EU excise duties on commercial diesel – Frequently Asked Questions

— last modified 13 March 2007

The new proposal is based on the fact that existing tax differentials on diesel used by trucks (“commercial gas oil”) create distortions of competition within the liberalised Internal Market of the haulage sector. In addition, they lead to “fuel tourism”, where truck drivers alter their routes in order to benefit from low tax rates applied in certain Member States, thereby having a negative impact on the environment. In consequence, the Commission’s proposal aims at narrowing these differentials while reducing environmental damages.

What is the proposal about?

The proposal aims at reducing the distortions of competition currently existing on the haulage market, while reducing environmental damages.

Excise duties on fuel represent between 6% and 18% of the running costs of a road haulage business. At present, in a liberalised market where competition is stiff, differences in operating costs resulting from national taxes have a greater impact.

Distortions of competition are due to the excessive differentials in excise duties applied by the Member States on commercial diesel combined with the fact that operators competing on the same markets do not have equal access to “cheap fuel”. Big trucks currently cover between 1500 and 3000 kilometres on a single tank. Hauliers involved in international activities or located in or near the border of a low taxing country can therefore take advantage of the very significant differences in national excise duties on gas oil fuel by filling up in Member States with the lowest taxes, sometimes making detours which are prejudicial to the environment.

The proposal will increase in two steps the minimum rate of excise duties from EUR 302 to 380 per 1000 – in 2014 (intermediate step at EUR 359 in 2012).

The proposal furthermore foresees that in any given Member State, the rates applicable to non-commercial diesel and to unleaded petrol must not be less than that applied to commercial diesel. Otherwise, non-commercial diesel and unleaded petrol would be treated more favourably than commercial diesel, whereas no environmental reason or distortion of competition justifies such favourable treatment.

What does it mean: “In any given Member State, the rates applicable to non-commercial diesel and to unleaded petrol must not be less than that applied to commercial diesel”?

For example, for a Member State taxing commercial diesel at EUR 340 per 1000l, non-commercial diesel at  EUR 350 per 1000l and unleaded petrol at EUR 370 per 1000l, the proposal will have the following incidence:

• in 2012, the commercial diesel rate will be raised to  EUR 359 per 1000l. The non-commercial diesel rate must therefore be equal or greater than  EUR 359 per 1000l. This increase will have no incidence on the taxation of unleaded petrol, which is by definition (since its minimum is  EUR 359 per 1000l) already taxed above the new minimum level for commercial diesel, that is to say  EUR 359 per 1000l.
• in 2014, the commercial diesel rate will be increased to  EUR 380 per 1000l. The non-commercial diesel rate will have to be equal to or greater than  EUR 380 per 1000l. The unleaded petrol rate will also have to be equal to or greater than  EUR 380 per 1000l.

These changes are induced by the increase in the commercial diesel rates. Non-commercial diesel and unleaded petrol would otherwise be treated more favourably than commercial diesel, whereas no environmental reason or distortion of competition justifies such favourable treatment.

What is commercial diesel? What is non commercial diesel?

Commercial and non commercial diesels do not designate different types of fuel. They qualify the use made of gas oil, be it for commercial or non-commercial purposes. According to the Energy Tax Directive (2003/96/EC), commercial diesel is used by trucks of more than 7.5 tonnes and/or vehicles used for the carriage of passengers, comprising more than eight seats in addition to the driver’s seat.

What do you mean by “distortions of competition”?

The “Energy Tax Directive” (2003/96/EC) lays down a series of minimum rates of excise duty on energy products. Above these minimum rates Member States are free to set their national excise rates at levels they consider appropriate.

Table 1: EU minimum rates fixed by the ETD for unleaded petrol and gas oil (diesel)

It means that from 1 January 2004, unless they benefit from transitional periods, Member States can not tax unleaded petrol at a lower level than  EUR 359 and diesel at a lower level than  EUR 302.

In practice, the commercial diesel rates differ a great deal from one Member State to another. For the time being, 9 countries do not comply with the minimum rate of EUR 302 because of transitional periods granted in order to take into account their specific situation. Out of the countries which already comply with minimum rates set in the Energy Tax Directive, 13 countries apply a rate fluctuating between  EUR 300 and  EUR 400 excise tax per 1000 litres. 5 countries tax at a level in excess of  EUR 400 per 1000 litres.

In theory, since any driver is free to choose where to tank in the European Union, irrespective from his country of origin, there should not be any distortions of competition. The large fuel capacity of modern trucks allows hauliers to benefit from this freedom of choice.

Yet, because of geographical and business constraints, not all hauliers can tank in the cheapest markets. The differences in fuel costs can be as high as 20% on a 1000 km journey. Since operators competing on the same markets do not all enjoy the same possibilities of purchasing low-tax fuel, tank tourism creates distortions of competition between different categories of hauliers. In effect, hauliers who can benefit from low taxed fuel have increase their share of the market at the expense of hauliers forced to pay higher fuel taxes.

What is the importance of the tank tourism?

Although there is no general study measuring the importance of fuel tourism in Europe, it has been proved that it has an important budgetary impact in some Member States. In Germany, the Schmid Traffic Service GmbH estimated that the tax loss from excise duties on mineral oils in 2004 resulting from fuel tourism was  EUR 1.915.000.000. The total loss is even higher and amounts to  EUR 3.6 billion each year, because of the reduced tax revenues from VAT and the reduced amounts of cigarettes sold at the tank stations.

Besides, one has to differentiate cases where operators simply use the opportunity to tank “en route”, without making any detours, from detour tank tourism. The first mainly amounts to a shifting of consumption that would in any event have taken place in one Member State or another, whereas when drivers make deliberate detours from their routes to take advantage of the differences in national excise duties, this has a net negative effects on the environment because of the longer distance driven.

Concerning detours, a study done by Michaelis in 2003 showed that Germans are willing to drive 2 to 4 additional kilometres for each Euro cent price differential compared to a neighbouring country in the case of gas oil. Given the existing 2003 price differentials between Germany and its neighbours, this relates to an average distance of about 30 to 35 additional kilometres. A 1990 study concerning the Netherlands established that with a price difference of 0.14-0.16 ECU per litre compared to Belgium and Germany, 10 million extra kilometres were driven to refuel across the border.

Why propose to fix a minimum rate of EUR 359 by 2012 and EUR 380 by 2014?

The amount of EUR 359 corresponds to the current minimum level of taxation for unleaded petrol. Since the impact assessment of the proposal has shown that there is no justification, from an environmental point of view, to tax diesel and unleaded petrol differently, the first increase in 2012 retained this level of taxation as the new minimum for diesel.

The amount of EUR 380 is a compromise between different considerations:

• Reduce the distortions of competition further: leaving aside the countries benefiting from transitional periods and the United Kingdom the span of variation is today around EUR 170. All things being equal, it would be reduced by half, to 90, once the minimum rate has become EUR 380.
• Make a more environmental friendly proposal.
• Avoid the minimum rate to erode too much in real terms. In case minimum rates eroded, Member States resources would also erode. They would then increase other taxes, for instance on labour. This would not be consistent in the context of the “Hampton Court” Communication (COM 2005 (525)), where the Commission underlined the interest of a shift of taxation from labour to consumption/pollution taxes.
• Take into account the existing situation, where some Member States have low excise duties.

How does taxation of commercial diesel work? Do all Member States have different levels of taxation for commercial diesel and for non commercial diesel?

Member States have the option to “decouple” their excise duty rates on diesel. This means they can differentiate the rates applied on commercial diesel and non-commercial rates, by taxing diesel used for commercial purposes at a lower rate than diesel used by private cars. This fiscal option may be chosen by Member States that decide to support the haulage industry.

For the time being, only 4 Member States (France, Spain, Belgium and Italy) differentiate the excise duties rates applied on respectively commercial and non commercial diesel. In other Member States, the level of taxation of commercial diesel is the same as for non commercial diesel.

In those Member States, there is only one diesel price at tank stations. Entrepreneurs or firms are reimbursed of the difference between commercial and non-commercial rates once they have proven that they are professional users. This is the so-called refund mechanism.

The table below gives the level of taxation depending on the use:

What would be the consequences of a “no change” policy?

In case differences in taxation rates cannot be reduced:

• Distortions of competition will persist on the haulage market, leading to job loss in high-taxing countries,
• High taxing countries will also continue to experience budgetary losses.
• Detours will continue to be made in order to benefit from those differences, which have a negative environmental impact.

Why does the Commission not propose a full harmonization?

It should be recalled that an initial proposal relating to a full harmonization of commercial gas oil taxation was presented in 2002^[2]. This proposal was withdrawn in the context of the screening of legislative proposals pending before the legislator.

A full harmonization is not realistic, given the existing situation, with wide differences in excise duties. It would be very difficult to determine the rate that would suit all Member States, given the diversity of the situations.

Besides, it might not be necessary to go that far to reduce detour tank tourism to a large extent, since making detours also represents a cost (driving hours, risk of accidents, congestion).

Why does the Commission not propose maximum excise rates?

The current proposal gives an incentive to high taxing countries to reduce their rates, by introducing road charges. They indeed have the possibility to tax at a rate below the 1 January 2003 rate, provided the minima are respected and the fiscal burden remains the same.

Going further in this direction might not be justified.

Maximum excise rates would limit the budgetary resources of the Member States, which amounts to a loss in sovereignty.

Maximum excise rates would moreover limit the possibility for Member States to conduct a greener policy, by increasing the rates to the level which suits them.

Why also propose to modify excise duties on unleaded petrol and non-commercial diesel?

The impact assessment showed that the best way to reduce the distortions of competition, while also reducing the environmental damages and not having a negative impact on Member States budgetary resources is to increase the minimum level of taxation for commercial diesel.

Once the commercial diesel minimum rate is increased, if the minimum rates for non-commercial diesel and unleaded petrol were not modified, it would amount to favour those two fuels in comparison to commercial use of diesel.

Since there is neither an environmental reason (those fuels are equally detrimental to the environment), nor an economic justification to tax them more favourably, the increase in the minimum rate for commercial diesel had to be accompanied by the rule according to which in a given Member State, non-commercial diesel and unleaded petrol cannot be taxed less than the commercial diesel.

What is the current level of rates applied on commercial gas oil in the EU-27?

As mentioned above, levels of taxation of commercial and non commercial diesel are the same in most of the EU Member States (except France, Spain, Belgium and Italy).

In July 2006, the levels of taxation of commercial diesel were following (€/1000l):

For more information on the current rates applied on energy products (diesel, unleaded petrol, leaded petrol), see this link

Will this proposal affect my own budget when tanking my personal car?

Since the minimum levels of taxation for commercial diesel will be increased and since the proposal foresees that in a given Member State, unleaded petrol and non-commercial diesel cannot be less taxed than commercial diesel, fuel used by private cars may increase in the Member States taxing diesel and unleaded petrol at their current minimum levels (or below, for Member States benefiting from transitional periods).

However, the increase in retail price will not be automatic as experience has already shown that increase in excise duty rates are not always reflected in the retail prices. The impact assessment stressed that variation in fuel costs components are not necessarily passed on to customers. Variations in excise duties, which are, as crude oil prices, one of the components of fuel prices will not necessarily be reflected in the consumer’s prices.

Why does the Commission not propose to increase the minimum rates before 2012?

2012 was chosen because:

• The last increase of diesel minimum level foreseen by the current directive will take place in 2010;
• Some Member States are currently benefiting from transitional periods which have to be respected;
• There is a necessity to reduce the distortions of competition and environmental damages as early as possible, 2012 being also the Kyoto objective.

Yet, some of the effects of the proposal start from day one after its adoption. This is notably the case of the provision according to which all Member States will now be able to tax commercial diesel at a lower rate than that they applied on 1 January 2003, provided the fiscal burden on the users remains broadly equivalent (via road charges, vignettes).

This change is crucial because otherwise, for Member States (except the United Kingdom) already taxing above the minimum level in 2003, the only possibility at present to decouple is by increasing the rate applied to non-commercial traffic. Other things being equal, this cannot help reduce the existing differences between Member States in commercial gas oil rates and will only increase the differences in non-commercial gas oil rates, which might in turn increase tank tourism made by private cars. For the already high-taxing countries in 2003 there is in reality no room for manoeuvre in order to reduce the existing distortions under the current provisions, whereas the proposal will solve this deadlock.

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