Taxation of energy products and electricity in the European Union is governed by Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity 1 (the ‘Energy Taxation Directive’ or the ‘Directive’).

Pursuant to Article 19(1) of the Directive, in addition to the provisions laid down 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 in the level of taxation for specific policy considerations.

By virtue of Council Implementing Decision (EU) 2023/1197 2 of 19 June 2023, Poland was authorised to apply reduced rates of excise duty to heavy fuel oil, natural gas, coal, and coke, used as heating fuels. That authorisation expired on 30 June 2023.

Poland is seeking for an authorisation to continue to apply a temporary reduction of the national tax rates for heavy fuel oil, natural gas, coal, and coke, used as heating fuels, below the minimum levels of taxation laid down in Article 9 of the Directive and Table C of Annex I to the Directive.

The requested period of validity is limited to 6 months, which is within the maximum period allowed by Article 19(2) of the Energy Taxation Directive.

By a letter dated 30 June 2023, the Polish authorities have informed the Commission that they intend to continue to apply the above mentioned temporary measure for a further period of six months, with effect from 1 July 2023 to 31 December 2023. The Polish authorities provided additional information respectively on 8 September 2023, as well as on 5 and 13 October 2023.

The request for derogation concerns the application of reduced rates of excise duty to heavy fuel oil, natural gas, coal, and coke, used as heating fuels.

The Polish authorities pointed out that the annual update of the minimum rates expressed in national currencies for Member States that have not adopted the euro, required on the basis of Article 13 of the Directive, in combination with the temporarily high – and unfavourable – euro-zloty (EUR/PLN) exchange rate on the first working day of October 2022, would require an increase in the levels of taxation applicable to the products concerned 3 .

Although the exchange rate of the zloty since then has returned to a more favourable level, the rules established by Article 13 do not take that into consideration, and therefore the only way for Poland to maintain constant levels of taxation for the energy products concerned would be by means of a request for derogation. According to Poland, without this derogation, it would be necessary to increase the levels of taxation applicable to those products.

The objective of the Polish request is to mitigate the negative impact potentially deriving from the adjustment under Article 13 of the Energy Taxation Directive, by maintaining the relevant national tax rates at their current levels, below the relevant minimum taxation levels laid down in the Directive. That would correspond to a reduction of the national tax rates expressed in euro compared to the minimum rates, resulting from the difference of EUR/PLN exchange rate after annual adjustment carried out in accordance with Article 13 of the Directive. This maitenance of current national rates would also be applied to other products intended for heating purposes within the meaning of Article 2(3) of the same Directive.

According to the Polish authorities, the social and economic situation generated by high inflation as well as rising prices of energy products continue to constitute a serious problem for the Polish society. 

Besides the other measures adopted 4 , Poland highlighted the importance of such a derogation due to the negative impact stemming from the sharp increase in energy sales prices, which is one of the consequences of the Russian invasion of Ukraine. Along with a rampant inflation, the Polish authorities underlined that this situation directly affects both households and companies.

To illustrate the price increase, the Polish authorities provided the below chart (Chart 2) showing the average price for natural gas from January 2020 to May 2023.

Chart 2 – Average price for natural gas (2020-2023) 10

The chart below (Chart 3), also provided by the Polish authorities, illustrates trends in historical coal and natural gas prices in the respective wholesale markets, including the increase in prices in 2022 related to the effects of Russia’s agression against Ukraine.

Chart 3 – Spot price of coal and natural gas in USD (2020-2023) 11

The Polish authorities additionally provided the wholesale prices (2020-2023) 12  on heavy fuel oil illustrated in the chart below (Chart 4).

Chart 4 – Wholesale prices for heavy fuel oil (2020-2023)

Finally, the Polish authorities presented daily energy prices on the Polish Power Exchange (POLPX) in the below chart (Chart 5).

Chart 5 – Daily Energy Prices (2016-2023)

As regards the tax levels on the concerned products, the Polish authorities provided the below table (Table A) which compares the minimum levels of taxation as applicable under the Directive for each product covered by their request, together with the corresponding rates currently in force in Poland (January 2023). They emphasised in this respect that the excise duty rates on heating fuels apply without distinction to both non-commercial and commercial customers.

Table A

To support their request, the Polish authorities provided the Commission with the charts below, presenting (i) the exchange rate as applicable on the first working day of each month from January 2022 to April 2023 (Chart 6); (ii) fluctuations in the exchange rate in October 2022 (Chart 7); and (iii) the average monthly exchange rate for 2022 (Chart 8).

Chart 6 – EUR/PLN exchange rate on the first working day of each month (2022-2023)

Chart 7 – EUR/PLN exchange rate in October (2022)

Based on the above chart, the Polish authorities stressed that after reaching the peak on 11 October 2022, the EUR/PLN exchange rate was progressively decreasing.

Similarly, they also highlighted that, based on the chart below, the exchange rate dated October 2022 was the highest in 2022.

Chart 8 – Average monthly EUR/PLN exchange rate (2022-2023)

In light of the information presented in the above charts, the Polish authorities stressed that using October 2022 13 as a reference for the annual adjustment, in accordance with Article 13 of the Directive, had a negative impact, especially in light of the fluctuation of the Polish currency. According to the Polish authorities, this adjustment does not consider the dynamics of economic changes, and the exchange rate fluctuations in the period from October of a given year to the end of September of the next year are irrelevant. To give further evidence of this adverse effect, they presented the below example (Table B) emphasising that the excise duty rates for the energy products covered by their request would have been within the minimum levels, as laid down in the Directive, if the annual adjustment had been based on the exchange rate as it stood in January 2022.

Table B

The budgetary expenditure for the period covered by the derogation request is estimated at PLN 6.5 million (based on the consumption data and income of 2022). The table below (Table C), provided by the Polish authorities, presents in this respect the budgetary implications for each of the energy products concerned.

Table C

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.”.

Article 13 (1) of the Directive requires that for Member States that have not adopted the euro, the value of the euro in national currencies to be applied to the value of the levels of taxation shall be fixed once a year. The rates to be applied shall be those obtaining on the first working day of October and published in the Official Journal of the European Union and shall have effect from 1 January of the following calendar year.

Article 13(2) of the Directive states that “Member States may maintain the amounts of taxation in force at the time of the annual adjustment provided for in paragraph 1 if the conversion of the amounts of the level of taxation expressed in euro would result in an increase of less than 5 % or EUR 5, whichever is the lower amount, in the level of taxation expressed in national currency”.

The relevant Polish national rates, converted on the basis of Article 13(1), are just over the 5% tolerance permitted under Article 13(2) of the same Directive. By asking for a derogation to allow the non-indexation of its national rates, the Polish authorities are asking for a very small (less than 1 percentage point) temporary increase in the tolerance level applicable to the annual adjustment of rates for a limited period.

By means of the requested derogation, limited in time, the Polish authorities intend to mitigate the negative impact that would result from an increase in the levels of taxation due to a high euro-zloty (EUR/PLN) exchange rate of euro, applicable due to Article 13 of the Directive. That reduction would correspond to the amount resulting from the exchange rate difference after annual adjustment carried out in accordance with Article 13 of the Directive.

Poland considers that the temporary measure should partially alleviate the social and economic burden that Polish consumers are enduring in the present geopolitical context. The Polish authorities pointed out in this respect that the tax reduction would be beneficial also for the sellers of the covered energy products.

The possibility of keeping such a tax reduction can be permitted under Article 19 of the Directive since its purpose is to allow Member States to introduce further exemptions or reductions for specific policy considerations.

The limited period of validity of 6 months is within the maximum period allowed by Article 19(2) of the Energy Taxation Directive, laying down, for this type of measure, a maximum period of 6 years, with the possibility of renewal.

However, the derogation should not undermine the future adoption by the Council of a legal act based on a Commission proposal for amendment of the Energy Taxation Directive 15 .

State aid rules

The present proposal is without prejudice to any assessment of the Polish measure under State aid rules. Moreover, the proposal for a Council implementing decision does not prejudge the Member State’s obligation to ensure compliance with State aid rules.

Each request for derogation under Article 19 of the Energy Taxation Directive must be examined by the Commission taking into account: (i) the proper functioning of the internal market; (ii) the need to ensure fair competition; (iii) and EU policies on health, environment, energy and transport policies.

As highlighted by the Polish authorities, the objective of such tax reduction is to partially alleviate the social and economic burden the Polish population would face in the event of a tax increase due to the high exchange rate of euro, coupled with rampant inflation affecting both households and businesses, partly due to the recent price increase resulting from the conflict in Ukraine.

As a result of that situation, the temporary reduction is not likely to affect intra-EU trade. Given its limited effects and duration, the requested measure should not distort competition or hinder the functioning of the internal market.

Article 19 of Council Directive 2003/96/EC.

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, pursuant to Article 19 of Directive 2003/96/EC, the Council has been granted an exclusive competence, as a matter of secondary law, to authorise a Member State to introduce further exemptions or reductions within the meaning of that provision. Member States cannot therefore substitute themselves for the Council. As a result, the principle of subsidiarity is not applicable to the present implementing decision. In any event, since this act is not a draft legislative act, it should not be transmitted to national parliaments pursuant to Protocol No 2 to the Treaties for review of compliance with the subsidiarity principle.

The proposal respects the principle of proportionality.

The tax reductions do not exceed what is necessary to attain the objective in question.

The tax reductions are applicable during a limited six-month period.

The instrument proposed is a Council implementing decision.

Article 19 of Directive 2003/96/EC makes provision for this type of measure only.

This proposal is based on a request made by Poland and concerns this Member State only.

There was no need for external expertise.

This proposal concerns an authorisation for an individual Member State upon its own request and does not require an impact assessment.

The measure does not provide for any simplification.

It is the result of the request made by Poland and concerns this Member State only.

The measure has no bearing on fundamental rights.

The measure does not impose any financial or administrative burden on the European Union. The proposal therefore has no impact on the budget of the Union.

An implementation plan is not necessary. The proposal concerns an authorisation for a tax reduction for an individual Member State upon its own request. It is provided for a limited period of 6 months.

The applicable tax rates will be below the minimum levels of taxation set by the Energy Taxation Directive (Article 9).

The measure can be evaluated in case of a request for a renewal after the validity period has expired.

The proposal does not require explanatory documents on the transposition.

Article 1 stipulates that Poland will be allowed to apply reduced taxation rates to heavy fuel oil, natural gas, coal, and coke, used as heating fuels, below the minimum levels of taxation.

Article 2 stipulates that the authorisation requested is granted for 6 months, as requested by Poland, within the maximum period of 6 years allowed by the Directive.