Proposal for a Council Decision authorising France to apply differentiated levels of taxation to motor fuels under Article 19 of Directive 2003/96/EC
Date: 2009-10-29
Institutions: European Commission
Subjects: France, derogation from EU law, diesel fuel, fuel tax, lead-free petrol, restriction on competition, tax relief, tax system

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 29.10.2009 
COM(2009)609 final 

Proposal for a 

COUNCIL DECISION 

authorising France to apply differentiated levels of taxation to motor fuels under Article 
19 of Directive 2003/96/EC 

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EXPLANATORY MEMORANDUM 

1) 

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 France to apply, within defined limits, differentiated 
levels  of  taxation  to  gas  oil  and  unleaded  petrol,  with  the  exclusion  of  commercially  used 
gasoil. This differentiation is meant to reflect the decentralisation of certain specific powers 
previously  exercised  by  central  government  and  to  adapt  the  tax  regime  to  the  regions' 
different economic situations. 

2) 

THE REQUEST AND ITS GENERAL CONTEXT 

Council  Decision  2005/767/EC2  authorises  France  to  apply,  for  a  period  of  three  years, 
differentiated  levels  of  taxation  to  gas  oil  and  unleaded  petrol  for  the  purposes  of  an 
administrative  reform  involving  the  decentralisation  of  certain  specific  powers  previously 
exercised  by  central  government.  In  accordance  with  its  Article  2,  Decision  2005/767/EC 
expires on 31 December 2009.  

By  letter  dated  12  August  2009,  under  Article  19  of  the  Directive,  the  French  authorities 
informed  the  Commission  that  they  intended  to  renew  their  scheme  to  apply  differentiated 
levels  of  taxation  to  gas  oil  and  unleaded  petrol  after  the  expiry  of  the  aforementioned 
derogation.  They  requested  an  extension  of  Decision  2005/767/EC  for  a  period  of  six  more 
years, ending 31 December 2015. 

Based  on  that  Decision,  France  is  currently  applying  a  scheme  that  allows  the  French 
administrative regions to apply a differentiated level of taxation on unleaded petrol and gasoil 
with the exception of commercially used gasoil. The tax in question is the Taxe Intérieure sur 
les  Produits  Pétroliers  -  Domestic  Tax  on  Petroleum  Products  (TIPP),  which  is  an  excise 
duty.  

The French Government introduced the above measure, which has been applied since 2007, as 
part of a new stage of decentralisation of powers previously exercised at national level. The 
constitutional reform of March 2003 provides the framework for transfers of State powers and 
responsibilities to territorial authorities (communes, departments, regions). As counterpart to 
the new responsibilities a part of the revenue from the TIPP has been allocated to the regions. 

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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). 
OJ L 290, 4.11.2005, p. 25. 

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In  this  context,  the  measure  in  question,  intended  to  adapt  the  arrangements  to  the  regions' 
different  current  economic  situations,  authorises  the  administrative  regions  to  apply  a 
reduction  in  the  excise  duty  applicable  to  fuels  consumed  on  their  territory.  This  regional 
variation enables the transferred powers to be used in a way better adapted to each region's 
specific characteristics, needs and expectations.  

Mechanics of the measure 

According  to  the  scheme  subject  to  the  present  request,  the  regional  Councils  decide  the 
amount of the reduction by vote, within the limits set by the law and in compliance with the 
derogation granted. 

As hitherto, the reduction would comply with the following criteria: 

- it would not exceed €3.54 per hectolitre for unl eaded petrol or €2.30 per hectolitre for gas oil 
throughout the derogation period; the amount of excise duty before reduction would be set at 
r hectolitre for gas oil, but these levels 
€60.69 per hectolitre of unleaded petrol and €42.84 pe
could change over time;  

-  the  level  of  taxation  following  the  reduction  would  never  be  lower  than  the  Community 
minima set in Directive 2003/96/EC; 

- the reduction would not apply to gas oil for commercial use. 

Control and movement measures 

As  regards  the  collection  and  control  of  excise  duty  on  gas  oil  and  petrol,  the  same 
arrangements would apply as hitherto. Details of these arrangements are described in chapter 
1.3 of the original Commission proposal3 on which Decision 2005/767/EC is based.  

Arguments  of  the  French  authorities  concerning  the  impact  of  the  measure  on  the 
internal market 

The  French  authorities  say  that  the  measure  would  not  affect  the  proper  functioning  of  the 
internal  market,  in  particular  since  the  scope  of  the  measure  is  confined  to  fuels  for 
non-commercial  use.  Moreover,  the  variations  between  distribution  networks  in  the  retail 
price of fuel for non-commercial use are greater than the amount of variations involved in the 
planned measure. According to the French authorities, no complaints about distortive effects 
of the measure have been received during its application.  

The planned rate reduction would, according to the French authorities, not constitute a state 
aid since road haulage companies would be subject to the same rate of excise duty on gas oil 
for commercial use irrespective of the region in which they bought it.  

The  proposed  measure  would  not  therefore  distort  competition  in  the  transport  sector  and 
would not affect trade within the Community. 

Existing provisions in the area of the proposal 

3 

Proposal for a Council Decision authorising France to apply differentiated levels of taxation to motor 
fuels under Article 19 of Directive 2003/96/EC, COM (2004) 597 final. 

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

3) 

ASSESSMENT OF THE MEASURE UNDER ARTICLE 19 OF DIRECTIVE 2003/96/EC 

Specific policy considerations 

Article 19(1), first subparagraph, of the Directive reads as follows:  

In addition to the provisions set out in the previous Articles, in particular in 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  for 
specific policy considerations. 

According  to  Council  Decision  2005/767/EC,  the  national  measure  in  question  fulfils  this 
requirement. It follows from the Decision that the regional differentiation of rates, as part of a 
wider  decentralisation  policy,  aims  at 
increasing 
administrative effectiveness. It was considered that the possibility of regional differentiation 
offers  regions  an  additional  incentive  to  improve  the  quality  of  their  administration  in  a 
transparent  fashion.  The  same  decision  requires  that  the  reductions  be  linked  to  the  socio-
economic conditions of the regions in which they were applied. 

the  specific  policy  objective  of 

In  this  regard,  the  information  supplied  by  France  confirmed  that  a  link  can  in  deed  be 
established between application of a regional rate below the national maximum rate and the 
socio-economic conditions of the regions concerned. In 2007, the first year of the application 
of  the  derogation,  13  regions  applied  a  reduced  tax  rate  all  of  which  had  a  GDP  per  capita 
below  the  national  average.  In  the  two  following  years,  the  number  of  regions  applying  a 
downward  differentiation  decreased  significantly  to  three  in  2008  and  two  in  2009.  The 
regions maintaining the decreased rates were among the poorest in terms of GDP4. 

It  can  therefore  be  concluded  that  the  possibility  to  modulate  the  national  rate  downward 
seems  to  have  offered  the  regional  authorities  the  possibility  to  use  the  tax  in  question  in  a 
way  adapted  to  the  socio-economic  circumstances  prevalent  in  their  territory.  On  the  other 
hand a tendency of convergence of regional rates towards the maximum rate allowable can be 
observed. Should this tendency in time lead back to a situation where the rates on unleaded 
petrol  and  gasoil  are  the  same  over  the  whole  territory  of  France,  this  derogation  would  be 
devoid  of  substance  as  its  subject  is  exclusively  the  regional  variation  of  rates  and  not  the 
budgetary  transfer  of  a  part  of  the  excise  duty  from  the  central  state  to  the  regions.  In  this 
case, it would also have to be reassessed whether the measure does in fact contribute to the 
specific policy objective described above.  

Consistency with the other policies and objectives of the Union 

4 

In 2007 the following regions applied a reduction: Alsace, Aquitaine, Auvergne, Bourgogne, Bretagne, 
Champagne-Ardennes, Corse, Franche-Comté, Languedoc-Rousillon, Limousin, Midi-Pyrénées, Basse-
Normandie,  Pays  de  la  Loire,  Poitou-Charentes,  Provence-Alpes-Côte  d'Azur,  Rhône-Alpes;  in  2008 
these  were  Corse,  Franche-Comté  and  Poitou-Charentes;  in  2009  these  were  Corse  and  Poitou-
Charentes. 

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According to Article 19, paragraph 1, third subparagraph, of the Directive, each request shall 
be examined taking into account, inter alia, the proper functioning of the internal market, the 
need  to  ensure  fair  competition  and  Community  health,  environment,  energy  and  transport 
policies. 

This examination has already been conducted at the occasion of the original request by France 
and  which  has  led  to  the  adoption  of  Council  Decision  2005/767/EC.  As  stated  in  this 
Decision,  the  general  mechanics  of  the  measure  were  found  not  to  create  any  obstacles  to 
intra-Community trade; at the same time a number of conditions were fixed in order to ensure 
that the application of the derogation would not lead to any problem with the functioning of 
the internal  market and would not counteract the  achievement  of  the  EU's  policy  objectives 
especially in the fields of energy and environment.  

For a possible renewal of the scheme as requested by France, the Commission therefore has to 
assess  whether,  in  light  of  the  conditions  laid  down  in  article  1  (2)  and  (3)  of  the  original 
decision, compliance with the objectives and policies set out in Article 19, paragraph 1, third 
subparagraph, of the Directive, has been achieved during its application, so that the same can 
be predicted, in principle, for the period from 1 January 2010.  

In this context, it has also to be verified whether the Community policy context has undergone 
a  relevant  change  since  the  adoption  of  Decision  2005/767/EC  or  risks  to  undergo  a  future 
change material to the assessment. 

Internal market and fair competition 

The  risk  of  competitive  distortions  was  considered  low  in  Council  Decision  2005/767/EC 
because of the very tight limits set for the differentiation of duty rates between regions which 
should be compensated by the large price differentiations between distribution networks and 
because  of  the  exclusion  of  commercially  used  gasoil  from  the  application  of  regionally 
differentiated rates. 

As  for  the  levels  of  differentiation,  a  strict  limit  was  set  namely  that  the  reductions  are  no 
greater than €35.4 per 1000 litres of unleaded pe trol or €23.0 per 1000 litres of gas oil. This 
condition has been respected by France. Moreover, the Decision laid down that the reductions 
are no greater than the difference between the levels of taxation of gas oil for non-commercial 
use  and  gas  oil  for  commercial  use.  This  second  condition,  which  was  to  ensure  that  the 
differentiation does not affect the commercial transport sector, has also been respected. 

The experience gathered with the application of the derogation does not seem to raise doubts 
as to the assessment reached in 2005. The Commission is not aware of any complaints about 
distortive  effects  of  the  measure  on  intra-Community  trade.  Second,  the  measure  was  only 
used to a limited extent given the tendency of regions towards an upward alignment of rates to 
the national rate. This would further have limited the potential for distortions. 

No  obstacles  to  the  proper  functioning  of  the  internal  market  have  been  reported  either  as 
regards  more  particularly  the  circulation  of  the  products  in  question  in  their  capacity  as 
products subject to excise duty. 

As  regards  the  State  aid  aspect,  it  should  first  be  repeated  that  commercially  used  gasoil  is 
excluded  from  the  measure.  However,  as  far  as  other  business  users  not  falling  under  the 
definition  of  article  7  (3)  of  the  Energy  Taxation  Directive  would  benefit  from  the  reduced 

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rates  for  unleaded  petrol  or  to  the  extent  that  competition  on  the  level  of  producers  of  oil 
products is affected, the measure might constitute State aid in accordance with Article 87 (1) 
of  the  EC  Treaty.  Since  the  reduced  rates  are  above  the  Community  minima,  any  possible 
State  aid  would,  however,  be  in  line  with  the  General  Block  Exemption  Regulation5  and 
would be compatible with Article 87(3)(c) of the Treaty. 

Community energy and environment policies 

Taxes  on  energy  products  have  the  effect  of  lowering  the  demand  for  these  products  and 
therefore also reduce emissions related to their consumption. The Commission therefore has 
to assess whether the reduction of rates applied in certain regions does not lead to an increase 
in  fuel  consumption  (and  thus  related  emissions)  that  would  be  in  contradiction  with  the 
objectives quoted above. 

Council Decision 2005/767/EC noted that the introduction of the possibility for a downward 
adjustment of rates was accompanied by an increase in the underlying national rate in France. 
It concluded that it was unlikely that the overall effect of the new scheme would be a reduced 
incentive for fuel efficiency since the application of the derogation did not allow regions to go 
below  the  rate  in  force  on  national  level  before  the  introduction  of  the  scheme.  Decision 
2005/767/EC also concluded that there was little risk that the regional variations would lead 
to differences in retail prices that would induce traffic detours as the level of differentiation 
was  low  and  these  were  superseded  by  differences  in  retail  prices  among  distribution 
networks.  It  was  therefore  expected  that  the  measure  would  not,  in  principle,  come  into 
contradiction with Community energy and environment policy. 

Figures provided by the French authorities on the development of fuel consumption in those 
regions which actually applied a reduced rate would appear to confirm the conclusions drawn 
in 2005. In fact, an assessment of the development of fuel consumption of the three regions 
which maintained tax reductions for more than one year shows that the consumption of petrol 
decreased more than the national average for the years 2006 – 2008 whereas the consumption 
of  gasoil  increased  above  the  trend.  Overall,  no  clear  trend  is  observable  that  would  set  the 
three  regions  out  against  the  rest  of  France.  Other  factors  than  the  reduction  in  excise  duty 
will thus very likely have played a role. 

On the other hand, price elasticity for transport fuels is usually higher in the medium to long 
term  whereas  the  below  covers  only  an  extremely  short  period.  It  can  therefore  not  be 
excluded that the effects from a longer-term application of the regional tax reductions would 
be more visible. However, nothing suggests so far that the effects would in the short term go 
beyond what is suggested by the narrow margins available for regional differentiation. 

SP 95 (in m3) 

2006 

2007

2008 %07-06  %08-07 

Poitou-
Charentes 

315 278 

320 837

308 729

1,76%

-3,77% 

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Commission  Regulation  (EC)  No  800/2008  of  6  August  2008  declaring  certain  categories  of  aid 
compatible with the common market in application of Articles 87 and 88 of the Treaty (General block 
exemption Regulation), OJ L 214, 9.8.2008, p. 3. 

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Franche 
Compte 

Corse 

179 450 

171 456

163 904

-4,45%

-4,40% 

97 333 

97 082

93 045

-0,26%

-4,16% 

France 

10 038 226 

9 923 607

9 626 807

-1,14%

-2,99% 

gasoil 95 (in m3) 

2006 

2007

2008 %07-06  %08-07 

Poitou-
Charentes 

Franche 
Compte 

Corse 

1 432 726 

1 514 184

1 509 861

5,69%

-0,29% 

806 862 

831 643

849 432

3,07%

2,14% 

168 215 

176 480

183 557

4,91%

4,01% 

France 

37 740 477  39 003 877

38 909 562

3,35%

-0,24% 

Source: CPDP 

Developments in the Community policy context 

One  area  in  which  Community  policy  has  evolved  considerably  since  the  initial  derogation 
was granted and on which the regionalisation scheme in question could have an impact is the 
EU's energy and climate policy. In April 2009, a package of measures was adopted with an 
autonomous greenhouse gas emission reduction targets of 20% by 2020. The transport sector 
is covered by the Effort-sharing decision6, which sets binding emission reduction targets for 
all Member States for the period 2013-2020.  

This might in time also include the necessity to revise the Community framework on energy 
taxation  to  bring  it  more  closely  in  line  with  the  objectives  of  energy  and  environment 
policies. It is not clear at this stage how such further developments would correspond to the 
continued operation of the derogation in question. In this context, renewing the derogation for 
a period of six years, the longest period allowable under Article 19 (2), as requested by France 
would incur the risk of coming into conflict with future developments of Community policy. 

For  the  reasons  cited  above  the  Commission  can  propose  to  renew  the  authorisation  for 
France  to  apply  differentiated  levels  of  taxation  for  motor  fuels  for  a  period  of  three  more 
years. This will allow France to apply the scheme for six years in total, as originally proposed 
by the Commission.  

6 

Decision No 406/2009/EC of the European Parliament and of the Council of 23 April 2009 on the effort 
of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas 
emission reduction commitments up to 2020, OJ L 140, 5.6.2009, p. 136. The target is -14% in the case 
of France. 

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4) 

CONSULTATION  OF 
ASSESSMENT 

Consultation of interested parties 

INTERESTED 

PARTIES  AND 

IMPACT 

This proposal is based on a request made by France and concerns only this Member State.  

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. 

5) 

LEGAL ELEMENTS OF THE PROPOSAL 

The proposal aims at authorising France to derogate from the general provisions of Council 
Directive 2003/96/EC and to apply, within defined limits, differentiated levels of taxation to 
gas oil and unleaded petrol, with the exclusion of commercially used gasoil.  

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. 

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 what 
is necessary to attain the objective in question. 

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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6) 

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. 

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Proposal for a 

COUNCIL DECISION 

authorising France to apply differentiated levels of taxation to motor fuels under Article 
19 of Directive 2003/96/EC 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the proposal from the Commission7, 

Having  regard  to  Council  Directive  2003/96/EC  of  27  October  2003  restructuring  the 
Community framework for the taxation of energy products and electricity8, and in particular 
Article 19 thereof, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Council Decision 2005/767/EC authorises France to apply, for a period of three years, 
differentiated levels of taxation to gas oil and unleaded petrol. That authorisation had 
been  requested,  at  the  time,  in  the  context of  an  administrative  reform  involving  the 
decentralisation  of  certain  specific  powers  previously  exercised  by  central 
government. Decision 2005/767/EC expires on 31 December 2009. 

By  letter  of  12  August  2009  France  requested  authorisation  to  continue  to  apply 
differentiated  rates  of  taxation  under  the  same  conditions  for  a  period  of  six  more 
years after that expiry. 

Council  Decision  2005/767/EC  was  adopted  on  the  basis  that  the  measure  requested 
by France met the requirements set out in Article 19 of Directive. In particular, it was 
considered  that  that  measure  would  not  hinder  the  proper  functioning  of  the  internal 
market.  It  was  also  considered  that  it  is  in  conformity  with  the  relevant  Community 
policies.  

The  national  measure  is  part  of  a  policy  designed  to  increase  administrative 
effectiveness by improving the quality and reducing the cost of public services, as well 
as  a  policy  of  subsidiarity.  It  offers  regions  an  additional  incentive  to  improve  the 
quality  of  their  administration  in  a  transparent  fashion.  In  this  respect,  Council 
Decision  2005/767/EC  requires  that  the  reductions  be  linked  to  the  socio-economic 
circumstances  of  the  regions  in  which  they  are  applied.  So  far,  the  possibility  for  a 
reduction has only been used by regions with a lower than average GDP. Overall, the 
national measure is based on specific policy considerations.. 

7 
8 

OJ C , , p. . 
OJ L 283, 31.10.2003, p. 51. 

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(5) 

(6) 

(7) 

(8) 

The  tight  limits  set  for  the  differentiation  of  rates  on  a  regional  basis  as  well  as  the 
exclusion  of  gas  oil  used  for  commercial  purposes  from  the  measure  imply  that  the 
risk  of  competitive  distortions  in  the  internal  market  is  very  low.  Moreover,  the 
application of the measure so far has shown a strong tendency of regions to levy the 
maximum  rate  allowable  which  has  further  decreased  any  potential  for  competitive 
distortions. 

No obstacles to the proper functioning of the internal market have been reported either 
as regards more particularly the circulation of the products in question in their capacity 
as products subject to excise duty. 

The  national  measure  had  at  the  time  been  preceded  by  a  tax  increase  equal  to  the 
margin for regional reductions. Against this background and in light of the conditions 
of the authorisation as well as experience gathered, it does not at this stage appear to 
be in conflict with Community energy and climate policies. 

It  follows  from  Article  19,  paragraph  2,  of  Directive  2003/96/EC  that  each 
authorisation  granted  under  this  Article  must  be  strictly  limited  in  time.  Due  to  the 
possible  future  developments  of  the  Community  framework  on  energy  taxation,  the 
present authorisation needs to be limited to a period of three years. 

HAS ADOPTED THIS DECISION:  

Article 1 

1. 

2. 

France is hereby authorised to apply reduced rates of taxation to unleaded petrol and 
gas oil used as fuel. Gas oil for commercial use within the meaning of Article 7(2) of 
Directive 2003/96/EC shall not be eligible for any such reductions. 

Administrative regions may be permitted to apply differentiated reductions provided 
the following conditions are fulfilled: 

– 

– 

– 

– 

the  reductions  are  no  greater  than  €35.4  per  1000  litres  of  unleaded 

(a) 
petrol or €23.0 per 1000 litres of gas oil; 

the  reductions  are no  greater than the difference between the levels of 

(b) 
taxation of gas oil for non-commercial use and gas oil for commercial use;  

the reductions are linked to the objective socio-economic conditions of 

(c) 
the regions in which they are applied. 

the  application  of  regional  reductions  does  not  have  the  effect  of 

(d) 
granting a region a competitive advantage in intra-Community trade. 

3. 

The reduced rates must comply with the requirements of Directive 2003/96/EC, and 
in particular the minimum rates laid down in Article 7. 

This Decision shall be applicable from 1 January 2010 and shall expire on 31 December 2012. 

Article 2 

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. 

Article 3 

This Decision is addressed to the French Republic. 

Done at Brussels,  

For the Council 
Laszlo KOVACS 
Member of the Commission 

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