Opinion of the European Economic and Social Committee on the Proposal for a Council Directive amending Directive 2003/96/EC as regards the adjustment of special tax arrangements for gas oil used as motor fuel for commercial purposes and the coordination of taxation of unleaded petrol and gas oil used as motor fuel COM(2007) 52 final — 2007/0023 (CNS)
Date: 2007-10-24
Institutions: European Economic and Social Committee
Subjects: diesel fuel, fuel tax, lead-free petrol, motor fuel, tax system

16.2.2008

EN

Official Journal of the European Union

C 44/115

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Directive
amending Directive 2003/96/EC as regards the adjustment of special tax arrangements for gas oil
used as motor fuel for commercial purposes and the coordination of taxation of unleaded petrol
and gas oil used as motor fuel’

COM(2007) 52 final — 2007/0023 (CNS)

(2008/C 44/25)

On 19 April 2007 the Council of the European Union decided to consult the European Economic and
Social Committee, under Article 93 of the Treaty establishing the European Community, on the abovemen-
tioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible
for preparing the Committee's work on the subject, adopted its opinion on 8 October 2007. The rapporteur
was Mr Burani.

At its 439th plenary session, on 24 October 2007, the European Economic and Social Committee adopted
the following opinion by 151 votes to none with four abstentions.

1. Gist of the proposal for a directive

the reduced rate and the road user charges is broadly equivalent
to — but not below — the national level in force on 1 January
2003.

This proposal amends Directive 2003/96/EC (1)
1.1
(the
ETD) on tax arrangements for gas oil used as motor fuel, applic-
able in all countries of the European Union. In practice, it intro-
duces a gradual increase in minimum excise duties for gas
oil in order to align them (the term used in the directive is
‘coordination’) with taxation on petrol: EUR 380 per 1 000
litres for both types of fuel as from 1 January 2014. The dead-
line has been extended for Member States not benefiting from
transition periods.

1.4
Another option for allowing a lower tax on commercial
gas oil is to apply separate levels of taxation for commercial
gas oil by introducing (or retaining) a non-discriminatory
refund mechanism that enables all operators who have used
gas oil in that Member State to have access to refunding under
conditions which are equal, transparent and simple.

A number of distinctions, derogations and temporal and
1.2
regulatory adjustments have been made within this general
framework. A first distinction is made between ‘commercial
gas oil’ (used by trucks of over 7,5 tonnes and coaches) (2) and
‘non-commercial gas oil’
in the absence of further
(which,
details, may be presumed to refer to gas oil used for all other
types of vehicle). Member States are authorised to apply a
lower tax rate for commercial gas oil, provided that they
comply with the minimum Community levels set out in the
directive, and that the excise duty is not below the national level
in force on 1 January 2003. Under no circumstance may the
tax on non-commercial gas oil and petrol be lower than
the tax on commercial gas oil.

1.3
Taxation for commercial gas oil may however be below
the national level in force on 1 January 2003, provided that the
Member State wishing to apply this measure introduces, or has
already introduced, a system of road user charges. Neverthe-
less, this is only permitted in cases where the combination of

(1) Council Directive of 27 October 2003 on restructuring the Com-
munity framework for the taxation of energy products and electricity,
referred to as the Energy Tax Directive (ETD).

(2) A more precise and detailed definition can be found in Article 7(3) of

the ETD.

The harmonisation ‘roadmap’ for the taxation of petrol

1.5
and gas oil provides for:

— in the case of petrol, a tax of EUR 359 per 1 000 litres
from 1 January 2004, and of EUR 380 from 1 January
2014;

— in the case of gas oil, a graduated increase in tax: EUR 302
from 1 January 2004, EUR 330 from 1 January 2010,
EUR 359 from 1 January 2012 and finally EUR 380 from
1 January 2014.

However, there are several derogations. These can be

1.6
summed up as follows:

— the transition period ends in 2016 for countries already
benefiting from derogations up to 2012 (SP, AT, BE, LU, PT,
EL, PL); they may apply duties of:

— EUR 302 until 1 January 2007, to reach EUR 330 by 1
January 2012, EUR 359 by 1 January 2014, and the
uniform level of EUR 380 by 1 January 2016;

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— the transition period ends in 2017 for countries enjoying
derogations up to 2013 (LV and LT), with other arrange-
ments for BG and RO.

2. General comments

2.1
One of the aims of the proposal is to reduce the distor-
tions of competition on the market resulting from differences in
the pump price of fuel, and commercial gas oil in particular, in
the Member States. These differences are often considerable. On
18 May 2007, a litre of gas oil cost EUR 0,82 in Latvia;
EUR 1,41 in the United Kingdom; EUR 1,12 in Germany;
EUR 0,90 in Luxembourg; EUR 1,18 in Italy; and EUR 0,98 in
Austria. Seen from the perspective of tax harmonisation, the
Commission's proposal would therefore appear to be justified.

The precise reason for the Commission's decision to
2.2
present
the proposal cannot be fully appreciated without
comparing the proposal with the directive it seeks to amend, i.
e. Directive 2003/96/EC of 27 October 2003 (Energy Tax Direc-
tive or ETD). Emphasis is placed on commercial gas oil (3)
because it is believed to impact on the cost of haulage. The
Commission therefore considers non-commercial gas oil and
petrol to be less important even though distortions at borders
are sometimes quite significant.

2.4
In this context, the EESC notes that alongside excise
duties, all Member States have several other taxes and duties,
which raise the total tax rate to 85 % — and above, in some
cases — of the pump price. Excise duty represents between 30
and 60 % of the price of fuel. The difference can be attributed
to VAT and other duties (usually local) which the Commission
cannot influence. Ultimately, even after the harmonisation to be
achieved in 2016, a number of non-harmonised duties will
remain. Furthermore, the industrial price of gas oil is lower than
the industrial price of petrol. As a result, unless speculation
enters the equation — something that bears monitoring — the
pump prices of petrol and gas oil will continue to vary, and
remain, albeit
the differences between countries will
(possibly) to a lesser extent than at present. Neither the ETD
nor the present proposal will contribute appreciably towards
creating a level playing field for competition.

2.5
As a result, the proposal's scope with regard to competi-
tion is fairly limited, always bearing in mind that the Commis-
sion has no authority to impact on other fuel-price components.
Nevertheless, even in this light, the proposal seems incomplete.
It would be appropriate to consider adopting a maximum
excise rate as well. This measure would make it possible over
time to discourage the shifting of consumption from one
country to another. The EESC has supported this approach in
the past, and more recently in its opinion on the approximation
of the rates of excise duty on alcohol (4) — a subject whose
treatment bears a number of similarities to the present proposal.

2.2.1
The action taken with regard to commercial gas oil is
in line with the transport policy white paper, but, according to
the Commission, will also contribute indirectly to reducing the
differences between non-commercial gas oil and petrol, by
aligning the minimum levels of taxation.

Basing itself on the studies available to it, the Commis-
2.5.1
sion has discarded this solution on the grounds that imposing a
ceiling would indeed limit the Member States' fiscal sovereignty.
The EESC would argue that, applying that reasoning, even the
obligation to impose minimum levels could be viewed as a
violation of sovereignty.

2.3
The ETD permits Member States to decouple the prices
of commercial and non-commercial gas oil by means of a
refund mechanism. This has undoubted advantages for road
hauliers from countries with high levels of taxation, but is a
cumbersome procedure from an administrative point of view
and expensive both for the tax authorities and for firms. More-
over,
the procedures involved in accessing this facility have
caused more problems than they have solved. Existing provi-
sions regarding road user charges (retained in the proposal) are
supplemented by an additional requirement according to which
the national level of taxation in force for gas oil on 1 January
2003 has to be at least twice as high as the minimum level
of taxation applicable on 1 January 2004. In practice, very few
countries (including the United Kingdom) meet this require-
ment. The only possible solution for other countries was (and
remains) to increase the rate applied to non-commercial gas
oil. This option is obviously unpopular. Ultimately, the differ-
ences have not been reduced and high-taxing countries have
had no way of reducing differences vis-à-vis other countries. The
current proposal simplifies this process, and makes it accessible
to a greater number of Member States. However, the concept
remains essentially unchanged.

i.e. buying fuel

Despite these limitations,

2.6
the Commission's proposal
represents a step towards harmonisation, if viewed purely in
terms of taxation and creating a level playing field for
competition. From this angle,
the Commission is merely
fulfilling a requirement of the Lisbon strategy. As a side effect,
an increase in gas oil excise duties could assist in combating the
well-known practice of ‘fuel tourism’,
in the
countries with the lowest prices. The most common example is
Luxembourg but it is common practice in all border areas with
significant price differentials. Nevertheless, Luxembourg remains
the most obvious example since its annual gas oil consumption
in 2004 amounted to 4 500 litres per capita, compared with
750 in neighbouring Belgium (5). The EESC certainly agrees that
the reasoning behind these considerations is sound, but would
point out
the comparison of per capita consumption
figures is based on a significant difference in the number of
inhabitants: 10,5 million in Belgium and 460 thousand in
Luxembourg.

that

(3) The term ‘commercial gas oil’ refers to gas oil used for road haulage,

and in particular to trucks of over 7,5 tonnes.

on alcohol’.

(5) Source: Eurostat, IEA.

(4) OJ C 175, 27.7.2007 on the ‘Approximation of the rates of excise duty

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2.7
Basing itself on this fact, and backed by research, the
Commission argues that many hauliers make detours in order
to fill up at the cheaper service stations. The additional
distance driven (millions of kilometres!) produces an increase in
fuel consumption and a corresponding increase in pollution.
Eliminating incentives to resort to ‘fuel tourism’ would elimi-
nate detours and result in a corresponding reduction in pollu-
tion. This is an appealing and undoubtedly popular theory, but
it is not entirely in line with reality, at least in the case of the
example cited. A mere glance at a map will reveal that Luxem-
bourg is an unavoidable transit country for a substantial propor-
tion of North-South and East-West traffic (in northern Europe).
Those who might intend to make a detour in order to fill up
more cheaply must bear in mind that in addition to the time
wasted, the fuel used and any toll charges they may have to pay
over
they will have to face hours
queuing at the service station (6) and heavy traffic, especially
at certain times of the day. Nevertheless, scenarios similar to the
ones envisaged by the Commission may exist, especially in
Member States on the EU's borders.

the additional distance,

2.8
Generally speaking, the reduction in ‘fuel tourism’ seems
to have been over-estimated. Time is of key importance when
calculating transport costs. Economies on fuel costs must be
weighed against higher wage costs and late deliveries. A forty-
five minute delay vis-à-vis forecast arrival time often means
missing the scheduled loading or unloading date, and hence
adding an overnight stay. Although fuel tourism by trucks in
transit on pre-established routes is a significant factor, the EESC
believes that detours justified by savings on the price of filling
up, have been somewhat over-estimated, at least in the case of
trucks. Different conclusions might emerge from an analysis of
all traffic resulting from fuel tourism. However, this would raise
other considerations, as will be demonstrated below.

2.8.1
The EESC would like to draw the decision makers'
attention to the fact that the possible overall reduction in
pollution caused by the decreased incentives to fuel tourism
may have been significantly over-estimated.

‘two thirds of

quoted by the Commission,
the variations
observed between 1997 and 2001 can be attributed to three
factors: tax differences on gas oil, differences in corporate tax
and the evolution of salaries between two given countries. Tax
differences for gas oil appear to be the main factor explaining
by itself 40 % of the market share variations observed’ (7).

3.2.1 While the data and the econometric studies consulted
by the Commission are not in question, it should nevertheless
be noted that the considerable cost divergence between the
various countries (and particularly with the newest Member
States) means that the relative impact of fuel costs as a factor
in those differences is shrinking. Essentially the accession of the
new countries may have increased the variations, but the relative
value of the ‘fuel’ factor has fallen. In such circumstances, the
directive's ability to create more uniform conditions for compe-
tition would fail to meet expectations. The Commission does
not share this view, believing that fuel costs have come to play
an important role in competition distortion between old and
new Member States. The EESC notes that,
if this is the case,
serious thought is needed regarding the wisdom of increasing
the costs for growing economies.

3.2.2
Even if it were possible to attain a levelling out of fuel
costs, which is not the case owing to additional duties that
differ from one country to another (see point 2.4), non-fuel
haulage costs are many and substantial and none of them could
be harmonised, in the near future at least. In addition to the
three elements mentioned in the French study, there is the cost
of vehicles (with differences of up to 20 %), road taxes, insur-
ance, the price of buildings and equipment, and others. In view
of all these differences, the contribution that harmonising excise
duties on gas oil can make to reducing disparities in competi-
tion becomes somewhat modest.

3. Comments on the proposal's relevance

The EESC can only welcome the proposal to harmonise
3.1
excise duties,
if it is viewed as a fiscal measure designed to
establish a level playing field for competition; it falls within the
Commission's remit and is consistent with the Lisbon strategy.
The Committee must, however, express reservations on various
related issues, some of which cast considerable doubt on the
wisdom of adopting the proposed measures.

3.2
The Commission states that the differences in gas oil
prices applied by different EU countries create distortions of
competition on haulage markets, pointing out that fuel repre-
sents on average between 20 and 30 % of the running costs of
a business. According to a French Transport Ministry study

3.2.3
The proposal's explanatory memorandum does not
mention the impact that an increase in fuel costs would have on
public and private passenger transport businesses and on
tourism in general. The econometric research quoted in the
accompanying document
(SEC(2007)170/2, pp. 24 and 26)
would suggest that while commercial transport may not feel the
increase in fuel costs in quantitative terms, private transport
would reduce slightly in volume (less than 1 % over 23 years),
with a corresponding reduction in pollution. The Commission
has carried out serious econometric studies which estimate that
fuel costs would increase by 0,10 % to 1,1 % over time, and
that this would be absorbed by the inflation rate. This is a
soothing theory, but does not take into account the difference
between the real and perceived inflation rate. Moreover, a
well-known multiplier effect on the market means that increases
slight, will cause disproportionate price
in costs, however
increases. Fuel prices are at the base of the price pyramid. An

(6) There are only four service stations on Luxembourg's motorways, two

for each direction.

(7) Proposal for a Directive, ‘General context’, page 3.

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increase in oil taxes will affect the prices of all commodities and
services resulting in higher community inflation rates, as well as
in a decrease of mobility, loss of jobs and decrease in turnover.

to decrease (the subject of detours from set routes has already
been discussed when considering fuel tourism.

3.2.3.1 With respect to taxation, the Commission notes that
energy taxation in general (and excise duties in the specific
case of fuels) has fallen due to inflation since the turn of the
century, both as a percentage of GDP and compared with total
tax revenue. The proposal to increase excise duties would there-
fore simply amount to an adjustment of tax revenue to take
into account the presumed rate of inflation (at a rate of 2,2 %)
from now until 2017. This makes perfect sense from a tax
point of view, but for road hauliers and the general public it
would represent an increase in fuel costs additional to the
overall cost of inflation.

3.2.4
The refund mechanism, which according to the
Commission is not intended to benefit hauliers as such, but
rather to create a level playing field for competition, is a solu-
tion that some Member States have already adopted, but, as
previously stated, it is cumbersome for firms as well as for the
tax authorities themselves. Even setting aside its earlier criti-
the EESC wonders whether the proposed solution is
cisms,
consistent with the simplification of administrative procedures
cited by the Council as a factor for growth.

3.2.5
Further doubts are raised by the measure underpinning
the refund mechanism, whereby taxation may be below the
specified level (see point 2.3) if the Member State introduces, or
has already introduced, road user charges for heavy vehicles
(or in more explicit terms: tolls or tax discs). Both approaches
would result in a clear loss for the tax authorities: tolls and
tax discs are to the advantage of motorway operators or other
government budget headings. In short, the moderating effect
would not benefit the hauliers (tolls will balance out the
lower increases in taxation) or the tax authorities. Worse still,
the introduction of or increase in tolls would affect all other
road users unless separate levels of taxation or special tax discs
were introduced, which would create administrative complica-
tions that would be even more of a burden on transit vehicles
from other Member States.

3.2.6
Extremely complicated procedures to administrate taxes
are generating corruption and fraud. They are breaking the basic
principle of the market economy imposing two prices for the
same product.

fuels

to conventional

3.4
Precisely because we are referring to the future, one
important aspect to bear in mind is the growing introduction of
alternative fuels, which are being generally promoted as viable
alternatives
from an environmental
perspective and as a means of reducing Europe's dependence on
external energy sources. An increase in conventional fuel prices
might encourage research into and the production of alter-
native fuels, but only if the uniform fiscal policy to be
adopted is already known. The various countries do not
currently take a uniform approach, although there is a general
consensus on the need to encourage this type of production. In
the Commission and governments should go
other words,
beyond general words of encouragement and make it clear
whether they intend to adopt uniform fiscal and non-fiscal
policies on biofuels and whether they would then treat them as
useful ‘competitors’ with traditional fuels, or whether alternative
fuels will be treated in the same way as other fuels and taxed in
the same way. The automotive industry and the market should
not be left with uncertainty.

3.4.1
Liquid gas, nowadays used mainly for private vehicles
and public transport, but which in future could be used
commercially following technological innovations, is yet another
matter. These fuels enjoy a favourable tax regime in certain
countries. At present, their consumption is marginal. However,
as in the case of biofuels, the market may develop and, at any
event, cannot be left in the dark. Electric traction is even more
its use seems unlikely to expand beyond
marginal: even if
certain strict limits, it would still be advisable for the Commis-
sion to analyse what fiscal policy to adopt for all alternative
fuels.

3.5
Finally, the picture would not be complete if it did not
include globalisation. Irrespective of considerations relating to
internal competition, the European Union should focus more
attention on its competitiveness vis-à-vis the most industria-
lised and emerging countries. As previously stated,
the
average pump price of fuel in the EU is much higher than in
most other countries. A measure designed to reduce — with
uncertain consequences — internal competition, but which
would result in an overall increase in costs, would defeat the
more important objective of improving our already precarious
competitive position.

3.3
The EESC wishes to make a more general point of some
importance. The proposed measures are to be phased in over a
seven-year period, and in some Member States, over a ten-year
period. There is no sign of improvement in the international
situation regarding the price, quantity and supply of crude oil.
Under these circumstances, a programmed increase in fuel costs
seems ill-advised and could have a negative impact on trans-
port costs within the European Union. Nor would it bring
real benefits in terms of the fight against pollution given that,
according to the Commission itself, fuel consumption is not set

in the
The increase in the taxation level of gas oil
3.5.1
future period has its positive and negative sides and effects. But
if we look at the balance, negative effects definitely prevail. The
increase in the levels of taxes on gas oil will result in losing
competitiveness and jobs. In the long-run the draft proposal
will reduce and threaten EU economic potential and will pose
an obstacle to the achievement of cohesion — one of the main
objectives of the EU — because of the decreased mobility of
people.

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4. Conclusions

4.1
The draft directive is in line with EU policies on equal
conditions for competition, and as such cannot be opposed.
It should be borne in mind however that this solution does
not deliver fundamental value, inasmuch as the difference in
haulage companies' costs in the various countries will remain
substantial owing to differences in other charges over which the
Commission has no power.

4.2
The Commission focuses closely on the fight against
pollution as a collateral but important effect of reducing the
‘fuel tourism’ phenomenon. The EESC considers that this effect
has been largely over-estimated. While on the one hand demand
for fuels will remain unchanged, even now detours from normal
routes to take advantage of reduced prices are not a critical
factor.

As a consequence ‘fuel

tourism’ will expand and
4.2.1
spread, turning from an internal problem of the EU (Germany,
France and Belgium)
into an external problem (for Austria,
Hungary, Slovenia, Estonia, Lithuania, Poland, Romania, Bulgaria
and Greece).

4.3
The tax revenue benefits for Member States, meanwhile,
would be considerable. For the 2007-2030 period, the Commis-
sion has estimated them at EUR 35,6 billion for the 25-member
EU. This is a significant
figure, which will strengthen and
expand the redistributive role of the administration and explains
the positive reaction of the tax authorities in many Member
States. However, it also offers self-evident proof of the burden of
costs that would fall on companies and consumers in contradic-
tion with the EU policy for red-tape reduction.

4.4
In conclusion, the proposal for a directive seems justi-
fied — subject to a number of reservations expressed by
the EESC — in terms of tax harmonisation, competition
principles and reducing pollution. However, the EESC believes
that the legislators' final decision should be taken only

Brussels, 24 October 2007.

once proper consideration has been given to the knock-on
effects and consequences for various EU policies, in appli-
cation of the principle of proportionality. More specifically,
the following points should be carefully considered:

— the generalised increase in costs (especially in the case of the
most recent Member States), and the need to curb inflation;

— the consequences for industrial policies of levelling out the
prices of gas oil and petrol, and the possible shift of
consumer preference from gas oil vehicles to petrol vehicles
or vice versa;

— uniform fiscal policies for all road transport fuels or poten-

tial fuels;

— conditions

in peripheral

regions, where incoming and
outgoing haulage costs constitute a significant barrier to
growth and employment. The competitive position of some
of these regions vis-à-vis non-EU border countries should be
studied;

— the impact of increased costs on the external competitive-
ness of the EU vis-à-vis competitors such as the USA in par-
ticular where fuel costs and taxes on companies are consid-
erably lower;

— the consequences in terms of employment: while there are
currently complaints that haulage companies in certain
countries suffer from competition with others, the adoption
of the directive — if it has the decisive effect predicted by
the Commission, which the EESC doubts — could have the
opposite effect in the future;

— the effects on the overall productivity and efficiency of
the road transport sector, which in the EESC's view may
be neutral at best;

— the compatibility of the non-discriminatory refund system

with administrative simplification policies.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS