Proposal for a Council Decision authorising France to apply a reduced rate of taxation to unleaded petrol used as motor fuel and consumed in the Corsican departments in accordance with Article 19 of Directive 2003/96/EC
Date: 2007-07-24
Institutions: European Commission
Subjects: Corsica, France, assessment of prices, energy-generating product, lead-free petrol, tariff reduction, tax system

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.7.2007 
COM(2007) 442 final 

Proposal for a 

COUNCIL DECISION 

authorising France to apply a reduced rate of taxation to unleaded petrol used as motor 
fuel and consumed in the Corsican departments  
in accordance with Article 19 of Directive 2003/96/EC 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. CONTEXT OF THE PROPOSAL 

•  Reasons for and objectives of the proposal 

The  taxation  of  energy  products  and  electricity  in  the  Community  is  governed  by  Council 
Directive 2003/96/EC1. The Directive specifies which products are taxable, the uses that make 
them taxable and the minimum rates at which they must be taxed depending on whether they 
are used as motor fuel, for certain industrial or commercial purposes or for heating. 

Pursuant to Article 19(1) of Council Directive 2003/96/EC, the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to  introduce  further 
exemptions from or reductions in the rate of excise duties for specific policy considerations. 

The objective of this proposal is to permit France to apply a reduction in the rate of taxation 
on unleaded petrol used as motor fuel and consumed in the Corsican departments with a view 
to partially offsetting the additional costs induced by geographical remoteness and difficulties 
of supply.  

•  Background 

By  letter  dated  16  October  2006,  the  French  authorities  requested  authorisation  to  apply  a 
reduced rate of energy tax to unleaded petrol used as fuel by way of extension of a practice 
followed under the derogation provided for in Article 18(1) of Directive 2003/96/EC, read in 
conjunction with the third indent of point 6 of Annex II to that Directive, and this before the 
Directive expired. The above provision authorised France to apply until 31 December 2006 a 
reduced rate of taxation in respect of consumption in Corsica, provided that the reduced rates 
at  all  times  respect  the  minimum  rates  of  duty  on  energy  products  as  provided  for  under 
Community law. The authorisation requested is for EUR 1 per hectolitre for the period from 1 
January 2007 to 31 December 2012. The French authorities sent additional information on 13 
February and 3 May 2007. 

In  justification  of  its  request  for  authorisation  under  Article  19  of  Council  Directive 
2003/96/EC,  France  points  to  Corsica’s  island  status.  This  feature  gives  rise  to  additional 
costs for delivering and storing motor fuels on the island - a handicap which the tax reduction 
requested is designed to partially offset. 

Corsica  is  mountainous:  only  10%  of  the  island  has  a  gradient  of  less  than  12%  and,  away 
from  the  eastern  plain,  flat  terrain  is  almost  non-existent.  Internal  communications  are 
especially  difficult  as  hardly  any  of  the  valleys  interconnect.  Corsica  is  therefore 
compartmentalised, being divided into numerous micro-regions. 

As  a  result,  whereas  it  costs  EUR  8,05  per  hectolitre  to  transport  and  distribute  95  octane 
unleaded  petrol  in  mainland  France,  it  costs  EUR  17,34  in  Corsica.  Transporting  petroleum 

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OJ L 238, 31.10.2003, p. 51. 

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products  by  sea  and  storing  them  on  the  island  results  in  a  marked  increase  in  the  cost  of 
motor  fuel  production.  The  island’s  two  fuel  storage  depots  process  400 000 m3  a  year, 
whereas,  given  their  size,  the  break  even  point  is  around  1  million  cubic  metres  for  each 
depot. Despite that, both depots are necessary in view of the island’s geography and the need 
to  store  fuel  in  order  to  avoid  any  interruption  in  supply.  The  annual  average  price  of 
unleaded petrol consumed in mainland France in February 2007 thus came to EUR 116,96 per 
hectolitre,  including  tax.  In  Corsica,  to  this  amount  must  be  added  EUR  3-6  per  hectolitre, 
including  tax,  which,  without  the  EUR  1/hl  tax  reduction,  is  tantamount  to  a  difference  of 
EUR 4-7/hl2. 

The  tax  differentiation  thus  helps  to  ensure  territorial  continuity  with  the  mainland  by 
reducing the cost of unleaded petrol by EUR 1/hl, this amount being less than the additional 
cost borne.  

The  annual  budgetary  expenditure  related  to  the  tax  reduction  comes  to  EUR  890 000.  The 
island’s  population,  as  on  1  January  2007,  may  be  estimated  at  279 000,  to  which  must  be 
added a seasonal population, both of which consume in Corsica unleaded petrol qualifying for 
the excise duty reduction. 

•  Provisions in force in the field covered by the proposal 

Council Directive 2003/96/EC of 27 October 2003  restructuring the  Community framework 
for the taxation of energy products and electricity.  

Council Decision 2005/767/EC of 24 October 2005 authorising France to apply differentiated 
levels of taxation to motor fuels in accordance with Article 19 of Directive 2003/96/EC3. The 
regionalisation  of  the  rates  of  domestic  consumption  tax  on  petroleum  products  (TIPP) 
concerns  both  diesel  and  unleaded  petrol  used  as  motor  fuel.  It  forms  part  of  the  policy  of 
decentralisation planned by the French authorities inasmuch as it allows the French regions, 
including Corsica, to adjust up or down the rates of excise duty applicable to motor fuels. This 
decentralisation  is  part  of  an  approach  designed  to  increase  administrative  effectiveness  by 
improving  the  quality  and  reducing  the  cost  of  public  services.  It  is  also  part  of  a  policy  of 
subsidiarity, allowing for decisions to be adopted in many areas at the appropriate level (see 
the second recital to Decision 2005/767/EC) and therefore pursues objectives other than those 
sought by the tax reduction requested. 

•  Coherence with other policies and objectives of the Union  

Pursuant to Article 19(1) of Council Directive 2003/96/EC, the Council, acting unanimously 
on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to  introduce  further 
exemptions  or  reductions  in  excise  duties  for  specific  policy  considerations.  When  the 
Commission examines a request, it takes into account the proper functioning of the internal 
market,  the  need  to  ensure  fair  competition  and  the  implementation  of  the  Community’s 
health, environment, energy and transport policies.  

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The difference in cost outlined above is not passed on fully at the pump, the VAT rate being lower in 
Corsica than on the mainland.  
OJ L 290, 4.11.2005, p. 25. 

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The tax differentiation places unleaded petrol consumers in Corsica on a more equal footing 
with  similar  consumers  on  the  mainland  by  partially  offsetting  the  additional  cost  borne  by 
consumers  in  Corsica.  The  proposed  measure  therefore  meets  certain  regional  and  cohesion 
policy objectives.  

The tax reduction does not go beyond the additional costs of transport and distribution borne 
by  consumers  in  Corsica.  The  EUR  1/hl  reduction  in  the  cost  of  unleaded  petrol  is  much 
smaller  than  both  the  additional  cost  borne  and  the  difference  between  the  respective  final 
prices.  

The reduced rate of taxation on the consumption of unleaded petrol in Corsica (EUR 57,92/hl) 
is still  appreciably  higher than the minimum  Community level set by Directive 2003/96/EC 
(EUR 35,90/hl). This holds true even allowing for the regionalisation of the TIPP authorised 
by  the  Council  Decision  of  24  October  20054.  In  this  context,  the  Corsican  regional 
authorities are authorised to adjust the rate of TIPP as it results from the provisions of Table B 
in Article 265 of the French Customs Code. Such adjustment may not exceed EUR 1,77/hl, 
the maximum the regions are allowed. Thus, by combining the tax reduction requested with 
the maximum reduction possible under the decision taken by Corsica to regionalise the TIPP, 
the reduced rate of taxation on the consumption of unleaded petrol in Corsica would be EUR 
56,15/hl, which would still be appreciably higher than the minimum Community level set by 
Directive 2003/96/EC (EUR 35,90/hl).  

The Commission is therefore of the opinion that the reduction is compatible with the incentive 
effect of the tax with a view to improving energy efficiency.  

Lastly,  the  measure  is  acceptable  from  the  point  of  view  of  the  proper  functioning  of  the 
internal market and of the need to ensure fair competition. It merely seeks to partially offset 
the additional costs associated with Corsica’s island status. In view of the remote and insular 
nature of the departments to which it applies and the moderateness of the reduction in the rate 
- which is, moreover, very high compared with the Community minimum - the measure will 
not give rise to any movement specifically linked to the supplying of fuel.  

Article 19(2) of Directive 2003/96/EC lays down, for this type of measure, a maximum period 
of  six  years,  with  the  possibility  of  renewal.  It  is  appropriate  at  this  stage  to  grant  the 
authorisation for six years, i.e. from 1 January 2007 until 31 December 2012. 

Steps should be taken to ensure that, in the context of the derogation provided for in Article 
18 of the Directive, read in conjunction with Annex II to the Directive, France can apply the 
specific reduction to which this proposal for a Decision relates seamlessly following on from 
the  situation  obtaining  under  the  law  applicable  before  1  January  2007.  The  authorisation 
requested should therefore be granted with effect from 1 January 2007. 

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The reduction which this proposal seeks to authorise would apply automatically without the need for a 
specific decision by the Corsican regional authorities, whereas differentiation in the context of Decision 
2005/767/EC would call for such a decision. 

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2. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties  

The proposal consists in an exemption authorisation which concerns only France. 

•  Obtaining and using expertise 

It has not been necessary to call in outside expertise. 

•  Impact assessment 

Not applicable. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the measures proposed 

The  Commission  proposes  to  authorise  the  tax  reduction  of  EUR  1  per  hectolitre  until  31 
December  2012,  thereby  permitting  France  to  apply  a  reduced  rate  of  taxation  to  unleaded 
petrol used as motor fuel and consumed in the Corsican departments.  

•  Legal basis 

Article 19 of Council Directive 2003/96/EC. 

•  Principle of subsidiarity 

The  field  of  indirect  taxation  covered  by  Article  93  EC  is  not  in  itself  within  the  exclusive 
competence of the Community within the meaning of Article 5 EC. 

However,  the  exercise  by  Member  States  of  their  concurrent  competences  in  this  field  is 
strictly circumscribed and limited by the measures harmonising national laws already adopted 
by the Council.  

As  it  happens,  pursuant  to  Article  19  of  Directive  2003/96/EC,  only  the  Council  is 
empowered to authorise a Member State to introduce further exemptions or reductions within 
the meaning of that provision. Member States cannot substitute themselves for the Council.  

The proposal therefore respects the principle of subsidiarity.  

•  Principle of proportionality 

The proposal respects the principle of proportionality. The EUR 1/hl reduction in the cost of 
unleaded petrol is well below the additional cost borne (EUR 4-7/hl). 

•  Choice of instruments 

Instrument(s) proposed: Council decision. 

Article 19 of Directive 2003/96 makes provision for this type of measure only. 

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4. 

BUDGETARY IMPACT 

The  measure  does  not  impose  any  financial  and  administrative  burden  on  the  Community. 
The proposal therefore has no impact on the Community budget. 

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Proposal for a 

COUNCIL DECISION 

authorising France to apply a reduced rate of taxation to unleaded petrol used as motor 
fuel and consumed in the Corsican departments  
in accordance with Article 19 of Directive 2003/96/EC 

(Only the French text is authentic) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  Council  Directive  2003/96/EC  of  27  October  2003  restructuring  the 
Community framework for the taxation of energy products and electricity5, and in particular 
Article 19(1) thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

5 

Pursuant to Article 18(1) of Directive 2003/96/EC, read in conjunction with Annex II 
to that Directive, France was authorised to apply a reduced rate of taxation in respect 
of consumption in Corsica. The authorisation was granted until 31 December 2006. 

By  letter  dated  16  October  2006,  the  French  authorities  requested  authorisation  to 
apply  a  reduced  rate  of  energy  tax  to  unleaded  petrol  used  as  motor  fuel  by  way  of 
extension  of  a  practice  followed  under  the  above-mentioned  derogation,  and  this 
before  the  derogation  expired.  The  reduction  amounts  to  EUR  1  per  hectolitre.  The 
authorisation is being requested for the period from 1 January 2007 to 31 December 
2012. In Corsica the cost of supplying unleaded petrol to the forecourt is appreciably 
higher  than  in  mainland  France,  final  prices  being  EUR  4-7/hl  higher  than  on  the 
mainland.  

By reducing the tax on unleaded petrol borne by consumers in Corsica, the consumers 
in  question  will  be  placed  on  a  more  equal  footing  with  those  on  the  mainland.  The 
measure therefore meets regional and cohesion policy objectives. 

The  tax  reduction  is  no  larger  than  what  is  necessary  to  allow  for  the  additional 
transport and distribution costs borne by consumers in Corsica.  

OJ L 283, 31.10.2003, p. 51. Directive as last amended by Directive 2004/75/EC (OJ L 157, 30.4.2004, 
p. 100). 

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(5) 

(6) 

(7) 

(8) 

(9) 

The  final  level  of  taxation  complies  with  the  minimum  rates  laid  down  in  Directive 
2003/96/EC  -  currently  EUR  359/1 000  l  (or  EUR  35,90/hl).  This  holds  true  even 
allowing  for  the  authorisation  conferred  by  Council  Decision  2005/767/EC  of  24 
October  20056,  the  effects  of  which  may  be  combined  with  those  of  the  present 
Decision. 

In view of the remote and insular nature of the departments to which it applies and the 
moderateness  of  the  reduction  in  the  rate  -  which  is,  moreover,  very  high  compared 
with  the  Community  minimum  -  the  measure  requested  will  not  give  rise  to  any 
movement specifically linked to the supplying of fuel. 

Consequently,  the  measure  is  acceptable  from  the  point  of  view  of  the  proper 
functioning of the internal market and of the need to ensure fair competition and it is 
not  incompatible  with  the  Community’s  health,  environment,  energy  and  transport 
policies.  

France  should  therefore  be  authorised,  pursuant  to  Article  19(2)  of  Directive 
2003/96/EC, to apply a reduced rate of taxation to unleaded petrol used as motor fuel 
and consumed in Corsica, and this until 31 December 2012. 

It should be ensured that, in the context of the derogation provided for in Article 18 of 
Directive 2003/96/EC, read in conjunction with Annex II to that Directive, France can 
apply  the  specific  reduction  to  which  this  Decision  relates  seamlessly  following  on 
from  the  situation  obtaining  under  the  law  applicable  before  1  January  2007.  The 
authorisation requested should therefore be granted with effect from 1 January 2007,  

HAS ADOPTED THIS DECISION: 

Article 1 

France  is  hereby  authorised  to  apply  a  reduced  rate  of  taxation  to  unleaded  petrol  used  as 
motor fuel and consumed in the Corsican departments.  

In  order  to  avoid  any  over-compensation,  the  reduction  must  not  go  beyond  the  additional 
costs of transport, storage and distribution compared with mainland France. 

The reduced rate must comply with the obligations in Directive 2003/96/EC, in particular the 
minimum rates referred to in Article 7. 

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OJ L 290, 4.11.2005, p. 25. 

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This Decision shall be applicable from 1 January 2007 and shall expire on 31 December 2012. 

Article 2 

Article 3 

This Decision is addressed to the French Republic. 

Done at Brussels,  

For the Council 
The President 

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