52013PC0008

EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

The taxation of energy products and electricity in the EU is governed by Council Directive 2003/96/EC (hereafter 'the Directive'). The Directive specifies which products are taxable, the uses that make them taxable and the minimum rates at which they must be taxed depending on whether they are used as motor fuel, for certain industrial or commercial purposes or for heating.

Pursuant to Article 19(1) of the Directive, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions from or reductions in the rate of excise duties for specific policy considerations.

The objective of this proposal is to permit France to continue to apply a reduction in the rate of taxation on unleaded petrol used as motor fuel and consumed in the Corsican departments with a view to partially offsetting the additional costs induced by geographical remoteness and difficulties of supply.

The request and its general context

Council Decision 2007/880/EC of 20 December 2007 authorised France to apply a reduced rate of excise duty to unleaded petrol used as motor fuel and consumed in the Corsican departments on the condition that the reduction does not go beyond the additional cost of transport, storage and distribution compared with mainland France. The objective of this Decision is to permit France to partially offset the additional costs induced by geographical remoteness and difficulties of supply. In application of this Decision, France applied a reduction of EUR 1 per hectolitre of unleaded petrol.

By letter dated 12 March 2012, the French authorities requested an authorisation to continue to apply a reduction of EUR 1 per hectolitre for a period of six years, from 1 January 2013 to 31 December 2018. By letters dated 25 June 2012 and 5 October 2012 France has submitted additional information concerning the justification of the request for derogation.

As in the previous requests, the French authorities argued that the reduction in the rate of excise duty is required to offset part of the higher price of unleaded petrol ([1]) resulting from the insular nature of Corsica. The higher price is caused by the additional costs of selling fuel in this region, which is estimated at 7 eurocent per litre. According to the French authorities, several reasons explain this additional cost:

(1) Given that there is no refinery in Corsica, transport and distribution costs are higher for delivery of fuel there because of the additional costs associated with maritime and road freight (longer distance and journey time). The distance from the nearest refinery in Fos-sur-Mer to the two storage warehouses on Corsica in Luciano and Ajaccio is respectively 358 km (of which 182 km by sea) and 315 km (of which 170 km by sea). Transport to these warehouses exclusively takes place by boat, whereas all warehouses situated on mainland France are all directly linked to a refinery through a network of pipelines, which considerably reduces transport costs. As an example, costs of transport to Corsica are four to five times higher than costs for a transport by pipeline between Le Havre and the region of Paris.

(2) The much smaller capacity of the two warehouses in Corsica (respectively 16 000 m3 and 19 000 m3) requires more frequent supplies to them. Investment in the maintenance, compliance of facilities and staff costs are not related to business volume of the depots. The total volume of fuel entered in these depots is less than 400 000 m3 per year, which is half of the average volume for a depot on the mainland. Hence, the storage cost per m3 is higher in Corsica.

(3) The fixed costs borne by distributors must be absorbed by a lower sales volume because of the low population ([2]), the very mountainous terrain (90 % mountains) and the small volumes of fuel sold by each service station. The areas of distribution are therefore isolated and far apart from each other. The number of inhabitants per service station is 2 485 compared to an average of 5 768 on the French territory and the sales volume per service station amounts to 2 278 m3 for Corsica as compared to 4 149 m3 in mainland France.

As illustrated in the table below, the international petrol price quotations for Corsica and for mainland France are the same amounting to EUR 64.82 per 100 litres. The difference in the gross transport costs is very high between mainland France and Corsica, respectively EUR 7.77 per 100 litres and EUR 23.28 per 100 litres. In spite of the lower tax rates (both energy tax and VAT) the final price for unleaded petrol is higher in Corsica than in mainland France.  The table below shows the price structure of petrol and diesel on 10 August 2012

Average price of a fuel in EUR per 100 litres || Mainland France petrol || Corsica petrol || South Corsica petrol

Price including taxes || 160.07 || 165.00 || 163.51

VAT || 26.23 || 18.98 || 18.81

Energy tax || 61.25 || 57.92 || 57.92

Gross transport and distribution margin || 7.77 || 23.28 || 21.96

International quotations (Hypothese Corse) || 64.82 || 64.82 || 64.82

Source: www.prix- carburants.gouv.fr

France also pointed out that the measure comes under the specific government policy in favour of development in Corsica, justified by the handicap of insularity. According to available statistics, Corsica as a whole has a gross domestic product per capita of EUR 23 800 in 2009, which is considerably lower than the national average of EUR 29 574 in that year.

Provisions in the field covered by the proposal

Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity.

Council Decision 2011/38/EU of 18 January 2011 authorising France to apply differentiated levels of taxation to motor fuels in accordance with Article 19 of Directive 2003/96/EC. The regionalisation of the rates of domestic consumption tax on petroleum products (TIPP) concerns both diesel and unleaded petrol used as motor fuel. It forms part of the policy of decentralisation planned by the French authorities inasmuch as it allows the French regions, including Corsica, to adjust the rates of excise duty applicable to motor fuels. This decentralisation is part of an approach designed to increase administrative effectiveness by improving the quality and reducing the cost of public services. It is also part of a policy of subsidiarity, allowing for decisions to be adopted in many areas at the appropriate level (see the second recital to Decision 2011/38/EU) and therefore pursues objectives other than those sought by the tax reduction requested. The authorisation expires at the end of 2012, but France has requested its extension.

Assessment of the measure under Article 19 of Directive 2003/96/EC

Specific policy considerations

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.'

The tax differentiation places unleaded petrol consumers in Corsica on a more equal footing with similar consumers on the mainland by partially offsetting the additional cost borne by consumers in Corsica. The proposed measure therefore meets certain regional and cohesion policy objectives.

The tax reduction does not go beyond the additional costs of transport and distribution borne by consumers in Corsica. The EUR 10/1 000 l reduction in the cost of unleaded petrol is much smaller than the difference between the respective final prices.

The reduced rate of taxation on the consumption of unleaded petrol currently applied in Corsica (EUR 579.2/1 000 l) ([3]) is still appreciably higher than the minimum EU level set by Directive 2003/96/EC (EUR 359/1 000 l).

Consistency with the other policies and objectives of the Union

When the Commission examines a request, it takes into account the proper functioning of the internal market, the need to ensure fair competition and the implementation of the EU’s health, environment, energy and transport policies.

The measure is acceptable from the point of view of the proper functioning of the internal market and of the need to ensure fair competition. It merely seeks to partially offset the additional costs associated with Corsica’s island status. In view of the remote and insular nature of the departments to which it applies and the moderateness of the reduction in the rate - which is, moreover, very high compared with the EU minimum - the measure is not expected to lead to changes in fuel consumption, through the attraction of consumers from outside these areas.

As the effect of the tax relief on transport is expected to be insignificant, and compensatory policies could be found for any marginal effects which might occur, the measure is not incompatible with the health, environment, energy and transport policies of the union.

Period of application of the measure and development of the EU framework on Energy Taxation

Article 19(2) of Directive 2003/96/EC lays down, for this type of measure, a maximum period of six years, with the possibility of renewal. The Commission suggests that the period of application is set to the maximum allowed by Directive 2003/96/EC, i.e. six years, taking into account the absence of any negative impact of the current arrangement on intra-EU trade and on the general level of taxation of fuels in France, in order to ensure legal certainty for the region, the Commission suggests at this stage to grant the authorisation for six years, i.e. from 1 January 2013 until 31 December 2018.

However, in order not to undermine future general developments of the existing legal framework, it is appropriate to provide that, should the Council, acting on the basis of Article 113 of the Treaty, introduce a modified general system for the taxation of energy products to which the present authorisation would not be adapted, this Decision shall expire on the day on which those modified rules become applicable.

Should the Council adopt such a new system and should the Commission consider that the authorisation proposed herewith is still warranted, it would examine, positively and in a timely manner, any request from France for a similar authorisation adapted to that new system, so as to provide for the continuity of the present proposal.

State aid rules

The measure may constitute State aid in accordance with Article 107(1) of the TFEU. Since the reduced rates are above the EU minima, the measure would be covered by Article 25 of Regulation 800/2008/EC ([4]) (the General Block Exemption Regulation) and would thus be considered compatible with the internal market. However, as the period of validity of the General Block Exemption Regulation ends on 31 December 2013 any aid inherent in the measure would need to be notified to the Commission under State aid rules, in case the Commission would not have adopted a new Regulation comparable to the General Block Exemption Regulation or in case such new Regulation would not contain a rule equivalent to the one present in Article 25.

The decision is without prejudice to the applicable State aid rules during the period covered by the derogation.

2.           RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation of interested parties

The proposal consists of a tax reduction which concerns only France.

Obtaining and using expertise

No external expertise has been used.

Impact assessment

No impact assessment has been carried.

Summary of the measure proposed

The Commission proposes to authorise the tax reduction of EUR 10 per 1 000 l until 31 December 2018, thereby permitting France to apply a reduced rate of taxation to unleaded petrol used as motor fuel and consumed in the Corsican departments.

Legal basis

Article 19 of Council Directive 2003/96/EC.

Principle of subsidiarity

The field of indirect taxation covered by Article 113 of the TFEU is not in itself within the exclusive competence of the EU within the meaning of Article 3 of the Treaty.

However, the exercise by Member States of their concurrent competences in this field is strictly circumscribed and limited by the measures harmonising national laws already adopted by the Council.

As it happens, pursuant to Article 19 of Directive 2003/96/EC, only the Council is empowered to authorise a Member State to introduce further exemptions or reductions within the meaning of that provision. Member States cannot substitute themselves for the Council.

The proposal therefore respects the principle of subsidiarity.

Principle of proportionality

The proposal respects the principle of proportionality. The EUR 0.01/l reduction in the cost of unleaded petrol is well below the additional cost borne (EUR 0.10 per litre).

Choice of instruments

Instrument proposed: Council decision.

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

3.           BUDGETARY IMPLICATION

The measure does not impose any financial and administrative burden on the Union, The proposal therefore has no impact on the Union budget.

4.           OPTIONAL ELEMENTS

None.

2013/0006 (NLE)

Proposal for a

COUNCIL DECISION

authorising France to apply a reduced rate of taxation to unleaded petrol used as motor fuel and consumed in Corsican departments in accordance with Article 19 of Directive 2003/96/EC

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity ([5]), and in particular Article 19(1) thereof,

Having regard to the proposal from the European Commission,

Whereas:

(1)       By Council Decision 2007/880/EC ([6]) France was authorised to apply a reduced rate of taxation to unleaded petrol used as motor fuel and consumed in Corsican departments in accordance with Article 19 of Directive 2003/96/EC.

(2)       By letter dated 12 March 2012, France requested authorisation to apply a reduced rate of energy tax to unleaded petrol used as motor fuel by way of extension of a practice followed under Decision 2007/880/EC. The reduction amounts to 1 EUR per hectolitre. The authorisation is being requested for the period from 1 January 2013 to 31 December 2018. In Corsica the cost of supplying unleaded petrol to the forecourt is appreciably higher than in mainland France, final prices being 0,10 EUR per litre higher than on the mainland.

(3)       By reducing the tax on unleaded petrol borne by consumers in Corsica, the consumers concerned will be placed on a more equal footing with those on the mainland. The measure therefore meets regional and cohesion policy objectives.

(4)       The tax reduction is no larger than what is necessary to allow for the additional transport and distribution costs borne by consumers in Corsica.

(5)       The final level of taxation complies with the minimum rates laid down in Directive 2003/96/EC - currently 359 EUR /1 000 l (or 35,90 EUR /hl). This holds true even allowing for an authorisation analogous to the one granted by Council Implementing Decision 2011/38/EU of 18 January 2011 authorising France to apply differentiated levels of taxation to motor fuels in accordance with Article 19 of Directive 2003/96/EC ([7]), for the period as from 1 January 2013, in case the effects of such decision are combined with those of this Decision.

(6)       In view of the remote and insular nature of the departments to which it applies and the moderateness of the reduction in the rate - which is, moreover, very high compared with the minimum level prescribed by Directive 2003/96/EC - the measure requested will not give rise to any movement specifically linked to the supplying of fuel.

(7)       Consequently, the measure is acceptable from the point of view of the proper functioning of the internal market and of the need to ensure fair competition and it is not incompatible with the health, environment, energy and transport policies of the Union.

(8)       France should therefore be authorised, pursuant to Article 19(2) of Directive 2003/96/EC, to apply a reduced rate of taxation to unleaded petrol used as motor fuel and consumed in Corsica, and this until 31 December 2018.

(9)       It follows from Article 19(2) of Directive 2003/96/EC that each authorisation granted under that Article must be strictly limited in time.

(10)     In order to provide the regions concerned with a sufficient degree of certainty, the authorisation should be granted for a period of six years. However, in order not to undermine future general developments of the existing legal framework, it is appropriate to provide that, should the Council, acting on the basis of Article 113 of the Treaty, introduce a modified general system for the taxation of energy products to which this authorisation would not be adapted, this Decision expires on the day on which the rules on that modified system become applicable.

(11)     It should be ensured that France can apply the specific reduction to which this Decision relates seamlessly following on from the situation existing before 1 January 2013, under Decision 2007/880/EC. The authorisation requested should therefore be granted with effect from 1 January 2013.

(12)     This Decision is without prejudice to the application of the Union rules regarding State aid,

HAS ADOPTED THIS DECISION:

Article 1

France is authorised to apply a reduction in the rate of taxation not exceeding 1 EUR per hectolitre to unleaded petrol used as motor fuel and consumed in the Corsican departments

In order to avoid any over-compensation, the reduction shall not go beyond the additional costs of transport, storage and distribution compared with mainland France.

The reduced rate shall comply with the obligations in Directive 2003/96/EC, in particular the minimum rates referred to in Article 7 thereof.

Article 2

This Decision shall apply from 1 January 2013 and shall expire on 31 December 2018.

However, should the Council, acting on the basis of Article 113 of the Treaty, introduce a modified general system for the taxation of energy products to which the authorisation granted in Article 1 of this Decision would not be adapted, this Decision shall expire on the day on which the rules on that modified system become applicable.

Article 3

This Decision is addressed to the French Republic.

Done at Brussels,

                                                                       For the Council

                                                                       The President

([1])            The pump price of unleaded petrol (SSP 95) in Corsica on 22 May 2012 was EUR 1.66 per litre compared to an average price of EUR 1.56 per litre on the French territory.

([2])            The number of inhabitants is 35/km2 in Corsica compared to 94/km2 in mainland France.

([3])            This rate takes into account the reduction applied by Corsica in application of Council Decision 2011/38/EU of 17 January 2011.

([4])            Commission Regulation (EC) No 800/2008/EC of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty, OJ L 214, 9.8.2008, p. 3.

([5])            OJ L 283, 31.10.2003, p. 51.

([6])            OJ L 346, 29.12.2007, p. 15.

([7])            OJ L 19, 22.1.2011, p. 13.