Communication from the Commission to the Council in accordance with Article 19(1) of Council Directive 2003/96/EC (operation of private pleasure craft and private pleasure-flying)
Date: 2007-03-15
Institutions: European Commission
Subjects: Denmark, Finland, Ireland, fuel tax, pleasure craft, tax exemption, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.3.2007 
COM(2007) 107 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

in accordance with Article 19(1) of Council Directive 2003/96/EC  
(operation of private pleasure craft and 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 Taxation 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  Taxation 
Directive  by  the  end  of  2006,  Finland,  Denmark  and  Ireland  submitted  a  request  for 
authorisation  to  derogate  from  2007  onwards  from  the  provisions  of  the  Energy  Taxation 
Directive  for  fuels  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  Taxation  Directive. 
Furthermore  Finland  and  Ireland  also  requested  authorisation  to  exempt  fuel  used  for 
navigation  in  private  pleasure  craft  from  excise  duty.  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  the  authorisation  of  the  measures  requested  by  the  Member 
States referred to above. 

2. 

SUMMARY OF THE REQUESTS 

2.1. 

Finland's request 

Finland  would  like  to  apply  an  exemption  from  excise  duties  to  fuel  used  for  the 

(a) 
purpose of private pleasure flying. 

The objective of the measure is to maintain the operating conditions for recreational aviation 
in  Finland.  According  to  the  Finish  authorities,  a  reduction  in  recreational  aviation  would 
negatively  affect  the  knowledge  and  flying  ability  of  air  navigators  and  their  willingness  to 
carry out civil missions. It would also reduce business activities relating to aviation. Therefore, 
it would have negative consequences on employment and competition in the aviation sector.  

Finland also maintains that the taxation of aviation fuel would reduce the number of aviation fuel 
dispensing  points  with  the  result  that  supplies  of  such  fuel  would  be  hard  to  find  thereby 
increasing safety risks associated with the use of vehicle fuel in aircraft as an alternative. 

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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  5  December  2006  (Finland),  on  13  November  2006  (Denmark)  and  on  14 
December 2006 (Ireland) 

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Furthermore, Finland points to the insignificant revenue gain and the small benefit in terms of 
reduced carbon emission associated with the introduction of the general tax treatment due to 
the reduced amount of fuel consumed by recreational aviation in that country.  

According  to  Finland,  the  low  tax  revenue  on  the  one  hand  and  the  sizeable  administrative 
costs on the other, mean that the cost effectiveness of the measure will be very poor. Registers 
of  aircraft  do  not  allow  differentiation  between  recreational  and  commercial  use  of  aircraft 
and therefore, the measure would lead to high administrative burdens resulting from the need 
to implement a complex system of control consequent upon the shift to standard tax treatment.  

Finland also would like to apply a reduced rate of taxation (7.06 cent per litre) to gas 

(b) 
oil used as fuel for private pleasure navigation. 

The  objective  of  the  request  is  to  preserve  the  operating  conditions  for  both  services  and 
industry  associated  with  boating  at  their  current  level  and  to  ensure  the  preservation  of  the 
conditions  for  pleasure  boating.  Finland  further  claims  that  refusal  of  the  request  will  have 
disproportionate  negative  effects  on  both  the  boating  sector  and  many  small  businesses 
associated with it 

In addition, Finland maintains that there are minimal benefits to be gained from applying the 
standard tax treatment in comparison to the costs and other consequences associated with the 
expiry  of  the  derogation.  It  also  emphasises  the  cost  ineffectiveness  of  the  tax  measure. 
Finland further points to the insignificant revenue gain and small benefit in terms of emissions 
saved  associated  with  the  introduction  of  the  general  tax  treatment  and  to  the  fact  that  the 
general  situation  regarding  emissions  has  improved  significantly  in  Finland  since  2004 
following the introduction of national legislation on the quality of certain fuels.  

Furthermore,  Finland  highlights  the  compliance  costs  for  fuel  suppliers  as  well  as  the 
administrative  costs  and  enforcement  difficulties  for  the  administration  associated  with  the 
end of the derogation. Moreover, according to Finland, the expiry of the derogation will raise 
safety issues by reducing the number of refuelling stations along the coast.  

Finland also maintains that the derogation pursues regional policy objectives, in particular in 
sparsely  populated  regions  with  declining  business  structures  which  are  difficult  to  reach. 
Finland  aims  to  keep  the  entire  country  inhabited  and,  therefore,  a  significant  amount  of 
national and  EU funds have been spent on the development  of remote  areas. In the view of 
Finland, the expiry of the derogation would run contrary to these goals and the investments 
that have been made.  

Both requests provide for a date of termination by 31 December 2012. 

2.2. 

Denmark's request 

Denmark would like to apply an exemption from excise duties to fuel used for the purpose of 
private  pleasure  flying.  The  purpose  of  the  measure  is  to  avoid  the  administrative  burden 
resulting from the need to implement a complex system of controls related to the shift to the 
standard tax treatment. 

The request does not provide for a date of termination. 

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2.3. 

Ireland's requests 

(a) 
Ireland  would  like  to  apply  a  reduced  rate  of  excise  duty  to  fuel  used  in  private 
pleasure flying (€276.52 per 1,000 litres for aviation gasoline and €16.00 per 1,000 litres for 
jet kerosene) 

Two arguments are cited in support of the request. 

The  first  is  that  the  end  of  the  derogation  would  impose  excessive  compliance  costs  on 
suppliers  of  aviation  fuels.  There  could  also  be  very  significant  one-off  costs  for 
airfields/aerodromes. 

The  second  argument  highlights  the  disproportionate  administrative  costs  for  the  tax 
administration,  which  would  need  to  divert  resources  from  other  activities  to  implement  a 
proper system of control. 

Ireland would also like to apply a reduced rate of taxation (€47.36 per 1,000 litres) to 

(b) 
gas oil used as fuel for private pleasure navigation. 

The arguments presented by Ireland stress the importance of the activity for tourism and the 
negative  effects  of  the  end  of  the  derogation  on  both  the  boating  sector  and  many  small 
businesses associated with it. 

In addition, Ireland points out that the derogation also pursues regional policy objectives and 
its  ending  would  be  inconsistent  with  previous  national  and  Community  policies.  It  would 
also  restrict  Ireland’s  ability  to  implement  its  regional  policy  which  could  be  seen  as  the 
Commission  interfering  in  what  is  essentially  a  domestic  matter.  The  sector  has  had  much 
investment both from private and public funds, including European funding. 

Furthermore,  Ireland  again  highlights  the  compliance  costs  for  the  industry  and  marinas  as 
well as the administrative costs and enforcement difficulties for the administration associated 
with the end of the derogation. 

The requests do not provide for a date of termination. 

3. 

BACKGROUND TO THE REQUESTS 

Fuel used for the purposes of private pleasure flying and for the purposes of private pleasure 
navigation has been taxable in the Community since 19933, unless a particular derogation was 
available to some Member State. 

With the aim of making Community transport, environment and fiscal policy more coherent, 
the Commission had already proposed to abolish these derogations for the first time in 19964. 
Subsequently, a gradual phasing-out of these derogations was initiated by the Commission in 
2000  when  it  stated  that  the  derogations  should  end  with  the  entry  into  force  of  the  Energy 

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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  later  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 (1996) 549 of 14 November 1996. 

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Taxation  Directive  or,  in  any  case,  on  31  December  2002  at  the  latest5.  In  the  end,  the 
derogations  were  extended  until  31  December  2006  and  were  later  incorporated  into  the 
Energy Taxation Directive (Article 18 and Annex II) with the view to facilitating their smooth 
phasing-out. 

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 June 2006 
Communication")6  the  Commission  stated  that  the  favourable  tax  treatment  of  fuel  used  for 
the  activities  in  question,  compared  to  fuel  used  for  comparable  (transport  or  leisure) 
activities, should not be renewed. The Commission at the same time invited Member States, 
in cases where they considered that for specific policy considerations a further derogation was 
still  necessary,  to  submit  a  request  in  accordance  with  Article  19  of  the  Directive,  duly 
justifying the policy needs. 

4. 

EVALUATION BY THE COMMISSION 

In the broader framework of review of derogation expiring in the Energy Taxation Directive 
the  Commission  recently  had  the  occasion  to  examine  similar  requests  for  derogation 
submitted  by  some  other  Member  States.  On  30  November  2006,  the  Commission  adopted 
two  communications7  in  which  it  explained  the  reasons  why,  on  the  basis  of  the  analysis 
carried out, it could not respond positively to those requests. 

The  Commission  considers  that  Finland,  Denmark  and  Ireland  have  for  the  most  part 
presented  the  same  arguments  as  those  that  have  been  addressed  in  detail  in  the  two 
Communications  adopted  on  30  November  2006.  The  reasons  set  out 
these 
Communications are summarised below and, where necessary, completed by points relating to 
more specific arguments raised by the applicant Member States. 

in 

The Commission cannot accept the arguments put forward and based on consequences which 
are  merely  inherent  in  the  switch  from  the  derogation  to  standard  taxation,  such  as 
administrative  burdens,  compliance  and  enforcement  difficulties  or  costs  as  well  as  safety 
issues.8  Indeed,  the  Council  has  deliberately  chosen  to  subject  private  pleasure  flying  and 
private  pleasure  navigation  to  standard  taxation,  and  to  grant  derogations  only  in  order  to 
overcome initial difficulties. Therefore, such arguments cannot be viewed as corresponding to 
specific  policy  considerations  for  the  purposes  of  Article  19  of  the  Energy  Tax  Directive. 
Moreover,  the  interests  and  policies  referred  to  in  this  provision,  relating  to  the  internal 
market, fair competition, environment, energy and transport aspects clearly plead against the 
granting of the derogations requested.9  

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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. 
COM(2006)  743  of  30  November  2006  Communication  from  the  Commission  to  the  Council  in 
accordance  with  Article  19(1)  of  Council  Directive  2003/96/EC  (operation  of  private  pleasure  craft) 
and  COM(2006)  742  of  30  November  2006  Communication  from  the  Commission  to  the  Council  in 
accordance with Article 19(1) of Council Directive 2003/96/EC(private pleasure flying) 
Safety issues are in any event dealt with in corresponding legislation. They are unrelated to the rules of 
the Energy Tax Directive. 
For details, cf. documents COM(2006)742 and COM(2006)743, pp. 5 and 6 respectively. 

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As  regards  the  aspect  of  "competition"  raised  by  Finland  with  regard  to  private  pleasure 
navigation, this reflects if anything a distortion which has existed in the past and which should 
not be perpetuated. 10. 

Finland's  arguments  concerning  knowledge  and  ability  relevant  for  air  navigation  and 
willingness to carry out civil missions cannot be accepted either. The relating needs are very 
specific  and  may  be  satisfied  by  targeted  measures,  better  fitted  in  nature  and  in  scope, 
without the community interests mentioned above being affected by an anomalous exemption 
from  harmonised  taxes.  This  equally  applies  to  the  argument  made  by  Finland  concerning 
sparsely populated regions with declining business structures which are difficult to reach.11 

Again under the regional aspect, the Commission would like to point out that the derogations 
granted  in  the  past  to  Finland  and  Ireland  have  never  been  formally  considered  as  an 
instrument of Community regional policy. In addition, the support provided by the European 
Funds was neither targeted, specifically, to the operation of private pleasure craft, nor was it 
based on the premise that Finland and Ireland could continue to derogate from the Energy Tax 
Directive. 

Finland and Ireland finally also raise a more general proportionality argument, claiming that 
emissions caused by pleasure-flying and private pleasure navigation within the total emitted 
by  the  transport  sector  as  a  whole  are  low  and/or  that  the  switch  to  standard  taxation  is 
ineffective from a revenue point of view. These arguments erroneously take the exemption as 
a starting point and not the deliberate choice of the legislator, to subject the activities in point 
to  standard  taxation.  In  this  perspective,  proportionality  does  not  require  unequal  treatment 
with  comparable  transport  or  leisure  activities,  nor  can  particular  importance  be  attached  to 
the  fact  that  implementing  costs  may  be  different  from  those  in  other  fields  of  excise  duty, 
since differences of the kind are in the nature of tax administration. None of these arguments 
translate specific policy considerations for the purposes of Article 19 of the Directive.12. 

5. 

CONCLUSION 

All  in  all,  the  Commission  considers  that  Finland,  Denmark  and  Ireland  have  not  presented 
any  specific  policy  considerations  that  would  justify  the  need  to  derogate  further  from  the 
legislation  enacted  in  the  EU  by  unanimity  already  on  two  occasions  and  that  would 
furthermore  justify  the  existence  of  a  fiscal  measure  that  clearly  contradicts  several 
Community policies. The arguments put forward by the Member States concerned represent 
the consequences of the existence of the derogation itself over a long period of time. 

Member  States  have  by  now  had  sufficient  time  to  adjust  to  the  new  situation  taking  into 
account the fact that this and similar derogations have been discussed in the Community since 
at least 1996, and that the Commission has repeatedly insisted on the necessity to phase out 
the derogation. 

Should  the  expiry  of  the  derogation  cause  difficulties  in  very  specific  or  particular 
circumstances and provided that they respect Community law in all respects, whether related 

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Cf. COM(2006)742, p. 6. 
Cf. COM(2006)742, p. 6. 
Cf. COM(2006)742, p. 6; COM(2006)743, pp. 6 and 7. 

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to energy taxation or otherwise13, 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. 
On this basis, the Commission does not propose the authorisations requested. 

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Including the Treaty rules on State aid in particular. 

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