The Swedish Presidency has turned its attention to the thorny issue of energy tax, which has been in deadlock at Council level over the last few Presidencies. The Council's discussions are still based on the European Commission's March 1997 proposal but the burning question now is whether the Swedes will achieve more in this area than their predecessors. They are addressing the issue from a different angle, namely harmonizing tax before going any further, and an initial discussion has already taken place in the Council's working group. The situation is quite contradictory in that the Presidency is unanimously supported in its attempts to get the ball rolling, although Member States hold opposing views. A progress report will be prepared for the Finance Ministers for their meeting on 5 June.

This taxation would depend on the current minimum duty levied on mineral oils, but their energy products (such as natural gas, coal and electricity) are expected to be exempt from duties in the new structure. The new rules will not necessarily be mandatory before at least one Member State implements a positive rate of duty.

Exemptions.

The Council's working group also discussed large energy-using companies, with the Swedish Presidency suggesting that a common tax structure would allow a degree of harmonization in energy tax reductions and exemptions for big energy users and this would help the Internal Market function more smoothly by removing distortions of competition.

This already raises the question, however, of how this tax harmonization would mesh with EU legislation on state aid, particularly in terms of the new guidelines on providing a Community framework for state aid for the environment. Various delegations have asked the Council's Legal Service to clarify the issue.

Cogeneration.

The Swedish Presidency is also proposing to launch a debate on the criteria determining whether a company is a 'big' electricity consumer since opinions vary widely from one Member State to another. Should the criteria concern the proportion of costs made up by electricity or specific areas of business activity or processes which require huge amounts of electricity, for example?

The definition of "energy products used as fuel" still needs to be clarified since in its 1997 proposal, the European Commission exempted energy products from duty where they are not used as fuels, along with fuel and energy used in chemical reduction, electrolysis and metallurgical processes. The Swedish Presidency is proposing to stipulate a stricter definition in order to facilitate common interpretation of the rules.

Electricity.

Energy taxes (levied by most Member States) raise a number of problems. The general idea is that electricity itself should be taxed (an output tax), but for environmental reasons, it is possible to tax energy products which are used to generate electricity (input taxes). Once electricity reaches the grid, however, it is no longer possible to determine how it was generated so input taxes on imported energy would have to be set at the lowest level applied to energy from domestic suppliers, irrespective of how it was generated. The Swedish Presidency feels that a harmonized taxation system should allow electricity to be supplied without any taxes being levied before it is actually supplied to the customer, which is more or less the outcome of the current mineral oil exemption scheme. The Swedish Presidency is also looking at whether renewable energy should be tax-free.

Heat.

The Commission's 1997 proposal specifies that the Directive would also apply to heat produced in the electricity generation process but Member States do not want taxes on heat to be included in any future Directive on energy taxation. Nevertheless, it is clear that the Directive should not prevent Member States from levying an output tax on heat produced by combined heat and power generators. It this still the case? What about current and possible future exemptions for energy products used to generate heat?

Tax suspension.

The Swedish Presidency wants to launch a debate on which products should be covered by a tax suspension scheme (such as coal). In practical terms, this means that any processing of the product, from the moment it is produced or imported, would have be carried out by an approved depot, such as a bonded warehouse, which would effectively involve a suspension of the tax on a product in transit, i.e. before the end-product stage.