Legislation

European Commission proposes to overhaul energy taxation rules

The European Commission on 13 April 2011 presented its proposal to overhaul the outdated rules on the taxation of energy products in the European Union. The new rules aim to restructure the way energy products are taxed to remove current imbalances and take into account both their CO2 emissions and energy content. Existing energy taxes would be split into two components that, taken together, would determine the overall rate at which a product is taxed. The Commission wants to promote energy efficiency and consumption of more environmentally friendly products and to avoid distortions of competition in the Single Market.

A document (pdf 13 Kb)(13 Kb)  including a table sets out the minimum tax rates proposed and compares them with the current levels of taxation. A presentation (pdf 499 Kb)(499 Kb)  explains in more detail how the minimum rates were calculated and how they can be transposed into the units currently used in the Energy Taxation Directive (e.g. Euros per 1000 l of petrol or Euros per 1000 kg of LPG).

See the press release (IP/11/468 ), the questions and answers (MEMO/11/238 ), the citizens' summary (pdf 22 Kb)(22 Kb) , the proposal (COM/2011/169 (pdf 145 Kb)(145 Kb) ), the communication (COM/2011/168 (pdf 62 Kb)(62 Kb) ), the impact assessment (Vol. 1. (pdf 462 Kb)(462 Kb)  and Vol. 2 (pdf 397 Kb)(397 Kb) ), and its summary (pdf 48 Kb)(48 Kb) , and the presentation (pdf 571 Kb)(571 Kb) .

An unofficial codification (pdf 99 Kb)(99 Kb)  has been prepared in order to facilitate reading of the Commission proposal COM(2011)169. It shows in track changes the modifications resulting from the proposal in the current version of Directive 2003/96/EC.

The Energy Taxation Directive

On 27 October 2003, the European Union's Council of Ministers adopted Directive 2003/96/EC restructuring the Community framework for the taxation of energy products and electricity. This was published in the Official Journal L 283 of 31.10.2003.

The Directive widens the scope of the EU's minimum rate system for energy products, previously limited to mineral oils, to all energy products including coal, natural gas and electricity.

In particular, the Directive will:

• reduce distortions of competition that currently exist between Member States as a result of divergent rates of tax on energy products;
• reduce distortions of competition between mineral oils and the other energy products that have not been subject to Community tax legislation up to now;
• increase incentives to use energy more efficiently (to reduce dependency on imported energy and to cut carbon dioxide emissions); and
• allow Member States to offer companies tax incentives in return for specific undertakings to reduce emissions.

The Directive entered into force on 1st January 2004.

The press release (IP/03/1456 ) for the Directive.

The Commission proposed appropriate transitional arrangements for Accession Countries that were subsequently adopted by the Council of ministers (see press release IP/04/575 ) in the form of two directives amending Directive 2003/96/EC of 1 May 2004. These are Council Directive 2004/74/EC and Council Directive 2004/75/EC, published in the Official Journal L157 of 30 April 2004.

The European Commission reviews derogations expiring by the end of 2006

See Press release IP/06/916  and Commission Communication COM(2006)342 (pdf 173 Kb)(173 Kb) .

Background

In 1997, the Commission put forward a proposal for a Community framework for the taxation of all competing sources of energy, including minimum tax levels (see IP/97/211 ). This was debated in the EU's Council of Ministers and was extensively changed before being adopted as Directive 2003/96/EC of 27 October 2003 .

On 20th March 2003, EU-Economics and Finance Ministers gave their political agreement to the proposed Directive on a Community framework for the taxation of energy products. Further details on this draft Directive can be found here: MEMO/03/64. 

The aim of this initiative is to:

• improve the functioning of the Internal Market,
• ensure greater respect for the environment, and
• combat unemployment by allowing Member States to compensate increased revenues from energy taxation with lower taxation of labour.

More information on energy taxation and the environment can be found:

• under the 'Energy and environmental taxation' section of the Communication from the Commission on Tax policy in the European Union - Priorities for the years ahead: (COM(2001) 260 final)
• 'State aid: key elements for the agreement in the Council on energy taxation (pdf 113 Kb)(113 Kb) ', an article from the EC Competition Policy Newsletter 2003 - Number 3 - Autumn.

Further legal instruments

The other legal instruments regarding energy products are

• Council Directive 95/60/EC of 27 November 1995 on fiscal marking of gas oils and kerosene
• 2006/428/EC: Commission Decision of 22 June 2006 establishing a common fiscal marker for gas oils and kerosene (notified under document number C(2006) 2383)

For the proper functioning of the internal market and to prevent tax evasion, Directive 95/60/EC provided for a common marking system to identify gas oil and kerosene which have not borne duty at the full rate applicable to such mineral oils used as propellant, without prejudice to national provisions on fiscal marking.

Commission Decision 2006/428/EC, which repealed Commission Decision 2001/574/EC, established the Solvent Yellow 124 as the common fiscal marker and fixed the marking level of at least 6 mg and not more than 9 mg of marker per litre of mineral oil.

At the end of 2004, the Joint Research Centre developed a study (pdf 502 Kb)(502 Kb) for the Commission's Taxation and Customs Union DG to establish a harmonised Community reference method of analysis for the Euromarker (Solvent Yellow 124) for laboratory tests. Member States agreed to use it as a common reference method of analysis. This method has improved the comparability of the results of tests carried out by different Member States, by determining reference materials, certified and provided by the Institute for Reference Materials and Measurements (IRMM).