Communication from the Commission to the Council in accordance with Article 19(1) of Council Directive 2003/96/EC (local public passenger transport, armed forces, public administration, ambulances)
Date: 2006-11-30
Institutions: European Commission
Subjects: Belgium, France, Greece, Italy, derogation from EU law, fuel tax, public transport, tax exemption, tax system, taxi, transport of patients

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.11.2006 
COM(2006) 741 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 19(1) of Council Directive 2003/96/EC (local public passenger 
transport, armed forces, public administration, ambulances) 

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1. 

INTRODUCTION  

In  accordance  with  Article  19(1)  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"), in addition to the provisions foreseen in the 
Directive,  in  particular  in  its  Articles  5,  15  and  17,  the  Council  acting  unanimously  on  a 
proposal  from  the  Commission,  may  authorise  any  Member  State  (that  requested  so)  to 
introduce further tax exemptions or tax reductions for specific policy considerations. 

The Commission  shall examine the request. Afterwards, it shall either present a proposal to 
the Council or, alternatively, shall inform the Council of the reasons why it has not proposed 
the authorisation of such a measure. 

Within a broader framework of review of derogations expiring in the Energy Tax Directive by 
the  end  of  2006  Belgium,  France,  Greece,  and  Italy  submitted  requests  for  authorisation  to 
derogate from 2007 onwards from the provisions of the Energy Tax Directive. These Member 
States  intend  to  apply  partial  or  total  tax  exemptions  to  fuel  in  the  context  of  certain  uses 
foreseen in Article 5, third indent of the Energy Tax Directive. The intended measures do not 
comply  with  one  condition  set  out  in  Article  5,  whereby  the  "minimum  levels  of  taxation 
prescribed" by the Energy Tax Directive need to be respected. The above mentioned requests 
were registered with the Directorate General for Taxation and Customs Union2. 

The  purpose  of  this  communication  is  to  inform  the  Council  of  the  reasons  why  the 
Commission does not propose the authorisations requested. 

2. 

SUMMARY OF THE REQUESTS 

2.1. 

The Belgian request 

Belgium  would  like  to  apply  partial  tax  exemption  to  gas  oil  (with  sulphur  content  not 
exceeding 50 mg/kg) used as fuel in local public passenger transport vehicles. The purpose of 
the  measure  is  to  promote  the  development  of  local  public  passenger  transport  and,  more 
horizontally,  to  pursue  the  objective  of  environmental  protection.  The  amount  of  the  tax 
reduction is precisely EUR 49,5787 per 1000 litres of gas oil (driving the tax rate below the 
minimum level of taxation provided for by the Directive). 

The request does not foresee any date of termination. 

2.2. 

The French request 

France  would  like  to  exempt  from  taxation  petrol  and  gas  oil  used  in  taxis  up  to  an  annual 
quota of 5000 litres per vehicle. Further it would like to exempt from taxation LPG and LNG 
used  in  taxis  up  to  an  annual  quota  of  9000  litres  per  vehicle.  According  to  France,  the 

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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). 
On 13 October 2006 (Belgium), on 16 October 2006 (France), on 13 October 2006 (Greece) and on 17 
October 2006 (Italy). 

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purpose of the measure is to support an activity with characteristics similar to public transport 
service. 

In  particular  France  highlights  that  the  operation  of  taxis  contribute  to  the  objectives  of 
environmental policy and territorial development. In rural areas without public transport, taxis 
act  as  a  substitute  for  public  transport  services,  in  particular  for  persons  without  cars.  In 
addition,  in  certain  communes  without  any  form  of  public  transport  taxis,  for  example, 
provide transport to schools. In urban areas, taxis contribute to a reduction in the total number 
of passenger cars in circulation. 

France further explains that the operation of taxis also contribute to health policy, as in certain 
areas they act as a substitute for ambulances (in certain rural areas such activity can represent 
up to 80% of the turnover of a taxi). 

The request foresees a date of termination by 31 December 2012. 

2.3. 

The Greek request 

Greece would like to exempt from excise national armed forces, fuels used in official vehicles 
of  the  Ministry  of  the  Presidency  and  the  national  police  force.  The  measures  are  linked  to 
objectives of national defence and security. 

The request does not foresee date of termination. 

2.4. 

The Italian request 

Firstly,  Italy  would  like  to  exempt  from  excise  duty  national  armed  forces.  The  objective 
of the measure is to contribute to the achievement of national and Community objectives of 
public safety and public order, including border control and fight against terrorism and illegal 
trafficking. 

Secondly, Italy would like to apply a reduced rate of taxation equal to 40% of the national rate 
to petrol, diesel, LPG and natural gas used as fuel in taxis authorised to exercise the service 
under the surveillance of local authorities. The tax incentive is granted in terms of days and 
vehicle and its amount decreases with the number of inhabitants in a commune. Italy justifies 
the measure on public service grounds. Taxis substitute public transport in areas difficult to 
access  for  public  transport  (historical  centres,  remote  areas)  and  taxis  also  contribute  to  de-
congestion of cities as they reduce the need for particular vehicles. 

Italy  claims  that  adjusting  the  scheme  to  the  conditions  foreseen  in  Article  5  would  lead  to 
increase of prices and would require adjustments of the taxi prices applied in agreement with 
the Communes. 

Thirdly, Italy would like to apply reduced rate of taxation equal to 40% of the national rate to 
petrol, diesel, LPG and natural gas used by vehicles of ambulances run by persons operating 
on non-profit basis. The measure is justified on social and health policy grounds. 

Italy  claims  that  adjusting  the  scheme  to  the  conditions  foreseen  in  Article  5  would  lead  to 
increase of costs of the non-profit organisations. 

All three requests foresee a date of termination by 31 December 2012. 

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3. 

BACKGROUND TO THE REQUESTS 

According to the third indent of Article 5 of the Energy Tax Directive, Member States may 
apply differentiated rates of taxation for the following uses: local public passenger transport 
(including  taxis),  waste  collection,  armed  forces  and  public  administration,  disabled  people, 
ambulances. The main condition linked to this option is that the minimum levels of taxation 
prescribed by the Directive must be respected. 

This optional provision was included into the Energy Tax Directive on the basis of experience 
acquired during the 1990s with several derogations granted by the Council under Article 8(4) 
of  Council  Directive  92/81/EEC3;  the  aim  was  to  give  Member  States  flexibility  in  certain 
areas, while ensuring that full account be taken of the concerns underlying the determination 
of  minimum  levels  of  taxation  by  the  Directive.  This  intention  is  most  obvious  for  public 
transport.  In  its  report  published  in  1996,  concerning  the  derogations  granted  under  Article 
8(4) of Directive 92/81/EEC4, the Commission concluded that "the derogations be maintained 
until a general rule is introduced as part of a common Community framework for the taxation 
of energy products and at least until 31 December 1998."5 

This approach was also reflected in the 1997 proposal6 that lead to the adoption of the Energy 
Tax Directive in 2003. The proposal aimed at giving Member States a degree of flexibility in 
pursuing  their  national  policy  objectives  while  ensuring  that  the  Community  interest  is 
observed.  The  requirement  to  respect  the  minimum  levels  of  taxation  reflects,  besides  the 
needs of the internal market, the imperative to maintain incentives towards energy efficiency 
and protection of the environment, a need which also applies to public transport. During the 
Council  negotiations  on  the  Energy  Tax  Directive,  the  scope  of  the  relevant  provision  was 
further  elaborated,  but  its  underlying  principle  and  thus  the  requirement  to  respect  the 
minimum levels of taxation was maintained.  

In  its  June  2006  Communication  Review  of  derogations  in  Annexes  II  and  III  of  Council 
Directive  2003/96/EC  that  expire  by  the  end  of  2006  (hereafter  referred  to  as  "the  2006 
Communication")7  the  Commission  provided  an  overview  of  the  wide-ranging  flexibility 
contained  in  the  Energy  tax  Directive  and  confirmed  that  derogations  for  fuel  used  in  the 
above  cases  are  no  longer  necessary  since  an  appropriate  provision  is  explicitly  foreseen  in 
Article 5 third indent of the Directive.  

4. 

EVALUATION BY THE COMMISSION 

In the following, the Commission will assess the requests to the extent the measures intended 
by  the  applicant  Member  States  are  not  covered  by  Article  15  (1)  (i)  of  the  Energy  Tax 
Directive (cf. also the considerations set out at the end of the present communication). 

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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. 
COM(96) 549 of 14 November 1996. 
Section 5.5 of the report. 
COM (97)30 of 12 March 1997. Cf. in particular draft Article 5. 
COM(2006) 342  of  30  June  2006  Review  of  derogations  in  Annexes  II  and  III  of  Council  Directive 
2003/96/EC that expire by the end of 2006. 

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The  Commission  considers  that  most  of  the  concerns  put  forward  by  the  Member  States  in 
order to justify the need for the authorisation requested are exactly the same as those that lead 
to the inclusion of Article 5, third indent into the Energy Tax Directive in the first place.  

It must be pointed put that the wording of Article 5, third indent lists certain uses for which in 
the  past  derogations  were  granted  by  the  Council.  The  underlying  concerns  are  thus  fully 
reflected  in  the  said  provision.  At  the  same  time,  Article  5  expresses  the  need  to  reconcile 
those concerns with the ones underlying the minimum levels of taxation, namely to create a 
level  playing  field  within  the  internal  market  and  to  maintain  an  incentive  for  improved 
energy  efficiency  and  environmental  protection.  These  aspects  are  part  of  the  Community 
interests and policies explicitly mentioned in Article 19 (3) third indent. 

Furthermore, it must be pointed out that according to Article 15(1)(i) full tax exemption can 
be  granted  to  certain  alternative  fuels  (LPG  and  natural  gas)  when  used  as  propellant.  In 
which  cases  has  the  Community  legislator  seen,  at  this  stage,  a  justification  for  not 
maintaining an incentive in favour of energy efficiency. 

In  sum,  the  Council,  acting  unanimously  under  the  procedure  set  out  in  Article  93  of  the 
Treaty, has already had the opportunity to establish a balance between policy considerations 
that might plead in favour of a more favourable tax treatment of fuel used in the areas at stake. 
The conditions established for these purposes in the Directive reflect the interests set out in 
Article 19(1), third indent, of the Directive and include the proper functioning of the internal 
market, the need to ensure faire competition and Community health, environment, energy and 
transport policies. 

The requests in point have to be assessed in the light of these considerations. 

4.1. 

Local public passenger transport (including taxis) 

As  already  pointed  out  in  the  2006  Communication,  the  Energy  Tax  Directive  contains  a 
comprehensive framework for promotion of public transport. 

With respect to the operation of local public passenger transport including taxis in particular, 
Article 5, third indent, of the Energy Tax Directive recognises that these means are preferable 
to  the  use  of  private  cars.  In  this  context,  no  particular  position  can  be  attributed  to  taxis, 
given  that  Article  5  accepts  to  treat  them  in  a  similar  manner  as  local  public  passenger 
transport and puts them on the same footing as other means of the same category. As a result, 
the  policy  objectives  put  forward  by  the  interested  Member  States  in  this  context  are  not 
specific as compared to what is already taken into account by Article 5. The reasoning above 
also  implies  that  the  aspects  mentioned  in  Article  19  (1),  third  indent,  and  more  precisely 
Community  environment,  energy  and  transport  policies,  would  oppose  the  granting  of  the 
authorisations  sought.  As  regards  the  issue  of  fair  competition,  it  has  to  be  noted  that  the 
exemption  of  fuel  used  by  taxis  could  at  least  in  some  instances  distort  the  relationship 
between these and other means of public transport. 

As  far  as  the  requesting  Member  States  put  forward  certain  atypical  functions  fulfilled  by 
taxis in particular local situations, they do not either plead for the granting of the authorisation 
requested. First, there is a mismatch between the specificity of the situations targeted and the 
relating policy considerations put forward, on the one hand, and the general character of the 
tax advantage envisaged on the other. Moreover, and more generally, the situations in point 
would more appropriately be dealt with by instruments compatible with Community law and 

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reflecting  the  specific  services  rendered  by  the  operators  in  point,  as  opposed  to  exemption 
from taxes accruing merely as a consequence of consumption. Under these circumstances, the 
said  concerns  do  not  justify  a  deviation  from  the  need  to  respect  the  minimum  levels  of 
taxation,  so  as  to  ensure  compliance  with  the  objectives  of  Community  environment  and 
energy policies. 

4.2. 

Armed forces and public administration 

It  follows  from  Article  5  of  the  Energy  Directive  that,  while  national  policy  considerations 
related  to  armed  forces  and  public  administration  may  be  taken  into  account,  concerns  of 
energy efficiency and protection of the environment are supposed to govern public activities 
at  the  same  minimum  level  as  private  activities.  Therefore,  the  points  made  with  regard  to 
local public passenger transport (in general) are equally applicable in the present context. 

4.3. 

Ambulances 

In  the  past,  two  Member  States  were  granted  derogations  allowing  them  to  exempt  from 
excise  duty  fuel  used  in  ambulances.  This,  as  well  as  the  derogation  relating  to  disabled 
people, was based on social and health policy grounds. At the present stage, the operation of 
ambulances  is,  for  the  same  reasons,  explicitly  included  into  Article  5,  third  indent,  of  the 
Directive, alongside use by disabled people. For the reasons already mentioned, this provision 
requires that the minimum levels of taxation be respected. Any needs not compensated for by 
the  reduction  of  the  tax  to  the  minimum  levels  of  taxation  could  be  covered  through 
appropriate Community law compatible instruments of direct support.  

The considerations set  out above  with regard to Article 19(1), third indent, and Community 
environment, energy and transport policies apply here as well.  

5. 

CONCLUSION 

On  the  basis  of  the  above  the  Commission  considers  that  none  of  the  requests  contains 
specific policy considerations that would differ from those that lead to the inclusion of Article 
5,  third  indent  into  the  Energy  Tax  Directive.  Moreover,  this  very  provision  shows  that  the 
Community environment, energy and transport policies, as mentioned in Article 19 (1), third 
indent, oppose the granting of authorisations such as those sought by the four Member States 
concerned by the present communication. 

The  said  Member  States  have  had  enough  time  to  adjust  to  the  balance,  established  by  the 
Community  legislator.  For  very  specific  social  and/or  local  needs  instruments  other  than 
excise duties (and which do not interfere with the minimum requirements of the Energy Tax 
Directive) would appear to be a much more appropriate remedy8.  

The Commission therefore concludes that the conditions set out in Article 19 are not fulfilled. 
Consequently,  the  Commission  does  not  propose  the  authorisations  sought  by  the  four 
applicant Member States. 

To the extent the current requests refer to the use of alternative fuels privileged under Article 
15(1)(i), it has to be noted that exemptions or reductions may be granted by the Member State 

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Without prejudice to the other Community provisions, in particular the State aid rules of the Treaty. 

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under  this  provision  without  any  intervention  by  the  Commission  and  the  Council. 
Consequently,  and  according  to  the  wording  and  spirit  of  Article  19,  such  exemptions  or 
reductions do not fall within the scope of this provision. It equally follows that they lie outside 
the conclusion set out immediately above. 

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