Communication from the Commission to the Council in accordance with Article 19(1) of Council Directive 2003/96/EC (local public passenger transport, disabled people)
Date: 2007-03-15
Institutions: European Commission
Subjects: Denmark, Ireland, derogation from EU law, disabled person, means of public conveyance, motor fuel, tax exemption

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.3.2007 
COM(2007) 106 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 19(1) of Council Directive 2003/96/EC (local public passenger 
transport, disabled people) 

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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 Ireland and Denmark 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. 

Ireland's requests 

Firstly, Ireland would like to apply a reduced rate of excise duty (€22.72 per 1,000 liters) on 
road  diesel  used  by  road  passenger  services  licensed  by  the  national  licensing  authority,  or 
which are otherwise allowed by law, bus operators, school transport services and tour coach 
operators.  

The  purpose  of  the  measure  is,  according  to  Ireland,  to  promote  the  development  of  local 
public  passenger  transport  and,  more  horizontally,  to  pursue  the  objective  of  environmental 
protection.  

Ireland claims that adjusting the scheme to the conditions foreseen in Article 5 would lead to 
increase of prices and would require adjustments of the fares applied. This would discourage 
the use of public transport with the subsequent increase of private transport use. The impact of 
this increase will add to congestion and to greater pollution. 

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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). 
Letters registered on 13 November 2006 (Denmark) and on 14 December 2006 (Ireland) 

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Furthermore,  Ireland  considers  the  measure  would  affect  especially  to  people  from  lower-
income  groups  which  use  more  frequently  public  transport  and  to  routes  less  profitable 
(sparsely populated routes). 

According to Ireland, the measure would particularly affect buses, one of the basic means of 
public transport in Ireland and the most flexible of them. 

Second,  Ireland  would  like  to  exempt  from  taxation  the  fuel  used  in  a  vehicle,  for  the 
transport  of  a  person  with  a  severe  physical  disability,  up  to  a  maximum  of  600  gallons  or 
2,728 litres per year. These limits would be increased to 900 gallons and 4,092 litres for an 
organisation which represents persons with disabilities. Ireland argues that the measure is very 
restrictive in nature and applies only to persons who meet certain strict criteria. The purpose 
of  the  measure  is  to  compensate  the  significant  mobility  costs  faced  by  those  with  a  severe 
disability.  Ireland  as  well  argues  that  many  people  with  severe  disabilities  have  limited 
incomes.  And  finally,  Ireland  argues  that  the  measure  has  absolutely  no  impact  on  the 
functioning  of  the  internal  market.  The  measure  is  part  of  a  broader  incentive  package  that 
exists in Ireland and applies to people with severe disabilities. 

The requests do not foresee any date of termination. 

2.2. 

Denmark's request 

Denmark would like to exempt from taxation LPG and diesel (low level or free sulphur) used 
in  local  public  passenger  transport  vehicles.  The  purpose  of  the  measure  is  to  promote 
environmental protection not only by means of supporting public transport, but also by means 
of favouring more environmental friendly fuels. 

The request foresees a date of termination by 31 December 2008 

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 

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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. 

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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). 

The  Commission  considers  that  most  of  the  concerns  put  forward  by  the  two  applicant 
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 

As  a  result,  they  cannot  be  considered  as  specific  policy  considerations  for  the  purposes  of 
Article  5.  This  provision,  adopted  on  the  basis  of  Article  93  EC,  already  strikes  a  balance 
between policy considerations pleading for a more favourable tax treatment of fuel used in the 
areas it covers, on the one hand, and concerns pleading for the application of certain minimum 
levels of taxation. The latter concerns relate to the Community interests and policies explicitly 
mentioned  in  Article  19(1)  third  subparagraph  of  the  Energy  Tax  Directive,  which  in 
particular  justify  incentives  for  improved  energy  efficiency  and  environmental  protection. 
Therefore,  a  derogation  under  Article  19  cannot  be  granted  merely  on  the  basis  of  the  very 
same arguments which led to the adoption of Article 5 of the Directive. This has already been 
explained  in  detail  in  the  Commission  Communication  concerning  similar  requests  and 
adopted on 30 November 20068.  

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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. 
COM(2006)  741  of  30  November  2006  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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This reasoning also applies to the request made by Ireland and referring to disabled people. 
Their position is indeed explicitly taken into account in Article 5 of the Energy Tax Directive. 
In  fact,  this  reference  mirrors  the  derogation  Ireland  enjoyed  under  the  previous  legal 
framework.  

As regards social considerations such as those put forward by Ireland, the Commission would 
like  to  recall  that  Ireland  itself  confirms  not  all  people  with  severe  disabilities  must 
necessarily  need  social  support  and  general  full  tax  exemption  available  to  everybody  does 
not allow to reflect it. More specific needs related to the economic resources of the persons 
concerned could more appropriately been dealt with through means targeted correspondingly 
but  which  do  not  interfere  with  the  minimum  levels  of  taxation  set  out  in  the  Energy  Tax 
Directive. 

With respect to the specific element of tour coach operators contained in the Ireland's request 
for derogation for "local public passenger vehicles", the Commission would like to stress that 
the  reasoning  above  applies  to  this  part  of  the  request  to  the  extend  that  such  tour  coach 
operators can be considered as falling under the notion of "local public passenger transport". 
As to situations going beyond the term, the Commission would like refer to Article 7 of the 
Directive  that  allows  Member  States  under  certain  circumstances  to  introduce  differentiated 
tax rates for diesel used in certain passenger transport vehicles (cf. in particular paragraphs 2 
and  (3)(b)  of  this  provision).  Ireland  did  not  provide  any  specific  policy  considerations  that 
would  justify  the  grant  of  tax  advantages  going  beyond  what  is  allowed  by  Article  7  of  the 
Directive. In this respect, the Commission observes that the requirement set out in paragraph 
2 of this provision, whereby minimum levels of taxation have to be respected, corresponds to 
the standard applicable under Article 5 of the Directive, in the context notably of local public 
passenger transport. 

As far as Denmark's request for public transport is concerned, in the Commission’s view the 
request refers indifferently to objectives of promotion of public transport and of promotion of 
more environmental friendly fuels, more specifically diesel containing no sulphur or only low 
levels  thereof.9  As  to  the  first  objective,  the  Commission  would  like  to  refer  to  the 
considerations  set  out  above  and  in  the  said  Communication  adopted  in  November  2006. 
Similar considerations apply however to the objective consisting in the promotion of higher 
quality  fuels.  In  this  context,  it  may  be  added  that  interests  of  fair  competition  provide  an 
additional  argument  to  the  effect  that  Community  minimum  levels  of  taxation  should  be 
observed.  

5. 

CONCLUSION 

On the basis of the above the Commission considers that, as far as they concern local public 
passenger  transport  or  disabled  people,  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. 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 

9 

LPG  used  as  propellant  falls  under  the  particular  provisions  of  Article  15(1)(i)  of  the  Energy  Tax 
Directive. Cf. the observations made at the end of the present Communication. 

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explicitly  mentioned  in  Article  19  (3)  third  indent.  Given  the  existence  of  Article  7  of  the 
Energy  Tax  Directive  and  in  the  absence  of  any  specific  argument  put  forward  by  Ireland, 
similar  considerations  apply  to  that  Member  State's  request,  as  far  as  it  concerns  passenger 
transport other than local transport. 

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 remedy10. 

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  two 
applicant Member States. 

To  the  extent  the  request  made  by  Denmark  refers  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  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. 

10 

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

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