Taxing aviation fuels in the EU (CE Delft)

This paper by Jasper Faber and Aoife O’Leary, analyses the taxation of aviation fuels in EU Member States on intra-EU flights. Its main focus is the legality of these taxes and it also provides estimates of the potential revenues.

Fuels used in commercial aviation are exempt from excise duties in the EU, in contrast to fuels used on road and rail transport. However, the Energy Taxation Directive permits EU Member States to impose a tax on aviation between Member States on the condition that they have entered into a bilateral agreement to do so.

If so, such a measure could also affect aircraft operators registered in a non-EU Member State, as they sometimes operate on intra-EEA routes. In that case, it is possible that some of these airlines would be subject to separate bilateral air service agreements that prohibits both States from taxing fuels. Such a situation could potentially distort the competitive market.

This report explores whether, and if so how, such a market distortion could be limited or avoided altogether. The legal analysis shows that it appears to be possible for EU Member States to tax aviation fuels on flights between them even when non-EU carriers are enjoying a mutual exemption from fuel tax operate on those routes. There are several ways to minimise the chances that a legal challenge by these carriers would be successful. The most promising option seems to be the introduction of a de minimis threshold. The potential revenues of an excise duty on aviation taxes is several billions of euros per year.

Please find the paper through this link.