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Commission OKs Denmark's CO2 Tax Proposals With Pre-Conditions

by Ulrika Lomas, Tax-News.com, Brussels

17 June 2009


The European Commission has cleared under EC Treaty state aid rules a Danish project to grant CO2 tax relief to companies covered by the EU’s Emissions Trading Scheme (EU ETS), subject to conditions.

After an in-depth investigation, opened in September 2006, the Commission concluded that if the proposed full tax exemption would be implemented, some of the environmental objectives that a tax on energy products aims to achieve would be lost. The Commission also had concerns that a full tax exemption would distort competition by increasing tax differentiations in an area where the EU has harmonised taxes and set tax minima to create a level playing field between companies. The Commission therefore approved the measure under the condition that it is amended so that all concerned companies pay an energy tax respecting at least the harmonised minimum tax levels.

Competition Commissioner Neelie Kroes said " We need to maintain a level playing field for all companies in the EU that are subject to the same environmental requirements".

In September 2006, the Commission opened a formal investigation regarding the proposal by the Danish Government to introduce an exemption from the national CO2 tax on fuel consumption for industrial activities covered by the EU Emission Trading System (ETS). The Finnish government allegedly intended to eliminate the double regulation of CO2 emissions, through taxes and emission quotas, arguing that double regulation would not lead to any further CO2 reduction, but only increase business costs and create a double burden.

The Commission's investigation found that there are important differences between the Danish energy tax, of which the CO2 tax is one element, and the EU ETS. The EU ETS aims at reducing CO2 emissions and therefore has a much narrower objective than an energy tax which aims at reducing CO2 emissions but also at energy-saving and generating state revenue. Therefore, if there were no tax on energy products, some of these objectives would not be pursued.

Since 2003, harmonised minimum rates for energy taxes are set out in the EU Energy Tax Directive (2003/96/EC) and apply to all Member States. In Denmark, the CO2 and energy taxes are levied in order to comply with these minimum rates. The companies concerned by the Danish measure are already exempted from the energy tax. Exempting them in addition from the CO2 tax would reduce the total tax on energy paid by these firms below the minimum rates that all companies operating in the EU have to pay. Denmark has not demonstrated that such a deviation would be necessary and proportionate.

However, if the proposed measure was amended, so that all concerned companies would pay a tax on energy respecting the EU minima, the Commission's concerns would be removed. The Commission, therefore, approved the measure under the condition that it is amended so that all companies pay the harmonised EU minima.


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