Taxing aviation fuel in Europe

Aviation is a major source of emissions, increasing 21% within Europe in the last three years, and is projected to continue to grow. If Europe is to meet its climate targets action is needed and fiscal policy has a key role to play. To date all aviation fuel used in Europe has been tax exempt despite such taxation being permitted on European domestic flights and intra-EU since 2003, the latter subject to bilateral agreements.

As this study and briefing explain, it is a misconception that ICAO’s Chicago Convention prohibits the taxation of aviation fuel; it disallows taxing fuel already on board an arriving aircraft only, but it says nothing about taxing fuel taken on board prior to departure. Rather, it is intergovernmental air services agreements which often prohibit kerosene from taxation, though this prohibition is being progressively removed from air service agreements for intra-EU flights. Some foreign carriers remain covered by this exemption, however a just released study shows that that this regulatory hurdle can be overcome by including a de minimis exemption.