2 Energy taxes
(a) (28116) 16188/06 COM(06) 741
(b) (28117) 16190/06 COM(06) 742
(c) (28145) 16424/06 COM(06) 768
(d) (28153) 16528/06 COM(06) 743
(e) (28162) 16757/06 COM(06) 794
(f) (28163) 16758/06 COM(06) 795 |
Commission Communication in accordance with Article 19(1) of Council Directive 2003/96/EC (local public passenger transport, armed forces, public administration, ambulances)
Commission Communication in accordance with Article 19(1) of Council Directive 2003/96/EC (private pleasure-flying)
Commission Communication in accordance with Article 19(1) of Council Directive 2003/96/EC (taxation of industrial uses of LPG and taxation of coal)
Commission Communication in accordance with Article 19(1) of Council Directive 2003/96/EC (operation of private pleasure craft)
Commission Communication in accordance with Article 19(1) of Council Directive 2003/96/EC (ambulant vendors)
Commission Communication in accordance with Article 19(1) of Council Directive 2003/96/EC (regional derogations)
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| Legal base | — |
| Documents originated | (a), (b) and (d) 30 November 2006
(c) 5 December 2006
(e) and (f) 12 December 2006
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| Deposited in Parliament | (a) and (b) 6 December 2006
(c) 11 December 2006
(d) 12 December 2006
(e) and (f) 15 December 2006
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| Department | HM Treasury |
| Basis of consideration | (a) (b) and (c) EMs of 18 December 2006
(d) EM of 19 December 2006
(e) and (f) EM of 9 January 2007
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared, further information requested
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Background
2.1 The Energy Tax Directive, 2003/96/EC, sets out which energy
products are concerned, the uses that make those products liable
to tax, the minimum rates of taxation applicable to each product,
depending on its use as a propellant, for industrial and commercial
purposes or for heating, and specific exemptions from the normal
rules. The Directive also sets out in annexes a number of derogations
which allow Member States to apply reduced rates or exemptions
from energy tax for various products and purposes. Most of these
derogations were due to expire on 31 December 2006. Under Article
19 of the Directive a Member State may ask the Commission to propose
to the Council a new or extended derogation. If the Commission
makes such a proposal it is decided by the Council unanimously.
2.2 In October 2006 we reported that, as required
by the Directive, the Commission had conducted a review of the
current derogations and had issued a Communication with its view
as to whether they should be allowed to continue beyond 2006.
It considered derogations to be in four categories:
- derogations relating to situations
outside the scope of the Directive;
- derogations which had become obsolete;
- current derogations the objectives of which were
taken into account through the flexibility offered by the general
provisions of the Directive; and
- derogations concerned with objectives not taken
into account by the general provisions of the Directive.
2.3 In relation to the last category the Commission
noted derogations, which after 31 December 2006 would have no
legal basis under the Directive, covering:
- fuel used by private pleasure
air navigation;
- fuel used for navigation in private pleasure
craft;
- waste oil reused as fuel;
- specific policy purposes in certain geographical
areas; and
- miscellaneous purposes.
The Commission's view was that the expiry of most
of the derogations should be seen as an opportunity to achieve
greater transparency and greater coherence in the energy tax legislation.
It asked Member States to assess in the light of its Communication
whether they wished to seek renewal of any of their derogations.
The Commission would assess any such requests on their merits,
taking into account the proper functioning of the internal market,
as well as Community environmental, energy and transport policies.
2.4 When we reported the Communication we noted that
the Government:
- held derogations for fuel used
by private pleasure air navigation, fuel used for navigation in
private pleasure craft and waste oil reused as fuel sub-categories;
- had confirmed in the 2006 Budget that it would
be applying for renewal of all three of its derogations; and
- believed there was a credible case for renewal
of the derogations and shortly would make formal applications
for their renewal.[1]
The documents
2.5 These Communications announce the Commission's
decisions not to accede to requests to propose extensions of derogations
in 16 cases. These are:
- document (a) — applications
by Belgium, to partially exempt certain fuels used in local public
passenger transport, by France to exempt certain fuels used in
taxis within an annual limit, by Greece to exempt fuel used by
national armed forces, police and various official vehicles and
by Italy to exempt fuel used by national armed forces and to apply
a reduced rate to certain fuels used in taxis substituting for
public transport and to fuel used in certain ambulances;
- document (b) — applications by the UK,
France, Portugal, Malta and Sweden for partial or full exemptions
for fuel used in private pleasure flying;
- document (c) — applications by Greece to
partial exempt liquid petroleum gas used for industrial purposes
and by Lithuania to exempt coal;
- document (d) — applications by the UK,
Belgium and Malta for partial or full exemptions for gas oil used
in navigation of private pleasure craft;
- document (e) — an application by France
to exempt fuel, up to an annual limit, used by retailers in small
communes (less than 3000 inhabitants) whose business is partly
through "ambulant sales" (mobile shops); and
- document (f) — an application by Italy
to exempt certain motor and heating fuels, up to annual limits,
consumed in the regions of Val d'Aosta, Gorizia, Udine and Trieste.
2.6 In the Communications the Commission summarises
the case of the Member State concerned for renewal of the exemption
and the Commission's reasons for rejecting the case. In relation
to the Government's case (and those of Belgium, France, Portugal,
Malta and Sweden) for renewal of the derogations for fuel used
in private pleasure flying and for fuel used in navigation of
private pleasure craft the Commission says:
- the arguments advanced by Member
States do not constitute specific policy considerations within
the meaning of Article 19 of the Directive;
- the requests are not consistent with the proper
functioning of the internal market, with the need to ensure fair
competition and with community health, environment, energy and
transport policies, as required by Article 19;
- Member States' arguments concerning administrative
burdens, compliance and enforcement difficulties, possible safety
issues and the possible effect on associated businesses, tourism,
or the training industry are not valid reasons to justify renewal
of the derogation as they are inherent in moving towards the normal
Community tax treatment for this activity;
- derogations were aimed at overcoming initial
difficulties in implementation;
- there has been sufficient time for any difficulties
to be resolved since the principle that fuel used in private flying
is taxable was established in 1993, in accordance with the completion
of the internal market; and
- extension of the derogations would contradict
Community environment, energy and transport policies as it would
not accurately reflect the negative external costs of the activity.
2.7 The Commission has still to issue decisions on
a number of other applications for extensions of derogations,
including the Government's in relation to waste oil reused as
fuel.
The Government's view
2.8 The Paymaster General (Dawn Primarolo) says that
the Commission decisions announced in documents (a), (c), (e)
and (f) have no impact for the UK. As for the decision on fuel
for private pleasure flying, document (b) the Minister says:
- this derogation has allowed
the Government to charge duty for aviation gasoline at a reduced
rate of 28.84 pence per litre and to fully exempt aviation turbine
fuel used in private pleasure flying. Without this derogation
all fuel used for private pleasure flying will be liable to the
full rates of duty, that is 56.20 pence per litre for aviation
gasoline and 54.68 pence per litre for aviation turbine fuel;
- fuel used for commercial purposes will continue
to benefit from the reduced and exempt rates;
- the Government will consult interested parties
in the aviation industry to assess the impact of the expiry of
the derogation — informal consultations with a limited number
of interested parties have already been held;
- administrative procedures for collecting the
duty will be developed in consultation with interested parties;
- a regulatory impact assessment will be required
to assess the compliance burden of new procedures for identification
of fuel used in private flying and the subsequent collection of
duty; and
- there will be a net revenue gain following the
implementation of the full rates of duty. The exact size of the
private flying sector is very difficult to ascertain, but total
revenue is not expected to exceed £15 million.
2.9 On the decision on fuel used in navigation of
private pleasure craft, document (d), the Financial Secretary
to the Treasury (John Healey) says:
- this derogation has allowed
the Government to charge duty on fuel used in pleasure boats at
the rebated (red diesel) rate for gas oil of 7.69 pence per litre.
Without this derogation all fuel used for private pleasure boating
will be liable to the full rate of duty for ultra low sulphur
diesel, that is currently 48.35 pence per litre;
- use of rebated red diesel will continue to be
permitted in commercial craft;
- the Government recognises that the loss of the
derogation will have an impact upon the boating sector;
- the Government has already discussed the effect
of the loss of the derogation with interested parties in the sector
and it will be working with those affected to ensure implementation
minimises burdens and compliance costs as far as possible;
- an initial partial regulatory impact assessment
was published at the Budget 2006. A full assessment will be required
following further consultation with interested parties; and
- there will be a net revenue gain following the
implementation of the full rates of duty. Total revenue is not
expected to exceed £10 million.
Conclusion
2.10 As we recalled above, when we considered
the Commission's earlier Communication the Government told us
that it believed there was a credible case for renewal of the
UK derogations.[2]
We presume the Government still thinks the case credible. And
the rejection of its applications will be a considerable blow
to those involved in the use of private pleasure planes or boats.
So before we consider the present Communications further, we should
like to hear from the Government what scope there is for it (and
like-minded Member States) to try to persuade the Commission to
change its mind.
2.11 Meanwhile the documents remain uncleared.
1 (27664) 11167/06: see HC 34-xxxvii (2005-06), para
55 (11 October 2006). Back
2
Ibid. Back
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