Proposal for a Council Decision authorising Italy to apply, in determined geographical areas, reduced rates of taxation on gas oil and LPG used for heating purposes in accordance with Article 19 of Directive 2003/96/EC
Date: 2008-01-22
Institutions: European Commission
Subjects: Italy, derogation from EU law, heating, less-favoured region, motor fuel, tax relief

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 22.1.2008 
COM(2008) 7 final 

Proposal for a 

COUNCIL DECISION 

authorising Italy to apply, in determined geographical areas, reduced rates of taxation 
on gas oil and LPG used for heating purposes in accordance with Article 19 of Directive 
2003/96/EC  

(presented by the Commission) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

1) 

CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

Taxation  of  energy  products  and  electricity  in  the  Community  is  governed  by  Council 
Directive  2003/96/EC1  (hereafter  referred  to  as  the  “Energy  Taxation  Directive”  or  the 
“Directive”). 

Pursuant to Article 19(1) of the Directive, in addition to the provisions foreseen in particular 
in  the  Articles  5,  15  and  17,  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. 

The  objective  of  this  proposal  is  to  allow  Italy  to  apply,  in  determined  geographical  areas, 
reduced rates of taxation to gas oil and LPG used for heating purposes to partially off-set the 
extra heating costs of persons residing in those geographical areas. The high level of heating 
costs  is  either  due  to  very  severe  climate  conditions  or  due  to  severe  climate  condition  or 
insularity  of  such  zones  combined  with  limited  choice  between  fuels,  lack  of  access  to  the 
natural gas network. 

•  General context 

By  letter  dated  17  October  2006,  the  Italian  authorities  requested  authorisation  to  apply,  in 
determined geographical areas, reduced rates of taxation to gas oil and LPG used for heating 
purposes by way of an extension of a practice followed under the derogation provided for in 
Article 18(1) of the Energy Taxation Directive, read in conjunction with the tenth indent of 
point  8  of  Annex  II  of  the  Directive.  This  provision  authorised  Italy  to  apply,  until  31 
December 2006, in certain areas reduced rates of excise duty on domestic fuel and LPG used 
for  heating.  The  request  of  the  Italian  authorities  was  made  before  the  aforementioned 
derogation  expired.  Additional  information  and  clarifications  were  provided  by  the  Italian 
authorities on 5 December 2006, 13 February 2007, 18 April 2007, 7 June 2007, on 27 August 
2007, on 1 October 2007 and on 12 November 2007. 

In  support  of  its  request  for  derogation,  Italy  points  to  the  diversity  of  its  territory  with 
variable climate and geographical conditions. In 1999 Italy raised the general level of excise 
duties  as  part  of  a  reform  of  its  tax  system.  At  the  same  time,  taking  into  account  the 
particularities of its territory, to avoid excessive burden on certain consumers, Italy introduced 
reduced rates of taxation in certain parts of its territory for LPG and gas oil used for heating 
purposes. At present the tax reduction amounts to EUR 129,11 per 1000 litres in the case of 
gas  oil  (driving  the  applicable  tax  rate  down  to  EUR  274,10  per  1000  litres)  and  to  EUR 
159,07 per 1000 kg of LPG (driving the applicable tax rate down to EUR 30,87 per 1000 kg). 
The applicable tax rates are above the minimum levels of taxation prescribed by the Directive. 

1 

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). 

EN 

2 

   EN 

 
                                                 
The tax reduction is applicable in geographical areas fulfilling the following criteria: 

–  Communes falling into zone F as defined in the Presidential decree no. 412 of 1993. This 
decree  divides  the  Italian  territory  into  six  climate  zones  (A  to  F).  The  classification  is 
based on the unit “day degrees” which represents for the conventional heating period the 
sum  of  daily  average  temperatures  differing  from  the  optimal  20  C°.  The  higher  the 
number attributed to a commune, the lower is the average outside temperature during the 
heating period. Communes falling into climate zone F are defined as communes with more 
than 3000 "day degrees ".2 

–  Communes  falling  into  zone  E  as  defined  in  the  Presidential  decree  no.  412  of  1993,  as 
long as the natural gas network has not been made available in the commune concerned. 
Communes falling into climate zones E are defined as communes with 2100 to 3000 "day 
degrees ".  

–  Communes in Sardinia and small islands, as long as the natural gas network has not been 
made available in the commune concerned; this part of the regime covers all Italian islands 
apart from Sicily. 

According to the Italian authorities, the tax differentiation and the choice of the eligible areas 
are based on objective criteria. The intention is to ensure geographical continuity with the rest 
of the Italian territory, i.e. to put  the population of  the  eligible  areas  on  a  more  comparable 
footing with the rest of the Italian population by means of reducing excessively high heating 
costs.  The  amount  of  the  tax  reduction  is  the  same  for  all  situations;  it  is  only  aimed  at 
partially alleviating the additional heating costs of the population of the eligible areas which 
are due to cold climate and/or difficulties with fuel procurement. 

According  to  the  Italian  authorities,  for  climate  zones  E  and  F,  the  tax  reduction  equals  on 
average to 11 – 12 % of the price of gas oil and LPG for heating purposes. These figures have 
to  be  compared  with  the  average  heating  costs:  these  are,  due  to  climate  conditions,  90% 
higher then the national average in climate zone E and 170% higher then the national average 
in climate zone F.  

The specificity of the islands consists in the fact that due to their geographical situation, the 
fuel supply is restricted in scope and results in higher price then on the Italian mainland due to 
additional  transport  costs.  The  Italian  authorities  confirmed  that  the  tax  reduction  does  not 
result in overcompensation and does not drive the prices of LPG and gas oil below the price 
on the mainland. According to the sample figures provided by the Italian authorities, after the 
tax  reduction  the  price  is  still  about  2.5  EUR/hl  to  4.5  EUR/hl  higher  on  the  islands  as 
compared to the mainland for LPG. For gas oil, the price difference is even more significant 
and in some cases, the final price can be almost twice as high on the island as compared to the 
mainland. 

Finally, once the natural gas network is available in the commune concerned (which can be 
expected to happen in communes falling in climate zone E and some islands), this would in 
the  Italian  authorities’  view  reduce  to  an  important  extent  the  extra  costs  incurred  in  these 
areas.  In  particular,  it  would  improve  the  variety  of  options  between  fuels,  available  to 

2 

The  remaining  climate  zones  are  defined  in  terms  of  "day  degrees"  as  follows:  Zone  A  (below  600), 
Zone B (above 600, but not exceeding 900), Zone C (above 900, but not exceeding 1400) and Zone D 
(above 1400, but not exceeding 2100). 

EN 

3 

   EN 

 
                                                 
consumers.  As  a  consequence,  the  Italian  authorities  do  not  foresee  a  tax  reduction  in 
communes  belonging  to  climate  zone  E  or  to  the  islands  concerned  once  the  natural  gas 
network is completed in the commune in question. In communes in climate zone F, situated in 
prevalently mountainous regions, natural gas networks will not develop so as to cover all or 
even  most  of  the  geographical  area  of  the  communes  concerned.  Therefore,  any  such 
development will for many inhabitants fail to improve the variety of available fuels. Therefore 
the eligibility of a commune in climate zone F is not made conditional upon the absence of a 
natural gas network. 

The  measure  corresponds  to  an  annual  budgetary  volume  of  around  EUR  62  million.  The 
eligible  population  amounts  to  4.4  million  inhabitants.  The  tax  reduction  is  granted  in  the 
form  of  a  price  reduction  at  the  moment  of  acquisition  of  the  energy  products  by  the 
beneficiary (beneficiaries are residents of the eligible areas). 

•  Existing provisions in the area of the proposal 

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

•  Consistency with the other policies and objectives of the Union 

Each  request  for  derogation  under  Article  19  of  the  Energy  Taxation  Directive  must  be 
examined  by  the  Commission  taking  into  account  the  proper  functioning  of  the  internal 
market, the need to ensure fair competition and Community health, environment, energy and 
transport policies. 

For  the  geographical  areas  concerned,  the  standard  national  level  of  taxation  applicable  to 
LPG and gas oils used for heating purposes would result in excessively burdensome heating 
costs, compared to the rest of the Italian territory. This is due to severe climate condition or 
insularity of the said areas, combined with a lack of access to the natural gas network as an 
alternative energy source for heating. 

The  reduced  rate  of  taxation  takes  account  of  this  particular  position,  in  that  it  partially 
alleviates  the  additional  heating  costs  incurred  in  the  geographical  areas  in  question,  as 
compared with the rest of the Italian territory. 

According to the Italian authorities, the reduction remains in all cases below those extra costs. 
At  the  same  time  the  remaining  levels  of  taxation  are  still  higher  then  the  Community 
minimum levels set out in the Energy Taxation Directive, both for gas oil and LPG. 

It can be thus considered that the reduction is compatible with the incentive effect of taxation 
for the purpose of energy efficiency and other aspects of the energy policy. The measure has 
not  been  found  incompatible  with  the  relevant  Community  policies  on  the  environment  and 
energy. 

Furthermore, the measure is acceptable from the point of view of the proper functioning of the 
internal market and the need to ensure fair competition. It merely seeks to partially offset the 
additional heating costs associated with the objective conditions of the areas in question. The 
tax reduction is not cumulative with any other sorts of tax reduction and it does not apply to 
other use of the heating materials than heating of rooms. 

EN 

4 

   EN 

 
According to the Italian authorities the amount of the tax advantage for business users is in 
each  particular  case  covered  by  the  Commission  Regulation  (EC)  No  1998/2006  of  15 
December 2006 on the application of Articles 87 and 88 of the EC Treaty to de minimis aid3. 
Nevertheless, in case the benefit to any single undertaking  exceeds  the  ceiling  laid  down  in 
that  regulation,  it  will  be  notified  to  the  Commission  in  accordance  with  Regulation  (EC) 
659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the 
EC4. Article 19(2) of the Energy Tax Directive further provides that measures adopted under 
its  provisions  must  be  limited  in  time,  and  sets  a  maximum  period  of  6  years,  with  a 
possibility of renewal. At the present stage, it appears appropriate to grant the authorisation 
for six years. 

It should be ensured that, Italy can apply the specific reduction to which this proposal refers 
seamlessly following on from the situation obtaining under Article 18 of the Directive, read in 
conjunction  with  Annex  II  of  the  Directive,  before  1  January  2007.  The  authorisation 
requested should therefore be granted with effect from that date. 

2) 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

This proposal concerns only Italy. 

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

This proposal concerns an authorisation for an individual Member State upon its own request. 

3) 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

The  proposal  aims  at  authorising  Italy  to  derogate  from  the  general  provisions  of  Council 
Directive 2003/96/EC and to apply, in certain areas characterised by a high level of heating 
costs, reduced rates of taxation to gas oil and LPG used for heating purposes. 

•  Legal basis 

Article 19 of Council Directive 2003/96/EC. 

•  Subsidiarity principle 

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. 

3 
4 

OJ L 379 of 28.12.2006, p.5. 
OJ L 83 of 27.3.1999, p. 1. 

EN 

5 

   EN 

 
                                                 
However,  the  exercise  by  Member  States  of  their  concurrent  competences  in  this  field  is 
strictly  circumscribed  and  limited  by  existing  Community  law.  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.  

•  Proportionality principle 

The proposal respects the principle of proportionality. The tax reduction does not exceed the 
additional costs borne. 

•  Choice of instruments 

Instrument(s) proposed: Council decision. 

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

4) 

BUDGETARY IMPLICATION 

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

EN 

6 

   EN 

 
Proposal for a 

COUNCIL DECISION 

authorising Italy to apply, in determined geographical areas, reduced rates of taxation 
on gas oil and LPG used for heating purposes in accordance with Article 19 of Directive 
2003/96/EC  

(Only the Italian 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 electricity,5 and in particular 
Article 19(1) thereof, 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Pursuant to Article 18(1) of Directive 2003/96/EC, read in conjunction with Annex II 
to that Directive, Italy was authorised to apply in certain “particularly disadvantaged 
areas”  reduced  rates  of  excise  duty  on  domestic  fuel  and  LPG  used  for  heating.  The 
derogation was applicable until 31 December 2006.  

By letter dated 17 October 2006 the Italian authorities requested authorisation, under 
Article  19  of  Directive  2003/96/EC,  to  apply  within  the  same  geographical  areas 
reduced  rates  of  taxation  on  gas  oil  and  LPG  used  for  heating  purposes.  Italy  would 
like  to  continue,  after  31  December  2006,  its  national  practice  followed  under  the 
above-mentioned  derogation.  The  present  authorisation  is  requested  for  the  period 
from 1 January 2007 to 31 December 2012. 

Italy has a very diversified territory with variable climate and geographical conditions. 
In  1999  Italy  raised  the  general  level  of  excise  duties  as  part  of  a  reform  of  its  tax 
system.  Taking  into  account  the  particularities  of  its  territory,  Italy  at  the  same  time 
introduced reduced rates of taxation for gas oil and LPG with a view to partially offset 
excessively high heating costs borne by residents in certain geographical areas. 

The tax differentiation aims at putting the population of the eligible areas on a more 
comparable  footing  with  the  rest  of  the  Italian  population  by  means  of  reducing 
excessively high heating costs. For the purposes of identifying the eligible areas, Italy 
has based itself on objective criteria, concerning the climatic conditions of the area in 

5 

OJ L 283 of 31.10.2003 p. 51. 

EN 

7 

   EN 

 
                                                 
question as well as access to the natural gas network. The latter criterion mirrors the 
degree of choice as between fuels, open to the population of the area concerned. 

Thus, the tax reduction is  applicable in  geographical  areas (communes) fulfilling the 
following alternative criteria: i) communes falling into climate zone F as defined in the 
Presidential  decree  no.  412  of  19936,  that  is  communes  with  more  than  3000  "day 
degrees",  ii)  communes  falling  into  zone  E  as  defined  in  the  Presidential  decree  no. 
412  of  1993,  that  is  communes  with  2100  to  3000  "day  degrees"7;  iii)  Sardinia  and 
small  islands;  the  latter  regime  covers  all Italian  islands  apart  from  Sicily.  Since  the 
development  of  the  natural  gas  network  would  to  an  important  extent  reduce  the 
additional  heating  costs  and  in  particular  would  improve  the  variety  of  options 
between  fuels,  available  to  consumers,  the  reduction  will  no  longer  apply  in 
communes  belonging  to  the  second  and  third  areas  mentioned  once  the  natural  gas 
network is completed in the commune concerned. 

The  common  feature  of  the  communes  in  question  is  additional  heating  costs  as 
compared to the rest of Italy. For climate zones E and F, the tax reduction equals on 
average  to  11  –  12  %  of  the  price  of  gas  oil  and  LPG  for  heating  purposes.  The 
average  heating  costs  are,  due  to  climate  conditions,  90%  higher  then  the  national 
average in climate zone E and 170% higher then the national average in climate zone 
F. For the islands, the additional heating costs, as compared to mainland Italy, are due 
to the geographical particularities of the islands, restricted fuel supply and additional 
transport costs and in consequence higher fuel prices as compared to mainland Italy. 

The tax reduction remains in all cases below the additional heating costs borne by the 
population concerned, so that there is no overcompensation in the matter. In particular 
the Italian authorities have stated that the tax reduction does not go beyond the extra 
costs incurred in zones E and F due to cold climate; furthermore as far as the islands 
are concerned, they have stated that the tax reduction does not drive the price of the 
fuels in question bellow the price of the same fuel on the mainland. 

The  reduced  rate  of  taxation  remains  both  for  gas  oil  and  LPG  higher  then  the 
Community minimum levels of taxation set out in Directive 2003/96/EC. 

The measure in question applies only to heating of rooms (both for private individuals 
and businesses); it does not apply for other forms of business use of the said products. 

(5) 

(6) 

(7) 

(8) 

(9) 

(10)  The measure has been found not to distort competition or hinder the operation of the 
internal  market  and  it  is  not  considered  incompatible  with  Community  policy  on  the 
environment, energy and transport. 

(11) 

Italy  should  therefore  be  authorised,  pursuant  to  Article  19(2)  of  Directive 
2003/96/EC, to apply a reduced rate of taxation to gas oil and LPG used for heating 

6 

7 

This decree divides the Italian territory into six climate zones (A to F). The classification is based on the 
unit  “day  degrees”  which  represents  for  the  conventional  heating  period  the  sum  of  daily  average 
temperatures  differing  from  the  optimal  20  C°.  The  higher  the  number  attributed  to  a  commune,  the 
lower is the average outside temperature during the heating period. 
The  remaining  climate  zones  are  defined  in  terms  of  "day  degrees"  as  follows:  Zone  A  (below  600), 
Zone B (above 600, but not exceeding 900), Zone C (above 900, but not exceeding 1400) and Zone D 
(above 2100, but not exceeding 2100). 

EN 

8 

   EN 

 
                                                 
purposes in certain geographical areas characterised by a high level of heating costs, as 
indicated in the annex to this decision, and this until 31 December 2012. 

(12) 

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

HAS ADOPTED THIS DECISION: 

Article 1 

Italy is hereby authorised to apply reduced rates of taxation to gas oil and LPG used for room 
heating purposes in certain geographical areas characterised by a high level of heating costs, 
as specified in the annex to this decision. 

In  order  to  avoid  any  overcompensation,  the  reduction  must  not  go  beyond  the  additional 
heating costs incurred in the areas in question. 

The reduced rate shall comply with the requirements of Council Directive 2003/96/EC, and in 
particular the minimum levels of taxation laid down in Article 9 of that Directive. 

Article 2 

Consumption in communes situated in the areas referred to in point 2 or point 3 of the annex 
to  the  present  decision  shall  be  eligible  only  as  long  as  the  commune  concerned  lacks  a 
natural gas network.  

This Decision shall apply from 1 January 2007 until 31 December 2012. 

Article 3 

Article 4 

This Decision is addressed to the Republic of Italy. 

Done at Brussels,  

For the Council 
The President 

EN 

9 

   EN 

 
 
 
Overview of geographical areas concerned by this decision 

ANNEX  

(1) 

(2) 

Communes falling in the climate zone F as established by the Presidential Decree of 
26 August 1993 no. 412. 

Communes  falling  in  the  climate  zone  E  as  established  by  the  Presidential  Decree 
of 26 August 1993 no. 412. 

(3) 

Communes of Sardinia and of small islands8. 

8 

Point 3 refers to all Italian islands, except Sicily. 

EN 

10 

   EN