision  2001/224/EC. 
Article 1(2) of this decision has to be seen against the background of the Mineral Oils Directive which 
provided only for a limited number of optional exemptions or reductions. Thus, in an important number 
of cases, Member States could pursue particular policy objectives only through individual derogations, 
in particular in the field of environment. This situation has changed with the adoption of the Energy Tax 
Directive,  which  itself  offers  a  wide  range  of  possibilities  to  grant  exemptions  or  reductions  for  a 
number of policy reasons. 
For the sake of simplicity, the Commission will refer to the items set out in Annexes II and III of the 
Directive as “derogations”, notwithstanding the fact that one or the other item may actually not deviate 
from the general scheme of the Directive (cf. in particular category (3) below). 

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(4) 

Derogations  corresponding  to  objectives  not  taken  into  account  by  the  general 
provisions of the Directive 

This  group  contains  a  further  35  derogations  that  are  still  applied  by  Member  States  but 
which,  following  their  expiry,  will  not  have  any  legal  basis  in  the  Directive.  These 
derogations cover reduced rates of taxation and exemptions: 

–  for fuel used by private pleasure air navigation (10 cases); 

–  for fuel used for navigation in private pleasure craft (6 cases); 

–  for waste oils reused as fuel, either directly after recovery or following recycling, 

and where the reuse is subject to duty (11 cases); 

–  for specific policy purposes in certain geographical areas (6 cases); 

–  for other miscellaneous purposes (2 cases). 

Categories (3) ad (4) will be assessed more closely in the following two subsections. 

2.1. 

Derogations  whose  objectives  are  taken  into  account  through  the  flexibility 
offered by the general provisions of the Energy Tax Directive 

The general provisions of the Energy Tax Directive are flexible enough to accommodate most 
of  the  objectives  pursued  by  Member  States  in  the  context  of  the  existing  derogations. 
According to these provisions, indeed, Member States may resort to tax differentiation under 
fiscal control for specific policy purposes8. However, the Directive most commonly requires 
that  minimum  levels  of  taxation  (and  therefore  the  underlying  Community  objectives)  be 
respected9. Only in a limited number of cases is a tax reduction below the minima or full tax 
exemptions allowed by the Directive - in particular where such an approach is truly justified, 
in particular by more specific environmental reasons. 

This position, whereby minimum levels of taxation have as a rule to be respected, corresponds 
to  the  objectives  of  the  Energy  Tax  Directive,  namely  to  improve  the  functioning  of  the 
internal market and to promote sustainable development10. Each of the general provisions of 
the Directive has to be seen against this background. Thus, for example, the fact that certain 
economic  or  social  policy  purposes  may  justify  tax  differentiations  according  to  national 
views  (cf.  Article  5,  third  and  fourth  indents),  does  not  mean  that  internal  market  and 
environmental concerns (reflected in the minima) become irrelevant. 

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Many of the derogations previously granted were incorporated directly into the Energy Tax Directive 
thus  allowing  Member  States  to  apply  them  under  fiscal  control,  without  needing  any  prior  approval 
from the Council on fiscal grounds; but without prejudice to Community State aid rules. 
Which means either Community minimum levels of taxation, or, in certain cases, (e.g. Article 5 of the 
Directive) minimum levels of taxation prescribed by the Directive, which covers also situations where 
transitional periods were granted to Member States in order to gradually reach the Community minima. 
The  Directive  (sixth  recital)  explicitly  refers  to  Article  6  of  the  Treaty.  According  to  this  provision, 
environmental  protection  requirements  must  be  integrated  into  the  definition  and  implementation  of 
Community policies, in particular with a view to promoting sustainable development. 

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In  the  following,  the  Commission  gives  an  overview  of  the  wide  ranging  options  for  tax 
differentiation that are allowed by the Directive and that are relevant for the purpose of this 
review.  

2.1.1.  Differentiation in rates according to Article 5 

Under Article 5 Member States may apply differentiated rates of taxation, provided that such 
differentiation  is  compatible  with  Community  law  (in  particular  environmental  policy)  and 
provided that they respect the minimum levels of taxation prescribed by the Directive. Among 
others, this refers to the following cases11: 

Differentiation in rates on the basis of product quality (Article 5, first indent) 

This  provision  is  intended  to  reflect  different  environmental  characteristics  for  various 
categories  of  the  same  product  but  must  in  any  case  be  limited  to  differentiation  above  the 
applicable minimum levels of taxation. 

Differentiation in rates for certain types of use (Article 5, third indent) 

Under  this  provision  local  public  passenger  transport  vehicles  including  taxis,  ambulances 
and  vehicles  used  by  armed  forces,  public  administration,  disabled  people  and  for  waste 
collection can benefit from lower levels of taxation (above the minima) granted by Member 
States traditionally for specific policy purposes (including social policy)12. 

2.1.2.  The specific case of public transport 

As regards public transport in general, the Energy Tax Directive contains provisions that can 
be used to promote the potential environmental and social benefits of public transport, taking 
into  account  the  environmental  impact  of  the  different  means  of  transport.  Under  Article  5, 
Member States can apply differentiated rates of taxation (down to the minima) to motor fuels 
consumed  by  local  public  passenger  transport  vehicles  including  taxis.  Member  States  may 
also fully exempt from taxation energy products and electricity used for the carriage of goods 
and  passengers  by  those  means  of  transport  listed  in  Article  15(1)(e)  of  the  Directive  (rail, 
metro,  tram  and  trolley  bus).  Furthermore,  Article  7(2)  contains  an  optional  provision 
whereby  Member  States  may,  under  certain  conditions,  decouple  tax  rates  applied  to  diesel 
(gas  oil)  used  for  commercial  and  non-commercial  purposes  that  could  lead  to  an 
improvement in the competitive position of buses13 over private cars. 

2.1.3.  Tax  differentiation  applicable  to  certain  energy  products  (in  particular  Articles  15 

and 16) 

The Energy Tax Directive also contains various optional provisions allowing Member State to 
apply  favourable  tax  treatment  to  certain  products  where  justified,  for  example  for 

11 

12 

13 

Other cases are dealt with in sub 2.1.4 below. 
This applies quite apart from the fact that excise duty paid by public bodies does not have any overall 
impact on the State budget. 
Defined  by  the  Directive  as  vehicles  for  the  carriage  of  passenger,  whether  by  regular  or  occasional 
service, of category M2 or M3 as specified in Council Directive 70/156/EEC of 6 February 1970 on the 
approximation  of  the  laws  of  the  Member  States  relating  to  the  type-approval  of  motor  vehicles  and 
their  trailers  (OJ  L 42 of  23.2.1970, p.1; Directive  last amended by  Directive  2005/64/EC  (OJ  L 310 
of 25 November 2005, p. 10)). 

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environmental  reasons  (in  particular  under  Articles  15  and  16).  Often  such  provisions  are 
conditional and apply only to specific uses of the product. 

The corresponding provisions of the Mineral Oils Directive were again rather limited in scope 
and, in consequence, several derogations were granted to Member States over the years14. 

Natural gas was taxable under the Mineral Oils Directive only if used as motor fuel. In such 
cases  it  was  subject  to  taxation  at  the  rate  of  the  equivalent  motor  fuel,  i.e.  LPG.  Several 
Member States benefited however, with respect to natural gas and/or LPG, from derogations 
under the Mineral Oils Directive. As a corresponding general provision, the Energy Directive 
contains  Article  15(1)(i),  whereby,  under  fiscal  control,  “natural  gas  and  LPG  used  as 
propellants”  may  benefit  from  exemptions  or  reduction  in  the  level  of  taxation.  Methane, 
which was mentioned in several derogations, generally used in the context of propellants, is 
not mentioned in Article 15(1)(i) of the Energy Tax Directive, but may fall under its Article 
16,  under  the  conditions  set  out  therein.  If  it  is  considered  that  the  Directive  does  not 
sufficiently  reflect  the  environmental  benefits  of methane,  an  adaptation,  for  example 
of Article 15(1)(i), could be contemplated.  

The Energy Tax Directive sets positive Community minimum rates (albeit rather low) for all 
the taxable uses of natural gas. At the same time it offers in its Article 15 several possibilities 
for  more  favourable  tax  treatment  of  natural  gas  if  used  for  heating  purposes,  taking  into 
account  that  natural  gas  was  not  taxable  under  the  previous  legal  framework.  The  same 
possibilities  apply  to  other  newly  taxable  products,  such  as  electricity,  coal  and  solid  fuels. 
These provisions are designed for cases when Member States would encounter difficulties in 
adapting to the new situation. 

Finally,  as  regards  biofuels  or  other  fuel  blends  with  environmental  benefit,  biomass  and 
renewables  in  general,  Articles  15  and  16  of  the  Directive  contain  a  comprehensive 
framework for granting favourable fiscal treatment to such products should their use become 
taxable under the Directive. 

2.1.4.  Tax differentiation for commercial/industrial and business uses 

Numerous  derogations  from  the  Mineral  Oils  Directive  concerned  tax  reductions  or 
exemptions for the consumption of taxable products by industry or business in general. These 
issues  are  addressed  in  detail  in  the  Energy  Tax  Directive,  which  contains  numerous 
provisions allowing Member States to apply more favourable treatment to business if needed, 
for example, for competitiveness reasons. 

For example, for use as heating fuel, Article 5 allows Member States to apply differentiated 
levels  of  taxation  to  business  and  non-business  uses  of  energy  products  and  electricity  with 
lower minimum levels of taxation applicable for business use. With respect to use as motor 
fuel,  Article  7(2)  allows  for  tax  differentiation  for  commercial  gas  oil  used  as  propellant. 
Article 8 sets significantly lower minimum levels of taxation for motor fuels used for certain 
agricultural,  commercial  and  industrial  purposes.  Moreover,  Article  17  permits  Member 
States  to  grant  total  or  partial  tax  exemptions  or  reductions  from  excise  duty  applied  on 
energy products and electricity used for certain purposes and under certain conditions. Also, 

14 

Allowing them for example to apply preferential tax treatment to LPG, methane and natural gas, or to 
biofuels. 

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certain very specific uses of energy products by industry have particular provisions set out in 
Article 21 of the Directive (in particular in its third paragraph). 

Finally,  it  should  be  recalled  that  non-fuels  uses  of  energy  products  and  electricity  such  as 
industrial processing were explicitly left outside the scope of the Directive, under Article 2(4). 

2.2. 

Derogations  corresponding  to  objectives  not  taken  into  account  by  the  general 
provisions of the Directive 

A certain number of derogations set out in Annexes II and III correspond to objectives which 
are not taken into account by the general provisions of the Directive as they reflect specific 
policy considerations of particular Member States. The Commission has always accepted that, 
inevitably,  certain  needs  of  Member  States  may  not  always  be  fully  reflected  in  the 
harmonised  Community  legal  framework  and  that,  consequently,  there  might  be  a  need  for 
derogations that would allow the Member State concerned gradually to adapt to Community 
law. 

For  this  purpose,  the  Energy  Tax  Directive  contains  Article  19,  an  article  that  largely 
corresponds to Article 8(4) of the Mineral Oils Directive, but with stricter conditions. Member 
States may be authorised by the Council to introduce further exemptions or reduction in the 
level  of  taxation  for  specific  policy  considerations.  Such  schemes  must  first  be  examined, 
however, to ensure compatibility with Community policies, taking into account, inter alia, the 
proper  functioning  of  the  internal  market,  fair  competition  and  Community  health, 
environment, energy and transport policies. 

Against  this  background,  the  following  review  has  been  carried  out  of  the  derogations 
concerned. 

2.2.1.  Fuel used in private pleasure air navigation 

Article  14(1)(b)  of  the  Energy  Tax  Directive  states  that  Member  States  shall  exempt  from 
taxation energy products supplied for use as fuel for the purpose of air navigation other than 
in  private  pleasure-flying15.  This  provision  had  originally  come  into  force  in  1993  under 
Article 8(1)(b) of the Mineral Oils Directive. Private pleasure-flying was thus not subject to 
the obligatory exemption set out for commercial aviation, nor indeed did it benefit from any 
optional tax advantages under the Directives. In total ten Member States were authorised to 
derogate from these rules for specific policy considerations. 

Community policy considerations 

With the aim of making Community transport, environment and fiscal policy more coherent, 
the  Commission  already  proposed  to  abolish  these  derogations  for  the  first  time  in  199616. 
Subsequently,  a  gradual  phasing-out  of  nine  of  these  derogations  was  initiated  by  the 
Commission  in  2000  when  it  stated  that  these  derogations  should  end  with  the  forecasted 
entry  into  force  of  the  Energy  Tax  Directive  or,  in  any  case,  at  the  latest  on 

15 

16 

Private pleasure-flying is defined as “the use of an aircraft by its owner or the natural or legal person 
who enjoys its use either through hire or through any other means, for other than commercial purposes 
and  in  particular  other  than  for  the  carriage  of  passengers  or  goods  or  for  the  supply  of services  for 
consideration or for the purposes of public authorities”. 
COM (1996) 549 of 14 November 1996. 

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31 December 200217.  The  Commission  sees  no  reason  to  change  its  opinion  in  the  matter. 
Such  derogations  create  distortions  within  the  internal  market,  do  not  accurately  reflect 
negative  external  costs  of  transport  and  even  contradict  the  Council's  choices  made  when 
adopting the directive. 

Arguments by Member States 

Some  Member  States  argue  that  expiry  of  this  derogation  would  generate  the  following 
negative consequences: 

–  High compliance costs for the sector (new infrastructure necessary to ensure that 

taxable and exempt fuel is sold separately); 

–  High administrative compliance costs; 

–  Risk of tank tourism; 

–  Negative effect on the sector of private pleasure flying; 

The  Commission  considers  that  in  general  such  arguments  are  not  justified.  Fuel  used  by 
private  pleasure  craft  has  been  taxable  in  principle  since  1993.  Member  States  have  had 
enough time by now to adapt to the requirements of Community law. From a practical point 
of view, the introduction of taxation should not pose particular problems because in any event 
small light aircraft use different type of fuel from jets or commercial aircrafts. 

The  Commission  recognises  that  there  might  be  additional  administrative  burdens  or 
compliance  costs  associated  with  the  shift  to  the  new  tax  treatment.  However,  if  such 
arguments  were  to  be  accepted,  it  would  mean  that  the  derogations  would  have  to  be 
maintained  forever  thus  contradicting  the  general  policy  principle  that  derogations  must  be 
time-limited and must aim at overcoming initial difficulties encountered with implementation 
of new legislation. 

The argument about so called tank tourism, i.e. concerning conduct adopted by citizens who 
cross borders to avail of lower fuel prices in other Member States, is not valid either, in the 
Commission’s  view.  If  tank  tourism  effectively  constitutes  a  problem  in  this  field,  the 
derogations  currently  in  place,  limited  to  10  out  of  25  Member  States,  tend  to  aggravate  it 
rather than to contain it. 

It  appears  thus  that  the  activity  in  point  should  no  longer  be  treated  more  favourably  than 
comparable  other  (transport  or  leisure)  activities,  by  reflecting  its  negative  externalities  less 
fully in taxation. 

17 

COM (2000) 678 of 15 November 2000. 

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2.2.2.  Fuel used by private pleasure craft 

According to Article 14(1)(c) of the Energy Tax Directive (which reproduces Article 8(1)(c) 
of  the  Mineral  Oils  Directive),  Member  States  shall  exempt  from  taxation  energy  products 
supplied  for  use  as  fuel  for  the  purpose  of  navigation  within  Community  waters  (including 
fishing),  other  than  private  pleasure  craft18.  Traditionally,  Member  States  may  extend  such 
exemption  to  navigation  in  inland  waterways.  However,  private  pleasure  craft  is  explicitly 
excluded from both provisions. 

Annexes  II  and  III  contain  in  total  6  derogations  authorising  Member  States  for  specific 
policy  considerations  to  apply  reduced  rates  of  taxation  or  exemptions  for  fuel  used  in  the 
navigation  in  private  pleasure  craft.  The  gradual  phasing-out  of  5  of  these  derogations  was 
initiated by the Commission in its review of derogations undertaken in 2000. 

Community policy considerations 

The considerations set out above with regard to private pleasure air navigation apply equally 
to  the  analogous  case  of  private  pleasure  craft.  Consequently,  the  favourable  tax  treatment 
of fuel  used  for  the  activity  in  point,  compared  to  fuel  used  for  comparable  (transport  or 
leisure) activities, should not be renewed. 

Arguments by Member States 

Some  Member  States  argue  that  the  expiry  of  these  derogations  will  generate  the  following 
negative consequences: 

–  High compliance costs for the sector (new infrastructure to ensure that taxable and 
exempt fuel are sold separately and, in case of certain types of boats, difficulties 
related  to  the  dual  use  of  fuel  for  heating  purposes  (which  might  be  subject  to 
reduced rate of excise duty) and as propellant); 

–  High administrative compliance costs; 

–  Risk of fraud (especially in cases where the fuel is used both for heating purposes 

and as propellant); 

–  Risk of tank tourism; 

–  Negative effect on the private pleasure boating industry. 

The  Commission  considers  that  in  general  such  arguments  are,  once  again,  not  justified. 
Most Member States enjoying derogations have had enough time by now to adapt to the new 
situation  given  that  fuel  used  by  private  boats  has  been  taxable  in  principle  since  1993  and 
that phasing-out of the derogation was initiated by the Commission in 2000. It should also be 
pointed  out  that  very  often  the  tank  facilities  for  pleasure  boats  and  commercial  ships  are 
located separately (e.g. a marina on one side and commercial ports on the other). 

18 

Private  pleasure  craft  is  defined  as  “any  craft  used  by  its  owner  or  the  natural  or  legal  person  who 
enjoys its use either through hire or through any other means, for other than commercial purposes and 
in  particular  other  than  for  the  carriage  of  passengers  or  goods  or  for  the  supply  of  services  for 
consideration or for the purposes of public authorities”. 

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The Commission can accept once again that there might be additional administrative burdens 
and  compliance  costs  associated  with  the  shift  to  the  new  tax  treatment.  However,  the 
arguments used above for aircraft in this context are equally valid here. 

There might also be a risk of fraud related to dual-use of the same fuel on one boat (which 
might  in  particular  be  the  case  for  inland  waterway  boats).  However,  it  can  be  argued  that 
similar risks of fraud exist in other sectors where one type of fuel is used by the same person 
for different purposes thereby triggering different rate of excise duty (e.g. in farming). In any 
event,  the  experience  of  Member  States  not  benefiting  from  any  derogation  in  the  matter 
could be helpful in this respect. 

As  regards  the  argument  about  tank  tourism,  it  must  be  pointed  out  that  only  six  Member 
States  presently  apply  the  derogation.  From  the  internal  market  point  of  view,  if  any 
distortions do exist, then they are most likely to be caused by the existence of the derogation 
itself rather than by its expiry. Finally, although the expiry of the derogation might lead to an 
increase in prices, this is the necessary consequence of the assimilation of the activity in point 
with  comparable  activities  (cf.  the  Community  policy  considerations  set  out  immediately 
above, as the analogous points made sub 2.2.1 above). 

2.2.3.  Waste oils 

Waste oils mostly consist of used lubricants from vehicles and engines or used hydraulic oils 
and are, by their nature, hazardous. They must be therefore collected and treated in the least 
harmful  way19;  the  two  generic  treatment  categories  being  an  energy  source  or  a  material 
source. Under the first category, for fiscal purposes waste oils are treated in the same way as 
other mineral oils and therefore they have been subject to Community excise duty framework 
since 1993. 

However  a  total  of  11  Member  States  were  authorised  in  the  past,  for  specific  policy 
considerations,  to  exempt  from  excise  duty  waste  oils  reused  as  fuel,  either  directly  after 
recovery or following a recycling process for waste oils, in cases where such reuse would be 
taxable. 

Community policy considerations 

One of the main objectives of the Energy Tax Directive is to treat various competing energy 
products  equally,  in  order  to  ensure  that  no  distortions  on  the  internal  market  occur.  More 
favourable  fiscal  treatment  of  certain  energy  products  can  be  applied  only  if  justified  for 
example on environmental grounds. For waste oils such a justification however does not exist, 
from  today’s  perspective.  In  its  “Thematic  Strategy  on  the  Prevention  and  Recycling 
of Waste”, adopted in December 200520 the Commission expressed that the central objective 
must be to ensure full collection of waste oils and their treatment in controlled installations, 
while  respecting  the  emission  limits  set  by  Community  legislation.  The  Strategy  aims  at 
creating a level playing field between various subsequent uses of the raw material collected, 
taking  into  account  the  environmental  impact  of  each  use;  it  favours  competition  between 
different treatment technologies, which best meet market needs and supports innovation. 

19 

20 

The Community policy on waste oils dates from the 1970s; its objective is to avoid harmful effects of 
waste oils on the environment. 
COM(2005) 666 of 21 December 2005. 

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More  favourable  fiscal  treatment  of  waste  oils  would  therefore  be  inconsistent  with  the 
Community  fiscal  and  environmental  policies,  as  it  would  favour  waste  oils  over  other 
directly  competing  energy  products,  and  at  the  same  time  it  would  favour  one  generic 
treatment category of waste oils over another. 

Arguments by Member States 

It  appears  from  the  consultation  carried  out  with  Member  States  concerned  that  several 
of them  consider  that  there  are  good  environmental,  economic  and  social  reasons  in  favour 
of the  tax  exemption  (however,  without  specifying  why  in  great  detail),  in  particular  as 
follows: 

–  Tax  exemptions  applied  to  waste  oils  used  as  fuel  either  directly  or  after  re-

processing favours the collection of such oils; 

–  The  amount  of  waste  oils  is  not  high  enough  to  make  the  collection  and 
regeneration  economically  viable.  A  tax  exemption  for  burning  at  least  ensures 
that waste oils are not dumped. 

The  Commission  considers  that  such  considerations  again  do  not  justify  favouring  one 
possible use of the raw material over another through taxation. The data gathered over time do 
not  confirm  any  correlation  between  the  tax  exemption  and  the  collection  rate  achieved,  on 
the  other  hand,  they  rather  confirm  that  the  tax  exemption  favours  one  of  the  two  generic 
treatments21. 

It  must  be  pointed  out  that  waste  oils  must  in  any  case  be  collected  and  then  treated  in 
controlled  installations.  Measures  directly  aimed  at  ensuring  collection  (for  example  direct 
subsidies, increasing public awareness) would seem to be a better targeted instrument for such 
purposes.  In  addition,  the  increasing  price  of  waste  oils  seems  to  indicate  that  there  is 
sufficient  demand  for  them  on  the  market  and  that,  with  high  oil  prices  waste  oils  are 
increasingly  becoming  attractive  as  a  cheap  alternative  to  other  energy  products.  Finally,  it 
should  be  pointed  out  that  most  of  the  fuel  uses  of  waste  oils  (such  as  in  cement  kilns, 
limestone  works,  steel  works,  or  quarry  industry)  fall  outside  the  scope  of  the  Energy  Tax 
Directive. 

2.2.4.  Derogations with regional scope 

In the past, some Member States were authorised to apply tax reductions or exemptions for 
specific  policy  purposes  in  certain  geographic  areas  or  regions,  linked  either  to  economic 
development or to geographical particularities (climate, location) of such zones. Furthermore, 
certain  regional  schemes  were  implemented  with  the  aim  of  discouraging  so  called  tank 
tourism. 

In  the  view  of  the  Commission,  two  main  problems  arise  in  connection  with  this  group  of 
derogations: 

21 

For  more  details  see  for  example  the  regular  reports  on  the  implementation  of  Community  waste 
legislation (COM (1999) 752 of 10 January 2000, COM (2003) 250 of 11 July 2003). A new report is to 
be published later this year. 

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First of all, and according to the case, there might be instruments fully (and perhaps better) 
suitable  to  achieve  the  same  objective,  i.e.  overcoming  disadvantages  suffered  by  certain 
areas, but which do not affect the benefits flowing from the harmonisation of excise duties on 
energy products and electricity. Such instruments may for example relate to cohesion policy.  

Secondly,  the  interest  in  an  internal  market  of  undistorted  competition  has  to  be  taken  into 
account. The concept of minimum rates serves this interest; if necessary minimum rates could 
be adjusted. 

All in all, it appears upon careful analysis that the derogations in point should not be renewed.  

2.2.5.  Miscellaneous derogations 

A very limited number of derogations do not fit under any of the provisions of the Directive. 
These  comprise  tax  reductions  applied  to  petrol  distributed  from  specially  equipped  petrol 
stations. In the view of the Commission, the reason for granting such derogations no longer 
seem to be valid. While the measure might have served to encourage the introduction of such 
equipment when first introduced, it is logical that the derogation should be phased out. 

Similar  considerations  apply  to  a  further  derogation  in  this  group,  namely  to  the  tax 
exemption  for  coal,  coke  and  lignite,  which  has  been  set  to  expire  on  1.1.2007.  It  must  be 
underlined that the extension of the scope of Community legislation from mineral oils to all 
other  competing  products  such  as  natural  gas,  electricity  and  solid  fuels  was  the  main 
principle  underpinning  the  adoption  of  the  Energy  Tax  Directive.  At  the  same  time,  as 
mentioned  sub  2.1.3  and  2.1.4  above,  the  Directive  nevertheless  contains  several  provisions 
allowing  Member  States  to  apply  more  favourable  tax  treatment  to  newly  taxable  products, 
both for households and for companies that can be implemented without prior approval from 
the Council. 

3. 

CONCLUSIONS 

Based on the above analysis, the Commission has reached the following conclusions: 

Where  Member  States  may  pursue  the  objectives  underlying  certain  derogations  in 
accordance with the general provisions of the Energy Tax Directive (subsection 2.1. above), 
no prolongation is needed and consequently, no further steps appear to be necessary, subject 
perhaps to minor adaptations.22 

For derogations corresponding to objectives not taken into account by the general provisions 
of  the  Directive,  this  Communication  forms  part  of  the  background  against  which  Member 
States  should  assess  their  position,  in  view  of  the  expiry  of  such  derogations.  Should 
individual  Member  States  consider  that  for  specific  policy  considerations  they  still  need  a 
derogation from the Directive, they may submit a request to the Commission  in  accordance 
with  Article  19  of  the  Directive.  Any  such  request  will  be  assessed  against  its  own  merits, 
taking  into  account  in  particular  the  proper  functioning  of  the  internal  market,  the  need  to 
ensure fair competition as well as Community environment, energy and transport policies (cf. 
Article 19 of the Energy Tax Directive). 

22 

Cf. sub 2.1.3 above. 

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Furthermore, the Commission would like to remind the Member States that all tax measures 
that could constitute State aid must be notified to the Commission in advance in order to be 
assessed under the State aid rules23. More generally, fiscal instruments have to comply with 
all relevant provisions of the Treaty. 

Finally, the Commission considers that the expiry of most of the derogations should also be 
seen as an opportunity to achieve greater transparency and greater coherence in the energy tax 
legislation,  which  would  ensure  that  the  Directive  is  a  better  instrument  at  the  service 
of Member States and the Community and their overall objectives of sustainable development 
and the Lisbon Strategy. 

23 

See in particular recital 32 of the Directive. 

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