EC Opens Inquiry Into Dutch Tax Exemption

by Ulrika Lomas, Tax-News.com, Brussels

16 February 2009

The European Commission has opened a formal investigation under state aid rules into a Dutch tax exemption for the delivery of natural gas used in installations for the production of ceramic products.

As the proposed tax exemption only affects natural gas used by the Dutch ceramic industry, the Commission is of the view that this measure confers a "selective advantage" on the ceramic industry and would therefore constitute illegal state aid. According to the Commission, such operating aid can be authorised only in "exceptional circumstances," for example when it is related to environmental protection.

The Community Guidelines on State Aid for Environmental Protection explicitly allow exemptions from environmental taxes under certain specific conditions. Under these guidelines, an environmental tax is defined as "a tax whose specific tax base has a clear negative effect on the environment or which seeks to tax certain activities, goods or services so that the environmental costs may be included in their price and/or so that producers and consumers are oriented towards activities which better respect the environment". Because energy is a 'specific tax base with a clear negative effect on the environment', the EC considers that the energy tax in the Netherlands is an environmental tax.

"At this stage the Netherlands has not demonstrated compliance with the EU Guidelines," the Commission states, adding:

"The Commission is of the view that the Netherlands has not demonstrated that the proposed tax exemption is derived directly from the basic or guiding principles of the applicable national system on the taxation of energy products. The proposed tax exemption only regards natural gas used by the Dutch ceramic industry for production purposes and does not apply to gas used for all other mineralogical processes, which might be in a comparable situation as regards the use of energy products in their production processes."

EU state aid rules prevent member states from bestowing fiscal advantages or subsidies on specific companies, industries or regions if these "distort" competition in the single market.

The Commission has requested that the Netherlands supply information regarding the "necessity and proportionality" of the aid and its effects on the ceramics sector. However, to date the Dutch authorities have not provided the requested information – hence the launching of the formal investigation.

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