Select Committee on European Scrutiny Eighteenth Report


5 Energy products taxation

(a)

(28472)

7512/07 + ADDs 1-2

COM(07) 52

(b)

(28479)

7615/07

COM(07)107

(c)

(28486)

7694/07

COM(07)106


Draft Council Directive amending Directive 2003/96/EC as regards the adjustment of special tax arrangements for gas oil used as motor fuel for commercial purposes and the coordination of taxation of unleaded petrol and gas oil used as motor fuel

Commission Communication in accordance with Article 19(1) of Directive 2003/96/EC (operation of private pleasure craft and private pleasure-flying)

Commission Communication in accordance with Article 19(1) of Directive 2003/96/EC (local passenger transport, disabled people)

Legal base(a) Article 93 EC; consultation; unanimity

(b) and (c) —

Documents originated(a) 13 March 2007

(b) and (c) 15 March 2007

Deposited in Parliament(a) 20 March 2007

(b) and (c) 23 March 2007

DepartmentHM Treasury
Basis of consideration(a) EM of 28 March 2007

(b) and (c)EM of 3 April 2007

Previous Committee ReportNone
To be discussed in Council(a) 5 June 2007

(b) and (c) None planned

Committee's assessmentPolitically important
Committee's decision(a) Not cleared, further information requested

(b) and (c) Cleared

Background

5.1 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.

5.2 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.

5.3 In October 2006 we reported that 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. The Commission noted derogations which after 31 December 2006 would have no legal basis under the Directive and held that 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.[10]

5.4 We reported subsequently rejection by the Commission of 16 requests from Member States, including two by the British Government, for extensions of derogations.[11]

The documents

5.5 The draft Directive at document (a) would amend the Energy Tax Directive to:

  • increase the minimum tax rate for diesel to 359 (£241) per 1000 litres in 2012 and to €380 (£256) in 2014 as opposed to the current minimum of €302 (£203) per 1000 litres, which is to rise to €330 (£222) in 2010. The unleaded petrol rate, currently €359 (£241) per 1000 litres would also rise in line to €380 (£256) by 2014;
  • provide those Member States already benefitting from transitional periods to meet the current and 2010 minimum rates with an additional period of two years to meet the 2012 rates and a further two year period to meet the 2014 rates;
  • provide that the non-commercial rate of diesel duty and the unleaded petrol rate cannot be lower than the commercial diesel rate;
  • allow Member States to lower their commercial diesel rate to below the national level in force on 1 January 2003, provided they observe the minimum rates and ensure the overall burden of taxation remains broadly the same through the introduction of a road user charging scheme;
  • remove the present condition that Member States wishing to lower their commercial diesel rate to below the national level in force on 1 January 2003 must also have had a level of national taxation in force on 1 January 2003 at least double the minimum rate for diesel set in the Directive; and
  • require Member States who apply a lower tax rate for commercial diesel to implement this by means of a non-discriminatory refund mechanism, common rules for which would be established by the Excise Committee, under the regulatory comitology procedure.

5.6 The Commission says that the aim of the proposal is to reduce distortions of competition in the haulage sector, better protect the environment and reduce budgetary losses to Member States from fuel tank tourism (that is where hauliers divert a journey only in order to seek lower-taxed fuel in another Member State).

5.7 Documents (b) and (c) are Commission Communications announcing its decisions on a number of requests from Member States for Article 19 extensions of derogations from the Energy Tax Directive. The first document turns down requests from Finland and Ireland for renewal of the derogation allowing reduced rate fuel used for the navigation of private pleasure craft and from Finland, Denmark and Ireland for renewal of the derogation allowing exempt or reduced rate fuel used in private-pleasure flying. The second document refuses requests from Ireland to apply a reduced rate of duty on road diesel used in road passenger services licensed by the national licensing authority and to exempt fuel, up to specific annual limits, used to transport disabled passengers and from Denmark to exempt liquefied petroleum gas (LPG) and diesel used in local public transport. (But in relation to the Danish request the Commission notes that its refusal relates to diesel alone and that Article 15(1)(i) of the Directive might "privilege" an LPG exemption.)

The Government's view

5.8 In relation to the amendments proposed to the Energy Tax Directive in document (a) the Paymaster General (Dawn Primarolo) says that there is likely to be support from some Member States for the draft Directive on budgetary grounds but reservations from those who would need to increase their duty rates. The Minister continues that:

·  for its part the Government can see merit in the proposal as it will have a positive impact on the environment by reducing fuel tank tourism, so lowering fuel consumption and associated emissions. The Commission estimates that detours in the Community between now and 2030 would be reduced by 38% if its proposal is adopted with an associated carbon saving of 0.875 mega tons over the same period;

·  there would be no effect on UK fuel duty rates, which are already above the new minima that would be introduced;

·  the Government already benefits from the proposed increased flexibility for Member States to lower their commercial diesel duty through the introduction of a road user charging scheme, so this part of the proposal has no impact on the UK;

·  the Government would like to see more evidence as to why the most appropriate means of implementing any differential between commercial and non-commercial diesel rates is through a non-discriminatory refund mechanism;

·  Member States might want to implement a differential by a different means and the Directive currently allows such flexibility;

·  if the Commission is able to provide evidence for using a refund mechanism, the Government does not believe that such a mechanism necessarily requires a common approach;

·  the Government will not support common implementation provisions for the refund mechanism through the Excise Committee, which agrees measures by qualified majority vote. As this runs counter to its policy of fiscal matters being determined by unanimity the Government will seek to remove or amend the provision;

·  the Commission estimates that the total budgetary impact from the proposal, taking into account reductions in fuel tank tourism would be an additional €48.3 billion (£32.5 billion) across the Community between 2007 and 2030;

·  there would be no direct financial impact for the UK as the Government's duty rates are above the proposed minimum rates; and

·  it is unlikely that there will be any material impact on the Government's tax revenues from reduced fuel tank tourism by hauliers both because of Great Britain's geographical position and because there is unlikely to be any significant impact on levels of cross-border shopping for fuel between Northern Ireland and Ireland as the latter will only have to raise its duty rate by €12 (£8) per 1000 litres by 2014.

5.9 In relation to the Commission's decisions in documents (b) and (c) the Minister comments that expiration of these derogations has no impact in the UK.

Conclusion

5.10 As far as the UK is concerned the thrust of the proposal to amend the Energy Tax Directive, document (a), is unexceptionable except in two regards. But before we consider the draft Directive further we should like to hear about progress on those points, that is a possible mechanism for implementing any differential between commercial and non-commercial diesel rates and the question of implementation provisions for a refund mechanism being subject to qualified majority voting.

5.11 Meanwhile the document remains uncleared.

5.12 The Commission Communications in documents (b) and (c) have marginal interest for the UK and we clear them.


10   (27664) 11167/06: see HC 34-xxxvii (2005-06), para 55 (11 October 2006). Back

11   (28116) 16188/06 (28117) 16190/06 (28145) 16424/06 (28153) 16528/06 (28162) 16757/06 (28163) 16758/06: see HC 41-vi (2006-07), para 2 (17 January 2007) and HC 41-x (2006-07), para 14 (21 February 2007).  Back


 
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