EU rules for the taxation of energy products and electricity

SUMMARY OF:

Directive 2003/96/EC — restructuring the EU’s system for the taxation of energy products and electricity

WHAT IS THE AIM OF THE DIRECTIVE?

• It lays down European Union (EU) rules on taxes in regard to electricity, all motor fuels and most heating fuels.
• The purpose is to ensure that the EU’s single market for energy operates smoothly and to avoid any distortions of trade and competition which could result from big differences in national tax systems.
• The rules contribute to wider goals such as moving to a competitive, low-carbon, energy-efficient economy.

KEY POINTS

• Energy products are taxed only when used as motor fuel or for heating.
• The legislation introduces minimum levels of tax on motor fuels, heating fuels and electricity applicable from 1 January 2004.
• Energy products used for heating, in agriculture, stationary motors and machinery for construction and public works can be taxed at lower levels than fuel for cars.
• Governments may apply a lower rate of duty on commercial diesel (when used by road hauliers or for passenger transport) than on diesel for non-commercial use.
• The directive allows tax exemptions and reductions in particular for environmental and health policy reasons. Governments may exempt from taxation renewable energy sources such as biofuels or fuels and electricity used to transport goods and passengers by train, metro, tram or trolleybus.
• The legislation allows for reduced taxes for energy-intensive firms — those that have made the greatest effort to reduce consumption. EU countries which had difficulty implementing the new measures were given transitional arrangements before applying the legislation (Belgium, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Austria and Portugal).
• Similar temporary exemptions and transitional periods were granted to the countries that joined the EU in 2004 and 2007.
• The legislation does not apply to some energy-intensive sectors (e.g. in metallurgy) or to energy products which have a dual use, i.e. they are used both for heating and for another purpose (e.g. for the production of certain chemicals).

FROM WHEN DOES THE DIRECTIVE APPLY?

It has applied since 31 October 2003. EU countries had to incorporate it into national law by 31 December 2003.

BACKGROUND

For more information, see:

• ‘Excise Duties: Current Energy Tax Rules’ on the European Commission's website.

MAIN DOCUMENT

Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (OJ L 283, 31.10.2003, pp. 51–70)

Successive amendments to Directive 2003/96/EC have been incorporated into the original text. This consolidated version is for reference only.

last update 28.11.2016