Communication from the Commission to the Council in accordance with Article 19(1) of Council Directive 2003/96/EC (regional derogations)
Date: 2006-12-12
Institutions: European Commission
Subjects: Italy, application of EU law, derogation from EU law, energy-generating product, tax exemption, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 12.12.2006 
COM(2006) 795 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 19(1) of Council Directive 2003/96/EC (regional derogations) 

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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,  Italy  submitted  three  requests  for  authorisation  to  derogate  from  2007 
onwards  from  the  provisions  of  the  Energy  Tax  Directive  and  to  apply  regionally 
differentiated rates of taxation to selected energy products in certain geographical areas. The 
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. 

(1) 

SUMMARY OF THE REQUESTS 

Italy would like to apply full tax exemption within an annual quota to certain energy 
products consumed in the territory of the region of Val d'Aosta. 

The  annual  tax  exempt  quota  is  set  at  regional  level.  The  measure  applies  to  motor  fuels 
(petrol, diesel) and also to certain heating fuels (LPG for domestic heating). For each group of 
energy products the potential beneficiaries are clearly identified and in most of the cases these 
are private individuals resident in the particular region. 

According  to  the  Italian  authorities,  the  objective  of  the  measure  is  to  avoid  so-called  tank 
tourism  i.e.  the  practice  by  citizens  of  crossing  borders  to  avail  of  lower  fuel  prices.  Italy 
refers to the location of the region at the external border with the EU. The measure is further 
aimed at avoiding negative consequences of the expiry of the derogation contained in Annex 
II of the Energy Tax Directive that would lead to loss of welfare. 

Italy  considers  that  the  measure  can  be  justified  on  the  basis  of  the  geographical  and 
infrastructural  aspects  of  the  region  –  a  mountainous  area  highly  dependent  on  road  motor 
transport.  Furthermore,  Italy  refers  to  the  specific  Constitutional  status  of  the  region  and  to 
Community  policy  of  economic  and  social  cohesion  that  attributes  special  attention  to 
mountainous areas. With respect to LPG used for heating purposes, Italy refers to the severe 
climatic conditions of the region. 

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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 17 October 2006. 

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(2) 

Italy would like to apply full tax exemption within an annual quota to certain energy 
products consumed in the territory of the province of Gorizia. 

The  annual  tax  exempt  quota  is  set  at  regional  level.  The  measure  applies  to  motor  fuels 
(petrol, diesel) and also to certain heating fuels (natural gas for domestic heating, mineral oils 
for business heating). For each group of energy products the potential beneficiaries are clearly 
identified. With the exception of heating oils, the beneficiaries are private individuals resident 
in the province. 

According  to  the  Italian  authorities,  there  are  historical  reasons  for  the  measure  that  are 
justified  by  the  socio-economic  weakness  of  the  territory,  which  is,  in  particular,  caused  by 
the specific geographical location of the area. According to Italy the expiry of the derogation 
will  lead  to  a  reduction  in  demand  for  the  energy  products  (due  to  tank-tourism  abroad), 
reduced welfare and related economic activity. 

The  Italian  authorities  are  of  the  view  that  due  to  the  insufficient  degree  of  excise 
harmonisation within the EU, application of the standard tax rate following the expiry of the 
derogation  in  Annex  II  of  the  Energy  Tax  Directive  would  not  lead  to  any  increase  of  tax 
revenue as the entire demand is expected to move abroad. Finally, with respect to the natural 
gas, Italy points to the environmental advantages of this fuel over mineral oils, and highlights 
the positive experience that this measure has had for the deployment of natural gas network in 
the province. 

Italy considers that the measure can is compatible with the relevant Community policies based 
on  the  particular  geographical  location  and  socio-economic  weaknesses  of  the  area,  which 
falls under the terms of Article 87(3)(c) of the EC Treaty and is admissible to EU Structural 
Funds. 

(3) 

Italy  would  like  to  apply  reduced  rate  of  taxation  to  mineral  oils  consumed  in  the 
provinces  of  Udine  and  Trieste,  provided  that  the  rates  are  in  accordance  with  the 
obligations set down in the Energy Tax Directive. 

The measure is applied in the form of tax exempt annual quota for petrol and diesel and its 
geographical  scope  is  restricted  to  the  province  of  Trieste  and  to  some  communes  in  the 
Eastern  part  of  the  province  of  Udine.  The  beneficiaries  are  private  individuals,  mostly 
residents in the areas. 

The objective of the measure is to avoid so called-tank tourism. Italy points out that the expiry 
of  the  derogation  in  Annex  II  of  the  Energy  Tax  Directive  would  have  a  negative  socio-
economic impact, would not give result in any increase in tax revenues and would lead to the 
closure of station services in the area. 

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

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3. 

BACKGROUND TO THE REQUEST 

In the past, some Member States, and Italy in particular, were authorised under the procedure 
referred to in Article 8(4) of Council Directive 92/81/EEC3, to apply reduced rates of taxation 
or exemptions form taxation for specific policy considerations 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  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")4  the  Commission  highlighted  two  main  problems  related  to  this  kind  of 
derogations viz. the suitability of excise duty as an instrument to tackle regional specificities 
of socio-economic nature in the first place and the interest in creating an internal market of 
undistorted competition in the second. The Commission stressed that the concept of minimum 
rates serve the interest of the internal market and that, if necessary, minimum rates could be 
adjusted. 

The communication however concluded that it is up the Member States concerned to consider 
whether,  for  specific  policy  considerations,  a  derogation  from  the  Directive  was  still 
necessary and, if so, whether it could be compatible with the objectives of the Directive, i.e. 
with the interests and policies set out in its Article 19 (1), third indent. 

4. 

EVALUATION BY THE COMMISSION 

At the outset, the Commission would like to recall the wording of Article 93 of the EC Treaty 
which  is  the  basis  for  Community  action  in  the  field  of  indirect  taxation.  It  requires 
harmonisation  of  indirect  tax  legislation  to  the  extent  that  is  necessary  to  ensure  the 
establishment and functioning of the internal market. 

To  this  end,  minimum  levels  of  taxation  are  set  in  the  areas  concerned  by  excise 
harmonisation,  including  in  the  Energy  Tax  Directive.  Bearing  in  mind  that  Member  States 
may fix their own national rates in compliance with the minima, and in accordance with what 
they  consider  appropriate  in  the  context  of  their  national  circumstances,  minimum  levels  of 
taxation  are  set  at  a  level  which  the  Community  legislator  considers  necessary  to  keep 
potential distortions of competition within an acceptable margin.  

The absence of fully harmonised rates implies that differences in national rates may exist and 
that  these  may  lead  to  a  degree  of  tax-induced  cross-border  shopping  within  the  internal 
market  and  the  limits  prescribed  by  Articles  8  and  9  of  Directive  92/12/EEC,  where 
applicable. However should any resulting distortions exceed boundaries which are no longer 
considered  acceptable  and  in  accordance  with  the  logic  of  harmonisation  set  out  above,  the 
appropriate remedy would be to seek a closer effective approximation of national rates on the 

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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(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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basis  of  Article  93  EC,  be  it  through  upward  revision  of  minimum  levels  of  taxation  or 
through other means the Community legislator may choose.  

Therefore,  the  Commission  rejects  Italy’s  view  according  to  which  insufficient  excise  duty 
harmonisation could justify, under Article 19, a request for derogation from the provisions of 
the  Energy  Tax  Directive.  This  justification  does  not  correspond  to  a  "specific  policy 
considerations" within the meaning of Article 19. The minimum levels of taxation chosen in 
the  Directive  constitute  in  fact  the  main  element  that  has  been  considered  by  Community 
legislator.  On  the  basis  of  the  levels  chosen,  the  Community  legislator  has  concluded  that 
Member States have no longer any valid reasons to differentiate their rates at national level in 
order to react to the levels set in other Member States, outside the mechanisms provided for in 
the  Directive  itself.  If  it  were  otherwise,  rates  for  motor  fuel  at  borders  between  Member 
States  would  risk  being  set  through  a  bilateral  and  progressive  mechanism  of  downward 
adaptation to the harmonised minima, which is not foreseen in the Directive.  

No element of the Energy Tax Directive allows a different interpretation. 

As far as the horizontal arguments raised by Italy in each of its four requests are concerned: 

First,  regarding  the  argument  according  to  which  the  regions  concerned  benefit  from  a 
specific constitutional status under Italian law, the Commission would like to point out that 
this  argument  is  not  sufficient  for  the  purposes  of  Article  19.  While  it  is  not  excluded  that 
certain considerations presenting a regional point of reference may constitute specific policy 
considerations under Article 19, the status of a region under national constitutional law does 
not, as such, correspond to this notion.  

Secondly,  the  Commission  cannot  accept  the  general  arguments  put  forward  by  Italy 
concerning  the  socio-economic  position  of  certain  regions  (either  due  to  external  economic 
competition, to its particular geographic location or other geographical aspects of the areas). 
These  arguments  come  to  say  that  the  regions  in  question  are  in  need  of  public  support. 
However,  the  derogations  granted  so  far  have  never  been  formally  considered  as  an 
instrument  of  policies  conducted  to  this  effect,  and  any  “prolongation”  under  this  heading 
cannot  thus  be  accepted  under  Article  19.  In  addition  there  are  much  more  targeted 
instruments and policies available5 to deal with such problems and which do not undermine 
the useful effect of harmonisation of excise duties in the field of energy products. 

Thirdly,  as  regards  the  specific  geographical  location  of  some  of  the  areas  are  concerned, 
namely close to the Italian boarders, the Commission refers to what has been set out above. It 
follows that the neighbourhood of another Member State with different taxation levels cannot 
be accepted as a sufficient reason to grant an authorisation under Article 19 of the Energy Tax 
Directive.  In  particular,  derogations  justified  by  the  fact  that,  at  the  time,  the  neighbouring 
State has been a third country cannot now be prolonged under Article 19, after the accession 
of the State in question to the Community and in view of the ensuing obligations of this State 
under the Energy Tax Directive. With respect to the external border aspects raised by Italy in 
one  particular  case  (Val  d’Aosta),  the  Commission  notes  that  the  derogation  requested  does 
not  constitute  a  proportionate  response  to  the  alleged  problem  of  tank  tourism.  Indeed,  it  is 
liable  to  create  itself  distortions  of  consumption  patterns  within  Italy  and  other  parts  of  the 

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When  resorting  to  such  instruments  and  policies,  Member  States  have  of  course  to  respect  the 
provisions of Community law, in particular in the field of State aids. 

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Community, in that consumption of residents is artificially attracted to the region in question, 
where it also could take place outside. In this respect, it has also to be borne in mind that Val 
d'Aosta shares the border not only with Switzerland but also with France. 

Finally  the  Commission  would  like  to  recall  that  negative  consequences  of  the  expiry  of  a 
derogation as such does not qualify as specific policy considerations in terms of Article 19. 

It is appropriate, in addition, to consider separately the more specific situations and arguments 
referred to in the requests. 

As far as the alleged dependency on road transport in the region of Val d'Aosta is concerned, 
the Commission does not consider the measure envisaged, namely a general exemption from 
excise duties on motor fuels to be a proportionate response to the problem and which would 
justify an authorisation under Article 19. The Commission notes that Italy has not justified the 
exemption  in  question  under  the  policy  consideration  cited,  compared  to  the  treatment  of 
other  parts  of  Italy  which  are  equally  rural  (i.e.  not  densely  populated)  and/or  mountainous 
and where the full national rate is supposed to apply. There is no indication that there is any 
objective  relationship  with  the  extra  costs  involved,  however  calculated.  Finally,  the  total 
exemption of motor fuels would be incompatible with the energy, transport and environment 
policies referred to in Article 19 (1) third indent of the Directive. A comparison with Article 
5,  third  indent,  of  the  Directive  reinforces  this  conclusion.  Reflecting  the  said  policies,  this 
provision  shows  that  local  public  passenger  transport,  although  liable  to  be  privileged  by 
Member States as compared to private transport (which is at stake here), remains subject to 
the minimum levels of taxation. Only in the very specific circumstances referred to in Articles 
15(1)(e) or 15(1)(i) of the Directive taxation below these levels remains possible. 

As far as the arguments referring to energy products used for heating purposes are concerned, 
the Commission's assessment is as follows. 

First of all, the Commission does not consider that the intention to apply more favourable tax 
treatment to mineral oils used for business heating purposes could be justified. The purpose of 
the  measure  is  to  subsidise  enterprises  located  in  a  certain  area.  In  its  June  2006 
Communication,  the  Commission  stressed  that  the  Directive  already  takes  due  account  of 
business consumption and potential competitiveness constraints that might arise in relation to 
energy taxation. In this connection, the Commission would like to highlight that the Council, 
acting  unanimously  under  the  procedure  set  out  in  Article  93  of  the  Treaty,  has  already 
established  a  balance  between  policy  considerations  that  might  plead  in  favour  of  more 
favourable tax treatment of business use. The options set out in the Directive with regard to 
business  use,  in  particular  Articles  5  and  17  thereof,  reflect  the  degree  of  flexibility  the 
Community  legislator  has  considered  appropriate  and  sufficient  in  this  context.  Therefore, 
considerations of the kind raised by Italy do not qualify as specific policy considerations for 
the  purposes  of  Article  19.  Moreover,  the  said  options  of  the  Directive  also  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. These very same interests would oppose 
the granting of the authorisation requested under the present aspect. 

To the extent Italy requests an authorisation to exempt consumption of natural gas as heating 
fuel, the Commission would like to point out that the Energy Tax Directive does indeed take 
due  account  of  the  potential  advantages  of  natural  gas.  Therefore,  Italy’s  request  does  not 
display  specific  policy  considerations  in  this  context  (quite  apart  from  the  fact  that  the 

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advantages  of  natural  gas  referred  to  by  Italy  do  not  differ  as  between  regions).  The 
considerations  set  out  above  with  regard  to  Article  19(1),  third  indent  and  Community 
environment,  energy and transport policies apply here as  well and equally plead  against the 
granting of the derogation. 

Finally,  referring  to  favourable  tax  treatment  of  LPG  used  for  domestic  heating  in  the 
mountainous region of Val d'Aosta, the Commission considers that this measure overlaps with 
another measure Italy has submitted to the Commission for consideration under Article 19 of 
the  Energy  Tax  Directive.  In  this  respect,  Italy  plans  to  provide  for  differentiated  tax 
advantages for LPG as heating fuel, depending upon the climatic situation of certain regions. 
However,  the  authorisation  requested  for  Val  d’Aosta  goes  far  beyond  the  other  scheme 
submitted.  The  Commission  concludes  that,  in  Italy’s  own  view,  the  climatic  conditions 
referred  to  do  not  justify  the  particular  regime  devoted  to  Val  d’Aosta.  The  other  request 
submitted by Italy will be considered separately. 

5. 

CONCLUSION 

On the basis of the above, the authorisation requested by Italy should not be granted. First of 
all, with respect to the main argument put forward by Italy in order to justify the requests, it 
must be stressed that the alleged lack of sufficient harmonisation on the internal market may 
not be remedied through authorisations under Article 19. Minimum levels of taxation formed 
part of the main elements the Community legislator considered while adopting the Directive. 

Furthermore,  the  Commission  does  not  either  consider  acceptable  any  of  the  additional 
arguments presented by Italy, in relation to certain specific parts of its requests. 

The Commission therefore does not propose the authorisations requested. 

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