EFTA SURVEILLANCE AUTHORITY

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COLLEGE

Brussels, 16 December 1998 Doc. No: 98-8570-D / Dec. No. 383/98/COL Ref. No: SEA 134.400.001 GEN 1212

Dear Sir,

Subject: Letter of formal notice for failure to ensure compliance with Article 36 of the EEA Agreement and Article 3(1) of Regulation (EEC) No 2408/92 on Route Access for Air Carriers

1. Introduction

On 3 April 1998, the EFTA Surveillance Authority received a letter from the European Commission drawing the Authority's attention to the fact that, according to the data available, charged air transport taxes which distinguished between domestic services and services to other EEA States.

The Commission further informed the Authority that it had initiated infringement proceedings against those EC Member States which impose discriminatory air transport taxes, charging a different level of air passenger tax depending on whether the flight was bound to a domestic airport or to an airport in the territory of another Member State, as such a distinction was incompatible with the freedom to provide services established in Article 59 of the EC Treaty (corresponding to Article 36 of the EEA Agreement) and implemented in the field of air transport by Council Regulation (EEC) No 2408/92 on access for Community air-carriers to intra-Community air routes (the Act referred to in point 64a of Annex XIII to the EEA Agreement, hereinafter referred to as the "Regulation on Route Access for Air Carriers" or the "Regulation").

Norwegian Mission to the European Union Rue Archimede, 17 1000 Brussels

Rue de Treves 74, B-1040 Brussels, Tel: (+32 2) 286 18 11, Fax: (+32 2) 286 18 00 X400:/S=REGISTRY/O=SURV/P=EFTA/A=BT/C=BE - Internet: [email protected] Homepage: www.efta.int Page 2

2. Relevant EEA law

The EFTA States were to comply with the EEA Agreement by 1 January 1994, and with the Regulation on Route Access for Air Carriers by 1 July 1994.

Article 36(1) of the EEA Agreement stipulates that there shall be no restrictions on the freedom to provide services within the territory of the Contracting Parties in respect of nationals of EC Member States and EFTA States who are established in an EC Member State or an EFTA State other than that of the person for whom the services are intended.

Under Article 3(1) of the Regulation, as adapted for EEA purposes, EEA air carriers shall be permitted by the EEA State(s) concerned to exercise traffic rights on routes within the EEA.

3. Correspondence and information provided by the Norwegian Government

By a letter of 28 April 1998 (Doc. No 98-2755-D), the Authority invited the Norwegian Government to submit information concerning the Norwegian air transport tax and any additional information or comments deemed useful for the examination of the matter.

The Authority received a reply to its request on 25 May 1998 from the Royal Ministry of Finance and Custom (Ref. 98/4819 SA GHD/ITH). Further information was given at a meeting in Oslo on 9 November 1998 between representatives of the Ministry of Finance and Customs, the Ministry of Transport and Communication and representatives of the Authority.

The information provided by the Norwegian Government can be summarized as follows:

(a) By a Resolution of 27 November 1997 relating to an excise duty on air passenger seats (Vedtak om flyseteavgift), the Norwegian Parliament decided that, from 1 April 1998, an excise duty shall be paid to the public treasury in pursuance of Act No. 11 of 19 May 1933 concerning Sales Tax (Lov om sceravgifter av 19. mat 1933 nr 11} on the number of seats made available for the commercial carriage of passengers by air from Norwegian airports to destinations abroad and between Oslo and the following places: Bergen, Kristiansand, Stavanger and Trondheim;

By a Resolution of 17 June 1998, the Norwegian Parliament decided to amend the Resolution of 27 November 1997 relating to an excise duty on air passenger seats so that, from 1 July 1998, flights from airports in Finnmarka and the following Municipalities in Nord-: Karls0y, Kvaenangen, Kafjord, , , Skjerv0y and are exempted from the excise 'duty on flights from Norwegian airports to destinations abroad;

(b) 1. The excise duty shall be paid at the rate of NOK 130 per air passenger seat on flights from Norwegian airports to destinations abroad;

2. The excise duty shall be paid at the rate of NOK 65 per air passenger seat on flights in Norway between Oslo and the following places: Bergen; Kristiansand, Stavanger and Trondheim, -.Page 3

(c) The following types of flights are exempted from the excise duty: -military flights -flights for rescue, emergency and ambulance services -flights without passengers in connection with control/maintenance of aircraft -training flights -flights without the right to carry passengers -flights with aircraft approved for carriage of no more than 10 passengers;

(d) The new excise duty on air passenger seats replaces the former excise duty on the commercial carriage of passengers by air that applied to the same flights as mentioned under point (a), first paragraph, above until 31 March 1998;

(e) The former excise duty on the commercial carriage of passengers by air, which has existed since 1 April 1994, was in its latest version approved by the < Norwegian Parliament for the period 1 January 1998 to 31 March 1998 by Resolution of 27 November 1997 relating to excise duty on the carriage of passengers by air. The former excise duty also distinguished between domestic air services and air services to other EEA States in the same way as the present excise duty;

(f) The revenue from the excise duty is not earmarked for any particular purpose, but is part of the State treasury.

In its reply the Royal Ministry of Finance and Custom notes that the Regulation on Route Access for Air Carriers concerns access for Community air carriers to Community air routes, and not taxation.

4. Assessment

The freedom to provide air transport services within the European Community was achieved with the adoption of the third liberalization package in 1992. The Regulation on Route Access for Air Carriers, which the EFTA States had to comply with by 1 July 1994, is a fundamental part of that package. As indicated in its nineteenth recital, the Regulation constitutes a measure which deals with all matters of market access by air carriers licensed within the EEA. By adopting the Regulation, the European Council of Ministers set out the detailed rules for applying the principle of freedom to provide services laid down in Article 59 of the EC Treaty, corresponding to Article 36 of the EEA Agreement.

In these circumstances the Authority considers that, whenever the provisions of the Regulation are to be interpreted, it is necessary to refer directly to the general principle governing the freedom to provide services laid down in Article 36 of the EEA Agreement.

The general principle governing the freedom to provide services goes beyond the mere prohibition of any discrimination on grounds of nationality. Even if national measures restricting that freedom apply without distinction to national providers of services and to those of other EEA States, they still are unacceptable if they are not warranted by mandatory requirements in the public interest, or if the same result can be obtained by less restrictive rules (the proportionality principle).

Having regard to these considerations the Authority is of the opinion that the fact that air services between places located in different EEA States are treated - and notably taxed - less favourably than comparable air services between places located in the same EEA Page 4

State amounts to a violation of Article 36 of the Agreement and Article 3 (1) of the Regulation on Route Access for Air Carriers.

This view is supported by the reasoning of the European Court of Justice, most recently in the Case 381/93 Commission v France1. In that case, when interpreting Council Regulation (EEC) 4055/86 on maritime services, Art. l(a) of which ensures the freedom to provide maritime transport services, the Court stated that:

"Where national legislation, though applicable without discrimination to all vessels whether used by national providers of services or by those from other Member States, operates a distinction according to whether those vessels are engaged in internal transport or in intra-Community transport, thus securing a special advantage for the domestic market and the internal transport services of the Member State in question, that legislation must be deemed to constitute ,a restriction on the freedom to provide maritime transport services contrary to Regulation No 4055/86".

The excise duty on the number of seats made available for the commercial carriage of passengers by air, as well as the former excise duty on the commercial carriage of passengers by air, is levied at different levels for commercial carriage of passengers by air from Norwegian airports: to destinations abroad (NOK 130), with exemptions introduced from 1 July 1998 for flights from certain airports in the northern part of Norway (no excise duty), on routes between Oslo and Bergen, Kristiansand, Stavanger and Trondheim (NOK 65) and on other domestic routes (no excise duty).

The Authority is of the opinion that Norway, by charging air transport taxes which discriminate between domestic flights and flights to other States of the EEA, secures a special advantage for the domestic market and the internal air transport services in Norway in contravention of the principle of free provision of services, enshrined in Article 36 of the EEA Agreement and Article 3(1) of the Regulation .on Route Access for Air Carriers.

5 Conclusion

For the reasons stated above, the Authority concludes that by providing, in the Resolution of 27 November 1997 relating to an excise duty on air passenger seats, as amended by a Resolution of 17 June 1998, and, in its latest version, in Resolution of 27 November 1997 as regards excise duty on air passengers as levied until 31 March 1998, that flights from Norway to other EEA States are subject to a higher tax rate than domestic flights, Norway has failed to comply with its obligations under Article 36 of the EEA Agreement together with Article 3(1) of Council Regulation (EEC) No 2408/92 on access for Community air- carriers to intra-Community air routes (the Act referred to in point 64a of Annex XJJI to the EEA Agreement).

1 Judgement of the Court of 5 October 1994, Case C-381/93, 1994 ECR I, p. 5145, see paragraph 21. Page5

Therefore, and acting under Article 31 of the Surveillance and Court Agreement, the Authority invites your Government to submit its observations on the content of this letter within three months from the date of receipt thereof.

After that date, the Authority will proceed to consider, in the light of any observations and information received from your Government, whether to deliver a reasoned opinion in accordance with Article 31 of the Surveillance and Court Agreement.

For the EFTA Surveillance Authority

Yours faithfully, T> ( f\ ^- U(ix^->^-QytJO< Bernd Hammermann College Member