November 2025
Publications
The growing legal risks of the EU's tax giveaway to airlines
Aviation fuel is largely untaxed throughout the EU. In this briefing, we look at how the current tax exemptions granted in line with the Energy Taxation Directive (ETD) may conflict with EU rules on state aid and the Brexit Agreement. This exposes EU Member States and the aviation sector to significant legal uncertainty and litigation risks.
Background
The aviation industry continues to benefit from a privileged fiscal regime across the EU, which directly affects the ability of less emitting sectors to compete on a level playing field. This fiscal regime stems from the Energy Tax Directive (ETD), a Directive adopted more than 20 years ago and which must now be revised to reflect the EU’s current strategic priorities.
What’s covered in the report?
This report finds that the current tax exemptions for aviation fuels adopted by EU Member States on the basis of the ETD conflict directly with two other legal regimes:
The EU state aid regime: tax exemptions for intra-EU flights on certain routes across the EU may constitute state aids. Under EU state aid rules, such tax exemptions should have been notified before their implementation and are therefore likely to be unlawful and subject to recovery by Member States and/or damages claims by competitors.
The Trade and Cooperation Agreement (TCA): this agreement between the UK and EU allows for the taxation of aviation fuel for flights between these regions. There is a clear inconsistency between the ETD (which does not allow for taxation on international flights) and the TCA. The UK can introduce a fuel tax on flights to the EU without the EU having the ability to respond, leaving the EU at a competitive disadvantage and potentially vulnerable to litigation.
Our recommendations
We recommend addressing the legal risks presented in this briefing by clearly and unequivocally authorising the taxation of aviation fuels both for intra-EU and international flights through a revision of the ETD. Following the revision, we also recommend that Member States notify the European Commission of any remaining tax exemptions for aviation fuel as state aid.