Taxation Task Force

On the fiscal front, there are three issues UEIL is closely following; the review of the Energy Taxation Directive (1), the possible control of movement under EMCS of lubricant additives (2) and the possible control of movement under EMCS of base oils (and possibly metal working compounds) (3).

(1) Currently the EU is discussing a new legislative framework for the taxation of energy products and electricity, which affects the lubricants because they are considered energy products. However lubricants fall outside of the scope of taxation if the products are not used for fuel or heating purposes. Unfortunately the Directive does not propose any specific prohibition on taxation of lubricants outside of the Directive (it declares them out of scope), which leaves the freedom to many countries to impose a national tax on lubricants (e.g. Italy, Poland, Portugal and Denmark). This creates a grey market for lubricants in these countries and a distortion of the level playing field. UEIL is engaging with the Council Working group (EU member states representatives at the EU) to push for an amended text on the basis of the old 1992 Directive which specifically exempted lubricants from taxation closing the door to national taxation outside of the Energy taxation Directive. A final decision on this is not expected before 2013.

(2) On EMCS application, earlier in June, the EU has taken the decision to include additives (CN 3811) in the control and movement provisions of the Energy Taxation Directive, resulting in the need to use the system Excise Movement and Control System (EMCS) in all EU Member States. The issue follows from a recent ECJ decision which clarifies that fuel additives are to be considered as excise duty products. Consequently a process was started under Directive 2003/96 to bring (fuel) additives under the Control and Movement provisions/EMCS. However, instead of adding only the relevant CN categories [only CN 3811 11 and CN 3811 19 refer to fuel additives (anti-knock preparations)], the Decision seems to include all substances under CN 3811, so also the lubricant additives (not used in fuel) in CN 3911 21 and CN 3811 29 - products not used for fuel and/or heating purposes. As lubricant additives are not taxed, there is no reason to apply the EMCS. The Commission and member states confirmed that this was an unintended consequence of the decision. Thanks to UEIL’s successful and intensive lobbying, most Member States supported the exclusion of lubricant additives from the scope of the Decision and have asked the Commission to amend the Decision. In the meantime implementation of the decision will be on hold until it is amended. The Commission is now looking at how to best amend the Decision with the legal service of the Commission.

(3) On a similar but separate issue, some countries have called for the application of the EMCS system to base oils referring to possible tax fraud of mixing cheap base oils with fuel. The cost to implement the EMCS for the movement of base oils would be substantial and completely unwarranted as almost all lubricant manufacturers in the EU are currently not using EMCS at all for any of their products/raw materials. Especially as in the end there is no excise duty on any of the lubricant additives the application of the EMCS to these lubricant additives would be completely out of proportion. At the moment UEIL is actively engaging with the Commission on this issue and has presented its expert view during a workshop on this topic with the Commission and Member State representatives on the 6th of December. We had a very useful meeting with the Member states (Member states mainly present were states from the eastern part of the EC). Following the presentations, Member states (Estonia, Hungary, Poland, Germany and Portugal) asked questions on the addition of lubricants into the automotive diesel. EUROPIA and CONCAWE, also present and aligned with UEIL, outlined the special technical specifications (professional specifications) of the concerned lubricants and notably the fact that their introduction in diesel would deteriorate any modern car engine. All pointed out the fact that the fraud in certain well identified parts of the EC should not lead to an increase of the administrative burden in all the EU Member states. Next step : a rapport will be issued by the Commission and presented during the next Excise Committee mid of March. If Member states decide to go ahead and to vote on the issue, the inclusion of base oils in EMCS will have to be approved by qualified majority. For the moment France and the UK are clearly supporting our position. Going forward more advocacy is needed to fend off the possible burden for our sector if EMCS is to be applied to base oil movements.