Communication from the Commission to the Council in accordance with Article 19(1) of Council Directive 2003/96/EC (private pleasure-flying)
Date: 2006-11-30
Institutions: European Commission
Subjects: France, Malta, Portugal, Sweden, United Kingdom, civil aviation, derogation from EU law, fuel tax, tax exemption

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.11.2006 
COM(2006) 742 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 19(1) of Council Directive 2003/96/EC (private pleasure-
flying) 

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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  to  introduce  further  tax 
exemptions or tax reductions for specific policy considerations. 

The Commission shall examine the requests. 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,  France,  Portugal,  the  United  Kingdom,  Malta  and  Sweden  submitted  a 
request  for  authorisation  to  derogate  from  2007  onwards  from  the  provisions  of  the  Energy 
Tax Directive for fuel used for private pleasure-flying, i.e. air navigation not covered by the 
obligatory  exemption  provided  for  in  Article  14  (1)  (b)  of  the  Energy  Tax  Directive.  These 
letters 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 has not proposed such authorisation. 

2. 

SUMMARY OF THE REQUEST 

2.1. 

The French request 

France would like to apply a full tax exemption to fuel used for private pleasure flying. The 
aim  of  the  measure  is  to  compensate  the  negative  consequences for the sector derived from 
the increase in prices and on the other hand, to preserve national policies oriented to organize 
the territory avoiding the concentration of companies around the Parisian region. 

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

2.2. 

The Portuguese request 

Portugal would like to apply a full tax exemption to fuel used for private pleasure flying. The 
purpose  of  the  measure  is  to  avoid  the  administrative  burden  derived  from  the  need  to 
implement a complex system of control related to the shift to the standard tax treatment. 

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

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2 

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). 
Letters  registered  on  16  October  2006  (France,  Portugal,  United  Kingdom  and  Malta)  and  on  31 
October 2006 (Sweden) 

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2.3. 

The United Kingdom request 

The United Kingdom would like to apply exemption from excise duties to fuel used for the 
purpose of private pleasure flying. Private use of jet fuel would be fully exempted from duties 
and  aviation  gasoline  would  be  taxable  at  a  reduced  rate  of  half  the  tax  rate  for  leaded 
gasoline. 

The United Kingdom maintains that there are minimal benefits from the shift to the standard 
tax treatment in comparison to the costs and other consequences associated with the expiry of 
the derogation. Therefore the main objective of the measure is to avoid costs of transition. 

In  particular,  the  United  Kingdom  highlights  the  compliance  costs  on  suppliers  of  aviation 
fuels and on the industry and stress the administrative costs and enforcement difficulties for 
the administration associated with the expiry of the derogation. The United Kingdom further 
explains  the  negative  effects  on  both  the  private  pleasure-flying  sector  and  many  small 
businesses associated with it. Furthermore, it would increase the cost of training which would 
grow  the  trend  for  pilots  to  train  in  the  United  States.  In  addition,  removing  the  derogation 
would  raise  safety  issues  if  users  were  tempted  to  put  unleaded  petrol  rather  than  aviation 
gasoline. On the other hand, the United Kingdom points out the insignificant revenue gain and 
the  small  benefit  in  terms  of  carbon  emission  saved  associated  with  introduction  of  the 
general tax treatment. 

The request foresees a date of termination by 31 December 2011. 

2.4. 

The Maltese request 

Malta  would  like  to  apply  full  tax  exemption  to  the  jet  fuel  and  aviation  gasoline  used  for 
private pleasure flying on outbound voyages.  

The  purpose  of  the  measure  is  to  promote  the  development  of  the  sector  and  the  associated 
services which have and incidence in the niche tourism. According to Malta its comparative 
advantage in this area is being eroded by the strong competition from operators based in no-
European  countries  which  are  not  subject  to  Community  excise  legislation.  Furthermore, 
Malta  considers  that  the  measure  would  not  be  detrimental  to  the  proper  functioning  of  the 
internal market nor result in distortions of competition, due to its geographical position and 
the rigorous controls in place to ensure the correct application of the measure 

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

2.5. 

The Swedish request 

Sweden  would  like  to  apply  full  tax  exemption  to  jet  fuel  and  gasoline  used  for  private 
pleasure flying.  

Sweden refers to its extended territory and large sparsely populated areas particularly in the 
north and considers that well functioning means of transport and infrastructure are essential in 
order  to  maintain  opportunities  for  all  regions  in  Sweden  to  develop  and  be  part  of  the 
economic  growth.  Long  distances  to  necessary  public  functions  are  frequent,  particularly  in 
the interior parts of northern Sweden. 

Furthermore, Sweden considers that a tax exemption for air fuels for private flying leads to 
more  frequent  air  navigation  which  has  a  positive  effect  on  the  knowledge  of  the  air 

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navigation  and  the  willingness  to  carry  out  civil  surveillance  missions.  Furthermore, 
according  to  Sweden,  it  would  involve  an  extensive  administrative  burden  for  the  tax 
authorities  to  administrate  taxation  of  fuel  for  private  pleasure-flying  Also,  in  the  view  of 
Sweden, the administration is complicated by the fact that the same plane can several times a 
day change between being used for private and commercial purpose. 

The request foresees termination by 31 December 2012. 

3. 

BACKGROUND TO THE REQUESTS 

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 
private  pleasure-flying.  This  provision  had  originally  come  into  force  in  1993  under  the 
Mineral  Oils  Directive3.  Private  pleasure-flying4  was  thus  not  subject  to  the  obligatory 
exemption  set  out  for  commercial  aviation  (due  in  particular  to  existing  international  legal 
obligations), nor indeed did it benefit from any optional tax advantages under the Directives. 
As a result, private pleasure-flying is subject to standard taxation according to national rates 
in compliance with the Directive, unless a particular derogation is available under Articles 18, 
18a or 19 of the Directive. 

With the aim of making Community transport, environment and fiscal policy more coherent, 
the  Commission  already  proposed  to  abolish  the  derogations  in  point,  now  contained  in 
Articles  18  and  18a  with  annexes  II  and  III  to  the  Directive,  for  the  first  time  in  19965. 
Subsequently, a gradual phasing-out 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 31 December 20026. In the end, the 
derogations  were  extended  until  31 December  2006  and  were  later  incorporated  into  the 
Energy  Tax  Directive  (Article  18  and  Annex  II)  with  the  view  to  allow  for  their  smooth 
phasing-out. The same termination date was chosen for Malta in the context of its accession to 
the Community (Article 18a and Annex III). 

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  stated  that  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. The Commission has at the same time invited the Member States in 
case they consider that for specific policy considerations a further derogation is still necessary 

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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. 
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. 
COM (2000) 678 of 15 November 2000. 
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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to submit a request in accordance with Article 19 of the Directive duly justifying the policy 
needs. 

4. 

EVALUATION BY THE COMMISSION 

The  Commission  considers  that  France,  Portugal,  the  United  Kingdom,  Malta  and  Sweden 
have  to  an  important  extent  merely  reiterate  arguments  already  examined  in  the  2006 
Communication  (in  particular  high  compliance  and  administrative  costs  and  risk  of  fraud 
related  to  the  expiry  of  the  derogation)8.  Neither  these  nor  the  more  detailed  and/or 
complementary arguments put forward at this stage are valid, in the Commission's view. 

At the outset, the Commission would like to recall that the Council, acting unanimously under 
the  procedure  set  out  in  Article  93  EC,  has  already  had  the  opportunity  to  strike  a  balance 
between policy considerations that might plead in favour of a derogation in the area at stake, 
on  the  one  hand,  and  those  pleading  in  favour  of  standard  taxation,  on  the  other.  The  latter 
interests  are  fundamentally  those  set  out  in  Article  19(1),  third  indent,  of  the  Directive  and 
include the proper functioning of the internal market, the need to ensure fair competition and 
Community health, environment, energy and transport policies. 

As mentioned in the 2006 Communication, the Council has deliberately chosen, as a general 
regime,  to  subject  private  pleasure-flying  to  standard  taxation.  It  was  excluded  from  the 
obligatory  exemption  under  Article  14(1)(c)  of  the  Energy  Tax  Directive  and  not  included 
into  the  list  of  optional  exemptions  or  reductions  set  out  in  Article  15  of  the  Directive.  It 
follows from the 23rd recital of the Directive that air navigation other than private pleasure-
flying was exempted for particular reasons only, which according to the same recital, do not 
apply  to  private-pleasure  flying  itself.  At  the  same  time  the  Council  has  indicated  that  the 
derogations in favour of the latter activity should only be temporary in nature (30th recital and 
Articles 18 and 18a with annexes II and III to the Directive). 

Against this background, an authorisation under Article 19 should not be granted for reasons 
which are merely inherent in the switch from the derogation to standard taxation. This applies 
obviously  to  the  administrative  burdens  and  compliance  and/or  enforcement  difficulties, 
including  safety  issues9  resulting  from  the  change  itself.  It  also  applies,  however  to  the 
general business  consequences  (for  the sector, for associated  businesses,  tourism  or training 
industry) that could follow from standard taxation of the activity in question, even in a longer 
term perspective. By definition, such general consequences do not correspond to the notion of 
specific policy considerations within the meaning of Article 19 of the Energy Tax Directive. 

The interests and policies set out in Article 19 (1), third indent, equally oppose the granting of 
an authorisation by reference to the above mentioned grounds. 

From the point of view of the internal market and fair competition, it must be pointed out 
that  due  to  the  very  nature  of  aviation,  the  completion  of  the  internal  market  required  that 
common rules for  taxation  of aviation fuel  were established  for  the Community as of 1993. 
Such rules were established as the most common denominator of practices existing in the EU 
Member States at that time and included common treatment of private pleasure flying. More 

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Cf. the 2006 Communication, sub 2.2.1. 
As regards environmental and safety aspects, these are dealt with in corresponding legislation. They are 
unrelated to the rules of the Energy Tax Directive. 

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generally, the interests of the internal market and fair competition imply that taxation should 
be as neutral as possible to avoid tax induced behaviour within the Community without fiscal 
frontiers. 

The derogation granted to several Member States does not affect this reasoning. It should be 
considered as aimed at overcoming initial difficulties encountered with the implementation of 
a  new  legislation.  Taking  into  account  that  fuel  used  in  private  pleasure  flying  has,  in 
principle,  been  taxable  in  the  Community  since  1993  and  that  Articles  18  and  18a  of  the 
Energy Tax Directive have put a clear time limit to the corresponding derogation within this 
Directive,  those  reasons  of  transitional  nature  do  not  justify,  today,  an  authorisation  under 
Article 19 of the Directive. 

To the extent that any anticipated loss of business activity (as alleged by some of the Member 
States  concerned  by  the  derogation)  would  reflect  corresponding  gains  of  Member  States 
applying standard taxation, this would confirm that reasons of fair competition plead against 
the granting of an authorisation under Article 19 of the Directive, which would perpetuate the 
distortion. 

The authorisation requested would also contradict the Community environment, energy and 
transport  policies,  primarily  because  it  does  not  accurately  reflect  negative  external  costs 
of such activity. 

It is appropriate, in addition, to consider certain more specific arguments raised by some of 
the applicant Member States. 

First,  the  Commission  cannot  accept  the  argument  presented  by  Malta.  It  is  true  that 
harmonised  taxation  may  in  certain  cases  have  effects  on  competition  with  third  countries. 
However,  these  have  already  been  taken  account  by  the  Council  within  Article  14  of  the 
Energy Tax Directive. In this regard, the Council has found that these aspects warrant so far 
an exemption in the case of commercial navigation, but not in the particular field concerned 
by the present communication, namely private pleasure-flying (cf. 23rd recital of the Energy 
Tax Directive). 

Secondly, with respect to the Swedish argument concerning the specific nature of its territory 
and the need for well functioning means of transport and infrastructure, the Commission does 
not consider that tax exemption for fuel used in air navigation is the right policy response to 
such  argument.  More  in  general,  also  with  reference  to  related  arguments  presented  by 
Sweden  (e.g.  the  willingness  to  carry  out  civil  surveillance  missions)  and  to  the  arguments 
made  by  France  regarding  regional  development,  the  Commission  would  like  to  stress  that 
they relate to concerns of national policies primarily of regional nature and that these might, 
in a Member State's view, justify corresponding public support. However, there are means of 
supporting  such  aims  that  are  much  better  fitted,  both  in  nature  and  in  scope,  without  the 
community  interests  mentioned  above  being  affected  by  an  anomalous  exemption  from 
harmonised taxes. As a consequence, the said general concerns raised by France and Sweden 
cannot justify the authorisation sought for. 

Finally,  the  Commission  cannot  accept  the  proportionality  argument  raised  by  the  United 
Kingdom.  This  argument  takes  the  temporary  derogation  granted  under  Article  18  as  the 
starting point, which directly conflicts with the fact that the Community legislator, acting in 
accordance with Article 93 EC, has set standard taxation as the starting point. This also puts 
into  the  right  perspective  a  related  argument  made  by  the  United  Kingdom,  namely  that 

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environmental benefits of a switch to standard taxation would be limited. The mere fact that 
the overall consumption through private pleasure-flying may not exceed certain limits simply 
means  that  the  exemption  is  limited  in  reach.  It  does  not  mean  that  proportionality  would 
require unequal treatment with comparable transport or leisure activities. Moreover, the fact 
that the implementation may require some extra effort cannot be decisive either. It is in the 
nature of tax administration that implementing costs may differ across the various fields, and 
this does imply specific policy considerations which would need to be taken into account in 
the context of Article 19 of the Directive. 

5. 

CONCLUSION 

All in all the Commission considers that the applicant Member States have not presented any 
specific  policy  considerations  that  would  justify  the  need  to  further  derogate  from  the 
legislation enacted in the EU on unanimity at two occasions already and that would justify the 
existence of a fiscal measure that clearly contradicts several Community policies. 

The Member States concerned have had enough time to adjust to the new situation taking into 
account  that  this  and  similar  derogations  have  been  under  discussion  in  the  Community  at 
least since 1996 and the Commission repeatedly insisted on the necessity to phase them out. 
This is equally valid for Malta in which case the time limit for the derogation under Article 
18a  of  the  Energy  Tax  Directive  was  fixed  so  as  to  coincide  with  the  time  limit  fixed  for 
similar derogations available at that time for some of the fifteen existing Member States. 

Should  the  expiry  of  the  derogation  cause  difficulties  in  very  specific  or  particular 
circumstances, and provided that they respect Community law in all respects10 the applicant 
Member States may adopt measures aimed at alleviating or mitigating problems of transition 
to the regime of standard taxation. 

The Commission therefore concludes that the conditions set out in Article 19 are not fulfilled. 
Consequently, the Commission does not propose the authorisations requested. 

10 

Including, in particular, the Treaty rules on State aids. 

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