Proposal for a COUNCIL IMPLEMENTING DECISION authorising the United Kingdom to apply differentiated levels of taxation to motor fuels in certain geographical areas pursuant to Directive 2003/96/EC
Date: 2015-01-15
Institutions: European Commission
Subjects: diesel fuel, fuel tax, petrol, regions of the United Kingdom, tax relief













EUR-Lex - 52015PC0004 - EN











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52015PC0004

Proposal for a COUNCIL IMPLEMENTING DECISION authorising the United Kingdom to apply differentiated levels of taxation to motor fuels in certain geographical areas pursuant to Directive 2003/96/EC /* COM/2015/04 final - 2015/0004 (NLE) */









EXPLANATORY MEMORANDUM
1.           CONTEXT OF THE PROPOSAL
Grounds for and objectives of the
proposal
Taxation of energy products and electricity
in the Union is governed by Council Directive 2003/96/EC ([1]) (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 its 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 the
level of taxation for specific policy considerations.
The objective of this proposal is to allow
the UK to introduce a reduced rate of excise duty on motor fuels used as
propellant (namely unleaded petrol and gas oil) in the following geographical
areas defined in the request of the UK by references to postcodes: IV54 (Strathcarron, Highland - Scotland), IV26
(Ullapool, Highland - Scotland), IV27 (Lairg, Highland – Scotland ), NE48
(Hexham, Northumberland - England), PH41 (Mallaig, Highland - Scotland), KW12 (Halkirk,
Highland – Scotland), PA80 (Oban, Argyll and Bute – Scotland), PH36 (Acharacle,
Highland – Scotland), IV22  (Achnasheen, Highland - Scotland), PA38 (Appin,
Argyll and Bute – Scotland), PH23 (Carrbridge, Highland - Scotland), PH19 (Dalwhinnie,
Highland - Scotland), IV21 (Gairloch, Highland - Scotland), LA17
(Kirkby-in-Furness, Cumbria - England), EX35 (Lynton, Devon - England), IV14
(Strathpeffer, Highland - Scotland), the area covered by the post town of Hawes
(in North Yorkshire - England).
According to the information provided by the UK authorities the postal codes allow for a clear definition of the territorial scope of
the measure. The postal code system is common to England, Scotland, Wales and N  orthern Ireland. In the UK post towns and postcode districts cover a number
of settlements in an area. In rural areas, the largest centre of the population
in a postcode district or post town is likely to be a village. Towns and
districts vary in size, for example, IV27 is the largest postcode district in
the UK, at 3 397 km2. This differs significantly from NE48
which is around 750 km2. The derogation request refers to the
nearest post towns of the selected areas as well as the wider local authority
in the area. The derogation request for IV21 (Gairloch,
 Highland - Scotland) e.g., means that the post town in
IV21 is Gairloch and the local authority is Highland – Scotland. Post towns are often made up of one or more villages,
the post towns are often named after one of the villages located within them. 
The table below sets the names and the numbers of the post towns and
villages covered by the postcode districts listed in the application:
 Postcode District || Post Town (s) || Villages 
 PH36 || 1: Acharacle || 6: Acharacle, Strontian, Kilchoan, Salen, Glenborrodale,  Achateny 
 IV22 || 1: Achnasheen || 4: Achnasheen, Poolewe, Laide, Kinlochewe 
 IV21 || 1: Gairloch || 5: Gairloch, Badachro, Melvaig, Big Sand, Port Henderson 
 PH19 || 1: Dalwhinnie || 1: Dalwhinnie 
 PH23 || 1: Carrbridge || 2: Carrbridge, Bogroy 
 IV14 || 1: Strathpeffer || 3: Strathpeffer, Contin, Jamestown 
 PA38 || 1: Appin || 3: Appin, Duror, Portnacroish 
 LA17 || 1: Kirkby-in-Furness || 1: Kirkby-in-Furness 
 EX35 ([2]) || 2: Lynton and Lynmouth || 3: Barbrook, Brendon, Lynmouth 
 IV54 || 1: Strathcarron || 4: Strathcarron, Locharron, Applecross, Shieldaig 
 IV26 || 1: Ullapool || 1: Achiltibuie 
 IV27 || n/a || 7: Lairg, Durness, Tongue, Scourie, Lochinver, Kinlochbervie, Talmine 
 PH41 || n/a || 2: Mallaig, Inverie 
 KW12 || 1: Halkirk || 1: Halkirk 
 PA80 || n/a || 3: Lochaline, Morvern, Drimnin 
 NE48 || n/a || 7: Bellingham, Falstone, Kielder, Wark, Tarset, West Woodburn, Barrasford 
 Postcode district || Post town || Villages 
 n/a || Hawes || 2: Gayle, Butterset 
In some cases (IV 27, PH41, PA80, NE48) postcode districts do not
contain a complete post town, so only the list of the villages has been
provided. For most of the areas on the list, the postal town and postcode
district are aligned. 
According to the information provided by
the UK the price of fuel in the areas which are to benefit from the measure is
on average GBP 100 (app. EUR 128.5) ([3]) higher per 1 000 litres
than the average in the rest of the UK. Higher prices in these areas are due to
higher transport and distribution costs, and low population. The objective of
the measure is to offer some mitigation against the high costs of motor fuels
in the specified areas.
General context
Article 19(1) of the Directive envisages
that the Council, acting unanimously on a proposal from the Commission, may
authorise any Member State to introduce further exemptions or reductions in the
level of taxation for specific policy considerations.
By letter dated 2 February 2014 the UK
authorities informed the Commission that they intend to apply a reduced rate to
unleaded petrol and gas oil offered for sale as propellants in the geographical
areas mentioned above. The reduced rate of the excise duty on the fuels used as
propellant will be GBP 50
(app. EUR 64.3) per 1 000 litres
lower than the standard rate in the UK (GBP 580 or app. EUR 745.3) applicable
to both petrol and gas oil. This would mean that the reduced rate would still
be far above the current EU minimum per 1 000 litres of EUR 359 for unleaded petrol and EUR 330 for gas oil. Additional information and clarifications were provided by the UK authorities on 3 June and 17 September 2014.
The UK has requested for the reduction to
be granted for a period of six years, which is the maximum period indicated in
Article 19(2) of the Directive.
According to the UK authorities, the price
of fuel in the above mentioned areas is around GBP 100 (app. EUR 128.5) per 1 000 litres higher than the
average for the rest of the UK. The price in these areas is in line with the
pump prices on the islands if one disregards the tax
reduction as for which the UK applies a tax reduction as
provided for by Council Implementing Decision 2011/776/EU [4]. A reduction of GBP 50 (app. EUR 64.3) per 1 000 litres would not cover the full price
difference, but would provide consumers with some compensation for the higher
price which they have to bear.
In assessing the eligibility of the areas concerned for
the rebate, two key factors have been taken into consideration:
·                        
The affordability of fuel, caused by high pump
prices and weekly earnings below the average for the UK.
·                        
The necessity of road fuel as part of everyday
life for individuals. This is demonstrated by high car dependency and limited
accessibility to public transport and essential services.
According to the statistical information
provided by the UK authorities the average weekly earnings in the local
authorities, where the areas selected are situated, range from GBP 412.10 (EUR 528.6)
to GBP 493.30 (EUR 633.9) which is below the UK average of GBP 518 ([5]) (EUR 665.6). Local
authorities for which statistical data is collected normally have a larger
geographical scope than the areas for which the measure will apply. According
to the UK authorities it can be assumed that the actual average weekly earnings
in the areas in question are even lower than the figures available for the
local authorities. This is due to the presence of larger corporations in the
main settlements within the local authorities, often more than 100 miles (app. 160 km)
from the selected areas in question. The income streams in the areas covered by
the measure depend on agriculture and tourism. So the UK authorities assume that the weekely earnings in these areas are lower than the earnings
in the islands that currently apply the derogation (GBP 463.0-EUR 752.8).
According to data provided by the UK's
Office for National Stistics, the Gross Value Added per head in the areas in
question ranges between GBP 12 036 (EUR 15 466.5) and GBP 17 936
(EUR 23 048) and are lower than the UK average GBP 21 674
(EUR 27 851.5) per year.
According to the UK authorities, the
limited economic opportunity in these areas compared to more urbanised areas of
the UK leads to emigration of economically active population which is the main
reason for the stable rate of unemployment which does not necessarily reflect the
quality of life in these areas. Economically, the key impacts of low population
densities over large geographical areas are:
·                        
The average distances between individual
services and businesses are very high, so that the transport costs of
undertaking basic activities are also relatively high - for both individuals
and businesses.
·                        
Businesses have a smaller population catchment
to draw upon within the same geographic area, and therefore have to operate at
generally higher unit margins in order to retain a profit from a limited
turnover. 
Furthermore, a number of refineries in the UK have closed down in recent years. The reduction in the number of refineries has led to
greater number of filling stations falling further than 100 miles (app. 160 km)
from their nearest refinery, leading to an increase of the costs for
transportation of fuel to the areas in question. 
Bus availability in all the rural areas
concerned is significantly lower than the average for Great Britain ([6]).
This, coupled with the limited use of trains in the areas concerned, and high
car usage despite high pump prices, highlights the necessity of cars as a means
of transport in the areas. 
Services in remote, rural areas of the UK, such as the areas selected, are likely to serve a larger geographical area than those
in urban settlements, in part due to the low population densities of these
areas. This means that the average distances between individual dwellings,
settlements, services and businesses are very high, so that the transport costs
of undertaking basic activities are also relatively high. As an example, a trip
from the area covered by poste code IV27 to the nearest standard-sized
supermarket can involve a return trip of up to 135 miles (app. 220 km).
The challenges set out above reflect both
the necessity of car use in the everyday lives of residents in the areas
selected, and the impact of high fuel prices on them. The UK considers that the fuel duty rebate would help sustain these fragile and remote rural
communities by relieving them slightly of these particularly high living costs.
It is important that these factors are not considered in isolation, but rather,
as a combination of issues which has led to a real social and economic need for
the rebate in the areas listed. 
Operation of the measure
In the UK, excise duty on road fuels is
accounted for at the point when the fuel leaves the refinery, when it is
imported or when it leaves an excise warehouse. At this point it would be
difficult to identify the amount of fuel destined for eligible regions.
Therefore, the relief will be given at the
point of sale on the eligible areas, thus avoiding any risk arising from
diversion of reduced rate fuel. Fuel retailers in the concerned areas would be
registered with HM Revenue and Customs (HMRC) as approved retailers and would be
required to reduce the price of a litre of fuel by the amount of the duty
relief. They would in turn be entitled to claim a refund of duty from HMRC, on
a periodic basis, based on the litres of fuel sold.
Beneficiaries
The measure is
aimed at private individuals but all purchases, including commercial will
benefit from the lower price.
All 27 filling
stations that could benefit from the scheme are independent.
Arguments of the UK authorities concerning the impact of the measure on the internal market
The UK authorities do not think that the measure would affect the proper functioning of the
internal market.
Comparing the
prices of the filling stations in the proposed tax reduction with GBP 50
per 1 000 litres (EUR 64.3) with those of their nearest competitors
outside the scheme:
For petrol, the average differential
is reduced to GBP 10 (EUR 12.9). On average, sites within the scheme
would be GBP 10 (EUR 12.9) more expensive than their nearest
counterparts outside the scheme.
For diesel, the average differential
becomes GBP 6 (EUR 7.7). On average, sites within the scheme would be
GBP 6 per 1 000 litres (EUR 7.7) cheaper than their nearest
counterparts outside the scheme.
The rebate
would bring the stations affected broadly in line with the stations in nearby
areas that are not in the scheme. As such, it is not expected that consumers
will change driving routes or that filling stations in areas bordering
beneficiaries will reallocate to the areas included. Furthermore the low
population densities and distances from major settlements, along with the
significant capital costs of new filling stations, would not make it
commercially attractive for filling stations to re-locate, even with the
rebate.
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.
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.’
The measure envisaged by the UK consists in
reducing excise duty on motor fuels supplied in certain parts of its territory defined
by a postcode, namely PH36, IV22, IV21, PH19, PH23,
IV14, PA38, LA17, Hawes, EX35, IV54, IV26, IV27, PH41, KW12, PA80, NE48.
The aim is to bring pump prices in these
territories closer to the UK average. The higher per unit costs and thus pump
prices in these areas are due to higher transportation and distribution costs
and lower economies of scale.
It can be concluded that the wish to apply a
reduced excise duty rate on motor fuels in the areas concerned on account of
their specific economic and social conditions is based on specific policy
considerations in particular as regards social and regional policy.
Consistency with the other policies
and objectives of the Union
The aim of the measure is to partly
counterbalance the higher per unit cost, and thus pump prices, of fuel in the areas
concerned, through a direct duty relief at the point of sale.
The measure is limited to what is needed to
this effect. In particular, the relief is confined to the (relatively small)
amount of fuel sold in the areas, the total volume used in the postal areas is
less than 50 million litres a year which accounts for 0.1 % of total fuel
consumption in the UK.
The Commission notes that the excise duty
rate will be reduced by GBP 50 per 1 000 litres (EUR 64.3) of product. The price of fuel in the selected areas listed is around GBP 100 (EUR 128.5)
higher than the average for the rest of the UK. In the final quarter of 2012, the prices in these towns were above the minimum price on
the islands currently applying a tax reduction on the basis of Council Implementing Decision 2011/776/EU.
The price characteristics of these towns are similar to those on the islands where
the tax reduction applies. A GBP 50 (EUR 64) relief is unlikely to cover the full differential between these high
prices and the UK average, but would provide individuals with some compensation
for the higher price which they have to bear.
Finally, despite the relief, the tax burden
borne by fuel consumed in the geographic areas concerned will remain well above
the minimum levels of taxation set out in Directive 2003/96/EC.
It can thus be concluded that while the
measure at hand constitutes a tax reduction to fossil fuel which in principle
should be reviewed critically. Under the specific geographical and social
conditions it can be considered acceptable in the wider policy context of the
health, environment, energy and transport policies of the Union.
Under the circumstances described, it also
appears acceptable in view of the proper functioning of the internal market and
the need to ensure fair competition. In particular, due to the remote nature of
the areas to which it applies and the moderate reduction in the rate, it is not
expected that it will lead to changes in fuel consumption, through the
attraction of consumers from outside these areas.
Period of application of the measure
and development of the EU framework on Energy Taxation
The Commission suggests that the period of
application is set to the maximum allowed by Directive 2003/96/EC, i.e. six
years. This period seems appropriate in order to allow the UK authorities to gather information to assess the results of the measure and provide
businesses and consumers benefiting from the measure with a sufficient degree
of certainty.
State aid rules
After the reduction envisaged by the UK
authorities, the tax rates on unleaded petrol and gas oil in the regions
concerned will still respect the minimum level of taxation pursuant to Article
7 of Directive 2003/96/EC. Provided that the measure respects
the conditions laid down in Article 44 of the General Block Exemption
Regulation (Regulation (EC) No 651/2014) [7]) the measure, by consequence is exempt from
the prior notification requirement.
2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
Consultation
of interested parties
This proposal is based on a request made by
the UK 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.
3.           LEGAL ELEMENTS OF THE
PROPOSAL
Subsidiarity principle
The field of indirect taxation covered by
Article 113 TFEU is not in itself within the exclusive competence of the
European Union within the meaning of Article 3 TFEU.
However, the exercise by Member States of
their competences in this field is strictly circumscribed and limited by
existing EU 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.
Nevertheless, the present proposal, as a
non-legislative proposal, is not subject to the review mechanism of Protocol n.
2 to the TFEU, which only applies to draft legislative acts.
Proportionality
principle
The proposal respects the principle of
proportionality. The tax reduction does not exceed what is necessary to attain
the objective in question (cf. the considerations on the internal market and
fair competition aspects, above).
Choice of
instruments
Instrument(s) proposed: Council Implementing
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
or administrative burden on the Union. The proposal therefore has no impact on
the budget of the Union.
2015/0004 (NLE)
Proposal for a
COUNCIL IMPLEMENTING DECISION
authorising the United Kingdom to apply
differentiated levels of taxation to motor fuels in certain geographical areas
pursuant to Directive 2003/96/EC
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, 
Having regard to Council Directive
2003/96/EC of 27 October 2003 restructuring the Community framework for the
taxation of energy products and electricity ([8]), and in particular
Article 19 thereof,
Having regard to the proposal from the
European Commission,
Whereas:
(1)       By letter of 2 February 2014 the United Kingdom requested authorisation to apply a reduced rate
of excise duty on gas oil and unleaded petrol pursuant to Article 19 of
Directive 2003/96/EC in
the following geographical areas defined by a postcode where appropriate: IV54 (Strathcarron, Highland - Scotland), IV26
(Ullapool, Highland - Scotland), IV27 (Lairg, Highland – Scotland), NE48
(Hexham, Northumberland - England), PH41 (Mallaig, Highland - Scotland), KW12 (Halkirk,
Highland – Scotland), PA80 (Oban, Argyll and Bute – Scotland), PH36 (Acharacle,
Highland – Scotland), IV22  (Achnasheen, Highland - Scotland), PA38 (Appin,
Argyll and Bute – Scotland), PH23 (Carrbridge, Highland - Scotland), PH19 (Dalwhinnie,
Highland - Scotland), IV21 (Gairloch, Highland - Scotland), LA17
(Kirkby-in-Furness, Cumbria - England), EX35 (Lynton, Devon - England), IV14
(Strathpeffer, Highland - Scotland), the area covered by the post town of Hawes
(in North Yorkshire - England). The United Kingdom provided additional
information and clarifications on 3 June and 17 September 2014.
(2)       In these areas, the prices
of gas oil and unleaded
petrol are higher than the average prices in the
rest of the territory of the United Kingdom, placing local fuel consumers at a
disadvantage. The price difference is due to additional per unit costs induced
by the geographic location of the areas, their low population numbers and the
delivery of relatively low volumes of fuel.
(3)       The reduced rates of
taxation will be above the minimum rates laid down in Article 7 of Directive
2003/96/EC.
(4)       In view of the specific
nature of the areas to which it applies and the moderate reduction in the rate,
which only partially alleviates the higher costs incurred in the geographical
areas in question, the measure is not expected to give rise to any movement
specifically linked to the supply of fuel.
(5)       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 compatible with the
European Union’s health, environment, energy and transport policies.
(6)       In accordance with Article
19(2) of Directive 2003/96/EC each authorisation granted under that Article
must be strictly limited in time. In order to provide the businesses and
consumers concerned with a sufficient degree of certainty, the authorisation
should be granted for a period of six years. However, in order not to undermine
future general developments in the existing legal framework, it is appropriate
to provide that, should the Council, acting on the basis of Article 113 of the
Treaty, introduce a modified general system for the taxation of energy products
to which the authorisation granted in this Decision would not be adapted, this
Decision should expire on the day on which the rules on that modified system
become applicable.
(7)       This decision is without
prejudice to the application of the Union rules regarding State aid,
HAS ADOPTED THIS DECISION: 
Article 1
1          The United Kingdom is hereby
authorised to apply reduced rates of taxation to unleaded petrol and gas oil supplied as motor fuel to road vehicles in the
following 17 areas, defined by a postcode where appropriate: IV54 (Strathcarron, Highland - Scotland), IV26
(Ullapool, Highland - Scotland), IV27 (Lairg, Highland – Scotland), NE48
(Hexham, Northumberland - England), PH41 (Mallaig, Highland - Scotland), KW12 (Hallkirk,
Highland – Scotland), PA80 (Oban, Argyll and Bute – Scotland), PH36 (Acharacle,
Highland – Scotland), IV22 (Achnasheen, Highland - Scotland), PA38 (Appin,
Argyll and Bute – Scotland), PH23 (Carrbridge, Highland - Scotland), PH19 (Dalwhinnie,
Highland - Scotland), IV21 (Gairloch, Highland - Scotland), LA17
(Kirkby-in-Furness, Cumbria - England), EX35 (Lynton, Devon - England), IV14
(Strathpeffer, Highland - Scotland), the area covered by the post town of Hawes
(in North Yorkshire - England).
In order to avoid any overcompensation, the
reduction from the standard national rate of taxation for unleaded petrol or
gas oil respectively shall be no greater than the additional cost of retail
sales in these geographical areas, compared with the average cost incurred of
retail sales in the United Kingdom and shall be no more than GBP 50 (EUR 64) per 1 000 litres of product.
2.         The reduced rates must comply
with the requirements of Directive 2003/96/EC, and in
particular with the minimum rates laid down in Article 7 thereof.
Article 2
This Decision shall take effect on the day
of its notification. It shall apply from 1 February
2015 and shall expire on 31 January 2021.
However,
should the Council, acting on the basis of Article 113 of the Treaty, introduce
a modified general system for the taxation of energy products to which the
present authorisation would not be adapted, this Decision shall expire on the
day on which the rules on this modified system become applicable.
Article 3
This Decision is addressed to the United
Kingdom of Great Britain and Northern Ireland.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[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.
[2]               The postcode district of EX35 contains two post towns
– Lynton and Lynmouth. Both of these post towns would benefit from the rebate. 
[3]               All calculations are based on the exchange rate on 1
October 2014, i.e. GBP 0.77820 for EUR 1. Cf. OJ C 344, 2.10.2014.
[4]               Council Implementing Decision
2011/776/EU of 24 November 2011 authorising the United Kingdom to apply reduced
levels of taxation to motor fuels supplied on the islands of the Inner and
Outer Hebrides, the Northern Isles, the islands in the Clyde and the Isles of
Scilly, in accordance with Article 19 of Directive 2003/96/EC (OJ L 317,
30.11.2011, p. 34–35).
[5]               Cf. with the information provided by the UK's Office for National Statistics: 'http://www.nomisweb.co.uk/default.asp'.
[6]               Cf. 'https://www.gov.uk/government/statistical-data-sets/nts99-travel-by-region-and-area-type-of-residence'.
[7]               Commission Regulation 651/2014/EU declaring certain categories of aid compatible with the internal
market in application of Articles 107 and 108 of the Treaty (OJ L 187,
26.6.2014, p. 1–78.).
[8]               OJ L 283, 31.10.2003, p. 51.