European Commission, v Ireland [2013] EUECJ C-55/12 (25 April 2013)

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(Failure of a Member State to fulfil obligations – Directive 2003/96/EC – Taxation of energy products and electricity – Exemption from excise duty on fuel used by disabled persons for motor vehicles – Exemption maintained after the expiry of the transitional period –Infringement)

European Commission, represented by R. Lyal and W. Mölls, acting as Agents, with an address for service in Luxembourg,

1 By its application, the European Commission seeks from the Court a declaration that, by granting an exemption from excise duty on fuel used by disabled persons for motor vehicles without respecting the minimum levels of taxation prescribed by Council Directive 2003/96/EC of 23 October 2003 restructuring the Community framework of taxation of energy products and electricity (OJ 2003 L 283, p. 51), as amended by Council Directive 2004/74/EC of 29 April 2004 (OJ 2004 L 195, p. 26) (‘Directive 2003/96’), Ireland had failed to fulfil its obligations under that directive.

2 Directive 2003/96 establishes minimum levels of taxation applicable by Member States to energy products and electricity. It also gives Member States the option of applying differentiated rates of taxation and granting exemptions or reductions in the level of taxation, in accordance with the conditions laid down in the directive.

‘When intended for use, offered for sale or used as motor fuel or heating fuel, energy products other than those for which a level of taxation is specified in this Directive shall be taxed according to use, at the rate for the equivalent heating fuel or motor fuel.

In addition to the taxable products listed in paragraph 1, any product intended for use, offered for sale or used as motor fuel, or as an additive or extender in motor fuels, shall be taxed at the rate for the equivalent motor fuel.

‘1. The levels of taxation which Member States shall apply to the energy products and electricity listed in Article 2 may not be less than the minimum levels of taxation prescribed by this Directive.

2. For the purpose of this Directive “level of taxation” is the total charge levied in respect of all indirect taxes (except [value added tax, ‘VAT’]) calculated directly or indirectly on the quantity of energy products and electricity at the time of release for consumption.’

6 Article 6(c) of Directive 2003/96 gives Member States the option of giving effect to the exemptions or reductions in the level of taxation prescribed by the directive by, inter alia, ‘refunding all or part of the amount of taxation’.

‘By way of derogation from the provisions of the present Directive, the Member States specified in Annex II are authorised to continue to apply the reductions in the levels of taxation or the exemptions set out in that Annex.

Subject to a prior review by the Council, on the basis of a proposal from the Commission, this authorisation shall expire on 31 December 2006 or on the date specified in Annex II.’

‘In addition to the provisions set out in the previous Articles …, the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce further exemptions or reductions for specific policy considerations.

A Member State wishing to introduce such a measure shall inform the Commission accordingly and shall also provide the Commission with all relevant and necessary information.

The Commission shall examine the request, taking into account, inter alia, the proper functioning of the internal market, the need to ensure fair competition and Community health, environment, energy and transport policies.

Within three months of receiving all relevant and necessary information, the Commission shall either present a proposal for the authorisation of such a measure by the Council or, alternatively, shall inform the Council of the reasons why it has not proposed the authorisation of such a measure.’

9 Annex I to Directive 2003/96 sets out the minimum levels of taxation applicable, inter alia, to motor fuels.

10 Section 7 of Annex II to Directive 2003/96, entitled ‘Ireland’, includes, among the uses of energy products for which the reduced rates of taxation and exemptions referred to in Article 18(1) of the directive may be granted, the use of such products by disabled persons for motor vehicles. That derogation was to be applicable, in the absence of any reference to another date in Section 7 of Annex II, until 31 December 2006.

11 Under the laws and regulations relating to the tax measures in question, persons suffering from severe permanent disability in Ireland are entitled to repayment of excise duty levied on fuel for motor vehicles which they use as driver or passenger. The repayment is limited to an annual maximum of 600 gallons per beneficiary or, where the beneficiary is an organisation primarily engaged in providing assistance to disabled persons, a maximum of 900 gallons per annum per vehicle.

12 Section 100(1) of the Finance Act 1999, in the version applicable at the material time, is worded as follows:

‘Subject to it being shown to the satisfaction of the Commissioners that the condition or conditions in this section which are necessary for eligibility for relief from mineral oil tax and any other conditions imposed by the Commissioners have been complied with, a relief from mineral oil tax shall be granted on:

(k) mineral oil in respect of which the Minister thinks it proper to repay or remit mineral oil tax or part of that tax to the extent that the Minister thinks proper.’

13 Section 92(1) of the Finance Act 1989 provides that, notwithstanding anything to the contrary contained in any enactment, the Minister for Finance may, after consultation with the Minister for Health and the Minister for the Environment, make regulations providing for the following:

(a) the repayment of excise duty and [VAT] and the remission of road tax in respect of a motor vehicle used by a severely and permanently disabled person:

(i) as a driver, where the disablement is of such a nature that the person concerned could not drive any vehicle unless it is specially constructed or adapted to take account of that disablement, or

(ii) as a passenger, where the vehicle has been specially constructed or adapted to take account of the passenger’s disablement, and, where the vehicle is adapted, the cost of such adaptation consists of not less than 30 per cent of the value of the vehicle excluding tax and excise duty, or such lesser percentage in respect of certain cases as may be specified by regulations in respect of the repayment of any tax relating to adaptation costs only,

(b) the repayment of excise duty relating to hydrocarbon oil used for combustion in the engines of vehicles, to be specified in the regulations, by such a severely and permanently disabled person.’

14 Regulation 2(1) of the Disabled Drivers and Disabled Passengers (Tax Concessions) Regulations, 1994 (‘the 1994 Regulations’) defines the categories of persons eligible for repayment of excise duty and Regulations 8 to 13 contain specific provisions concerning such repayment for each category of eligible persons.

15 Regulation 16 of the 1994 Regulations, entitled ‘Fuel repayments’, is worded as follows:

‘(1) The excise duty paid on any fuel used for combustion in the engine of a vehicle on which repayment or remission of tax, or residual vehicle registration tax has been granted in accordance with these Regulations shall be repaid by the Revenue Commissioners where the use of the fuel was related to the transportation of the disabled person or persons concerned whether as driver of passenger.

(2) Where the repayment or remission of tax or residual vehicle registration tax was made under Regulation 8 or 10, the repayment of excise duty on fuel referred to in paragraph (1) shall be limited to the duty on an annual maximum of 600 gallons per beneficiary.

(3) Where the repayment or remission of tax or residual vehicle registration tax was made under Regulation 12, the repayment of excise duty on fuel referred to in paragraph (1) shall be limited to the duty on an annual maximum of 900 gallons per vehicle.

(4) The excise duty paid on any fuel used for combustion in the engine of a vehicle which would have qualified for repayment or remission of [VAT], vehicle registration tax or residual vehicle registration tax in accordance with these Regulations but for the fact that the vehicle was purchased prior to the coming into effect of these Regulations, shall be repaid by the Revenue Commissioners where the use of the fuel was related to the transportation of the disabled person or persons concerned whether as driver or passenger, and the provisions of paragraphs (2) and (3) shall apply with any necessary modifications.’

16 On 23 September 2008, the Commission sent a letter of formal notice to Ireland in which it claimed that that Member State had failed to fulfil its obligations under Directive 2003/96, in so far as concerns the minimum levels of taxation prescribed by the directive, and that Ireland had failed to notify the Commission of the measures taken to comply with the provisions of the directive.

17 By letter of 23 January 2009, Ireland informed the Commission that, although certain legislative measures had been adopted, with effect from 1 November 2008, to comply with the minimum levels of taxation in question, the exemption from excise duty of fuel used by disabled persons for motor vehicles was still applicable. Ireland also requested a further reasonable period of time within which to comply with Directive 2003/96.

18 In the absence of any further communication from Ireland in response to the letter of formal notice, on 7 May 2010 the Commission sent a reasoned opinion to that Member State, in which it contended that Ireland had failed to fulfil its obligations under Directive 2003/96 by failing to adopt the measures necessary to comply with the directive as regards the rate of taxation of fuel for motor vehicles used by disabled persons. The Commission requested Ireland to adopt, within two months of receipt of the reasoned opinion, the measures necessary to comply with it.

19 In its response to the reasoned opinion of 22 July 2010, Ireland informed the Commission that the necessary measures would be adopted with effect from 1 April 2011. By letter of 5 October 2010, that Member State stated that the adjustments necessary to comply with Directive 2003/96 required amendments to be made to the Finance Acts of 1989 and 1999 and/or the 1994 Regulations. It indicated that those amendments would be enacted in March 2011 in the context of the Finance Bill 2011 and that it was anticipated that the 1994 Regulations would be amended at the same time.

20 Moreover, by letter of 30 May 2011, Ireland informed the Commission that the enactment of the amendments necessary to bring it into line with Directive 2003/96 had been deferred, pending the outcome of a full review of public expenditure. Ireland stated that the 2012 Finance Bill, due to be enacted in March 2012, would be the first opportunity available for amendment of the provisions in question.

21 Since it did not receive any further information enabling to conclude that the measures necessary for compliance with Directive 2003/96 had been adopted, the Commission decided to bring the present action.

22 The Commission points out that, pursuant to Article 4 of Directive 2003/96, the levels of taxation applied by Member States to energy products and electricity may not be less than the minimum levels prescribed by the directive. All motor fuels should, in principle, be taxed at rates which comply with the minimum requirements set out in Article 4 of the directive. Provided Member States comply with the minimum levels of taxation prescribed by the directive, they are authorised, under Article 5, to apply differentiated rates in the instances set out in the directive, including in respect of motor fuel for motor vehicles used by disabled persons.

23 The Commission states that, during the pre-litigation stage, Ireland did not dispute the infringement alleged but simply sought an additional period of time within which to make the requisite changes. Some five years following the expiry, on 31 December 2006, of the derogation granted to Ireland under the first subparagraph of Article 18(1) of Directive 2003/96, that Member State had still not made the necessary changes.

24 Ireland submits, first, that the rates of taxation applied to motor fuels manifestly exceed the minimum rates of taxation prescribed by Directive 2003/96. It states that, contrary to what is claimed by the Commission, the national tax scheme does not provide for an ‘exemption from excise duty of motor fuels used by disabled people’ but for a repayment to severely disabled persons of the cost of the excise duty component of purchases of motor fuel, up to a maximum amount of such fuel. According to Ireland, that scheme does not have the effect of applying a rate of taxation below the minimum rate prescribed by the directive, since excise duty has already been paid by oil warehouses. The payment made by the Revenue Commissioners is simply a social payment to severely disabled persons.

25 Second, Ireland refers to the application which it made to the Commission under Article 19(1) of Directive 2003/96 for authorisation to exempt fuel used by vehicles for the transport of disabled persons from excise duty. According to that Member State, although the Commission recognised in its reply that the purpose of the application was to compensate for the significant costs incurred by persons with reduced mobility, it none the less rejected the application, stating that the specific needs relating to the economic resources of the persons concerned could be dealt with more appropriately by means of targeted instruments which are compatible with the prescribed minimum levels of taxation. Ireland is at a loss to understand what reasons could justify a refusal to retain the current payment scheme, given that it achieves the same result.

26 Third, Ireland maintains that it would be difficult to devise a new scheme that is unrelated to excise duty levied on the sale of motor fuel. It adds that there is constant pressure to broaden the scope of the current scheme so as to widen the very restricted range of qualifying disabilities and thereby allow more disabled persons to qualify for the scheme.

27 Ireland submits that, even if it were accepted that the national scheme at issue were at odds with the wording of Directive 2003/96, Articles 4 and 5 of the directive should not be interpreted in an absolutist manner, so that the continued operation of a scheme whose effect on the proper functioning of the internal market is remote, or at least uncertain, is not incompatible with the directive. According to that Member State, the continuance of the scheme would neither affect the uniform application of the directive nor undermine its harmonisation objective.

28 The Commission responds to Ireland’s arguments by stating, first, that, contrary to what is claimed by that Member State, the full reimbursement of excise duty levied by Ireland constitutes, for the purposes of Article 6(c) of Directive 2003/96, one of the forms in which an exemption from the level of taxation prescribed by the directive may be granted. An interpretation of the directive to the effect that only the duty levied at the point of release for consumption is to be taken into account and that reimbursements of excise duty are to be disregarded would have the effect of depriving the provisions of the directive laying down minimum levels of taxation of any practical effect.

29 Next, with regard to the interpretation of Articles 4 and 5 of Directive 2003/96, the Commission is of the view that the European Union legislature required, in clear terms, observance of minimum levels of taxation, having struck a balance between considerations pertaining to the proper functioning of the internal market and the environment on the one hand, and the particular situation of certain categories of consumers, including disabled persons, on the other.

30 Lastly, the Commission contests Ireland’s argument that the national scheme at issue has no effect on the proper functioning of the internal market and the claim that that Member State may rely, in these infringement proceedings, on the Commission’s refusal to propose a derogation under Article 19(1) of Directive 2003/96.

31 Article 4(1) of Directive 2003/96 provides that the levels of taxation which Member States are to apply to energy products and electricity may not be less than the minimum levels prescribed by the directive. It is apparent from the first subparagraph of Article 18(1) of the directive and Annex II thereto that Ireland was authorised to apply until 31 December 2006, by way of derogation from the provisions of the directive, reduced rates of taxation and exemptions in respect of fuel used by disabled persons for motor vehicles.

32 It is common ground that the repayment of excise duty on fuel for such vehicles referred to in Section 100(1) of the Finance Act 1999, Section 92 of the Finance Act 1989 and Regulation 2(1) of the 1994 Regulations continued to be applied in Ireland after 31 December 2006, even though that Member State had no such authorisation.

33 In those circumstances, the Court finds that, since the expiry on 31 December 2006 of the derogation granted to Ireland, the repayment of excise duty provided for under Irish legislation in respect of fuel used by disabled persons for motor vehicles has been contrary to the terms of Article 4(1) of Directive 2003/96, which requires adherence to minimum levels of taxation for energy products and electricity.

34 That finding is not invalidated by the arguments put forward by Ireland in its defence.

35 First, Ireland maintains, as set out at paragraph 24 above, that it is necessary to draw a distinction between the repayment provided for under the national legislation at issue and the concept of ‘exemption’ within the meaning of Directive 2003/96, and claims that, as a consequence, the excise duty levied on fuel used by disabled persons for motor vehicles exceeds the minimum levels of taxation prescribed by the directive.

37 Article 6(c) of Directive 2003/96 refers to the ‘refunding [of] all or part of the amount of taxation’ as one of the options available to Member States for giving effect to the exemptions from or reductions in the level of taxation set out in the directive. However, Ireland has not been authorised to avail itself of that option since the expiry of the derogation provided by Directive 2003/96.

38 Furthermore, it is apparent from the wording of Article 6 of Directive 2003/96 that it is possible for an ‘exemption’ within the meaning of that provision not to be applied by a Member State directly but for it to be granted by it in the form of a refund.

39 It follows that the effect of accepting Ireland’s argument set out at paragraphs 24 and 35 above would be to circumvent the statutory rules on derogation set out in Articles 6, 18 and 19 of Directive 2003/96 and Annex II to the directive.

40 Moreover, account cannot be taken of the social nature of the repayment provided for by the national legislation at issue, to which Ireland alludes, because, under Article 6 of Directive 2003/96, Member States may grant only the exemptions or reductions in the level of taxation prescribed by the directive. It is common ground that, since 31 December 2006, no derogation enabling Ireland to grant an exemption from the minimum level of taxation of fuel used by disabled persons for motor vehicles has been applicable.

41 Accordingly, the argument relied on by Ireland to the effect that the excise duty levied in that Member State on fuel used by disabled persons for motor vehicles is above the minimum levels of taxation prescribed by Directive 2003/96 cannot be accepted, since it is not disputed that that duty is subsequently reimbursed to the persons concerned by the Revenue Commissioners, such reimbursement thereby neutralising the effect of that taxation.

42 Second, Ireland’s argument set out at paragraph 25 above – by which that Member State complains that the Commission refused to comply with its request that that institution propose a derogation, pursuant to Article 19(1) of Directive 2003/96, enabling it to grant an exemption from the minimum levels of taxation applicable to fuel used by disabled persons for motor vehicles – cannot be accepted.

43 Indeed, it cannot be accepted that a Member State may unilaterally circumvent the requirement to comply with the obligations laid down in a directive on the ground that the Commission did not, in accordance with the procedure laid down by that directive, comply with its request for a derogation. Moreover, Ireland cannot call into question, in the course of infringement proceedings seeking a declaration that that Member State failed to adhere to the minimum levels of taxation prescribed by the directive, the grounds on which the Commission refused to propose a derogation under Article 19(1) of Directive 2003/96.

44 Third, the argument set out at paragraph 26 above that Ireland would have to deal with difficulties of a domestic nature if it were required to alter the scheme relating to excise duty on the sale of fuel to disabled persons and the argument claiming that the effect of the scheme in question on the proper functioning of the internal market is remote cannot be accepted.

45 It should be noted in that regard that it is settled case-law that a Member State cannot plead the situation prevailing in its domestic legal order to justify failure to observe obligations laid down by a directive (see Case C-496/09 Commission v Italy [2011] ECR I-0000, paragraph 87 and the case-law cited). Moreover, the procedure laid down in Article 258 TFEU is based on the objective finding that a Member State has failed to fulfil its obligations under the Treaties or secondary legislation. Article 258 TFEU enables the Commission to institute proceedings for failure to fulfil obligations each time it forms the view that a Member State has failed to fulfil an obligation under Community law, without its being required to draw distinctions based on the nature or gravity of the infringement (judgment of 22 December 2008 in Case C-189/07 Commission v Spain, not published in the ECR, paragraph 33 and the case-law cited).

46 In those circumstances, the action brought by the Commission must be considered to be well founded.

47 Having regard to all the foregoing considerations, the Court finds that, by continuing to grant, after the expiry on 31 December 2006 of the transitional period referred to in the first subparagraph of Article 18(1) of Directive 2003/96 and Annex II to that directive, an exemption from excise duty on fuel used by disabled persons for motor vehicles, Ireland has failed to fulfil its obligations under Article 4(1) of the directive.

48 Under Article 138(1) of the Rules of Procedure of the Court of Justice, the unsuccessful party must be ordered to pay the costs if they have been applied for in the other party’s pleadings. Since the Commission has applied for costs and Ireland has been unsuccessful, the latter must be ordered to pay the costs.

1. Declares that, by continuing to grant, after the expiry on 31 December 2006 of the transitional period referred to in the first subparagraph of Article 18(1) of Council Directive 2003/96/EC of 23 October 2003 restructuring the Community framework of taxation of energy products and electricity, as amended by Council Directive 2004/74/EC of 29 April 2004, and Annex II to that directive, an exemption from excise duty on fuel used by disabled persons for motor vehicles, Ireland has failed to fulfil its obligations under Article 4(1) of the directive;

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