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IP/04/669

Brussels, 26th May 2004

Alcohol taxation: Commission launches debate
The European Commission has presented a report on the operation of the EU-wide system of minimum rates of excise duty on alcohol and alcoholic beverages with a view to launching a broad debate on the subject. The report considers the effect of the present system on the proper functioning of the Internal Market, the competition between the different types of alcoholic drinks due to differences in levels of excise duty, the current real value of the minimum rates that were set in 1992 and the wider objectives of the EU Treaty. The Commission concludes that more convergence of the rates of excise duty in the different Member States is needed so as to reduce distortions of competition and fraud. However, given the widely differing views in the Member States about the appropriate levels of the minimum rates, and given that any change would require unanimous agreement, the Commission is not making a proposal at this time. Instead the Commission wishes to launch a broad debate in the Council, the European Parliament and the Economic and Social Committee. On the basis of the outcome of this debate the Commission will decide whether or not to submit proposals on all or some of the issues raised in the report.

"It is clear to all that the widely divergent levels of alcohol taxation in Member States distort the market and facilitate fraud and smuggling, but without the agreement of all Member States nothing can change", commented Taxation Commissioner Frits Bolkestein. "A full debate is needed to establish whether there is now any consensus for improvements to the present situation".

The EU legislation applying minimum rates of excise duty on alcoholic drinks requires the European Commission periodically to review the rates and produce a report, together with proposals if appropriate, that takes into account the proper functioning of the Internal Market, competition between the different categories of alcoholic drinks, the real value of the rates of duty and the wider objectives of the EU Treaty.

Functioning of the Internal Market

The continued application by Member States of widely diverging rate levels on alcoholic drinks has caused problems for a number of Member States which disturb the proper functioning of the Internal Market. The wide rate divergences in rates of excise duty and VAT between different Member States together with the frequently high tax burden on the products relative to their underlying value constitute an opportunity for legitimate cross-border shopping but also an incentive for fraudulent transactions and smuggling. The markets of those Member States where the rates of duty are high are in particular targeted. The result is tax induced distortions of competition and diversion of trade that affect the business of legitimate traders and often also restrictions on freedom of movement for citizens.

The Commission is of the opinion that enhanced approximation of rates would go a long way towards providing a solution to these problems. Most Member States agree to this but there is no agreement on what the level of the minimum rates should be.

Competition between different categories of alcoholic beverages

The Commission considers that it is difficult to draw any firm conclusions concerning the level of competition between alcoholic beverages linked to levels of excise duty. The choice of the consumer for a certain product category depends on a variety of other factors in addition to price, such as habits, occasion, culture and climate. As a consequence, the demand for a certain type of beverage is relatively insensitive to changes in its own price or to changes in the price of competing types of alcoholic beverage. However, the extent to which duty levels affect consumer choice appears to differ from one Member State to another and tends to be more important in Member States where duty is high and constitutes a bigger proportion of the price.

Real value of the minimum excise duty rates

The report concludes that, in order to ensure that the minimum rates of excise duty do not become meaningless over time, Member States could consider increasing them in order to reflect inflation (which was about 24% between January 1993 and 1January 2003.

Wider objectives of the Treaty

Health policy and agricultural policy are particularly relevant to any consideration of alcohol taxation. Other issues are enlargement and the impact on acceding countries of the measures proposed, economic and monetary union and general tax policy.

The Commission notes that a majority of Member States do not usually take into account health policy considerations when they fix their rates. As far as agricultural policy is concerned, the current zero minimum excise duty rate for wine is often seen by wine producing Member States and by producers as a necessary auxiliary measure, in order to promote the basic objectives of the Common Market Organisation for wine. However, some of the other Member States would require any changes to the minimum rates to be made conditional upon the introduction of a positive minimum excise duty rate for wine. The issue of wine taxation remains therefore a very controversial and politically sensitive issue.

With regard to the impact of the recent enlargement of the EU, all new Member States apply rates of excise duty on alcoholic beverages at or above the EU minimum rates.

Structure of excise duty on alcohol and alcoholic beverages

The report raises the question of whether the option to tax still and sparkling alcoholic beverages differently should be retained or abolished. Many producers, for example of sparkling wines, complain that there is no justification for treating these products as "luxury" items and taxing them higher than still wines.

The report also takes the opportunity to look at the various categories of alcoholic beverages, in particular mixtures of "other fermented beverages" with spirits and their classification for duty purposes which has recently been the subject of some confusion for both operators and Member States.

The debate
Given the complexity and politically sensitive aspects of the issues, the report is not accompanied by a proposal for a Directive. Instead, the Commission wishes to launch a broad debate in the Council, the European Parliament and the European Economic and Social Committee. On the basis of the outcome of this debate, the Commission will decide whether or not to submit proposals on all or some of the issues raised in the report.

Background

The minimum rates of excise duty on alcoholic drinks currently in force came into effect in 1993 (Council Directive 92/84/EEC). Above these minima Member States are free to set excise duty rates at levels that they consider appropriate. This has resulted in a great diversity within the Community in the levels of taxation applied, reflecting varying national policy considerations.

Council Directive 92/83/EEC on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages lays down common definitions of the products subject to the duty, ensuring in this way that all Member States treat the same products in the same way. The structures Directive also specifies the method of calculating the duty, and the criteria under which certain products may qualify for exemptions or reduced rates.

Up to date information on rates applied in the Member States and the Acceding and Candidate Countries is available on the following website:

http://ec.europa.eu/taxation_customs/publications/info_doc/info_doc.htm#duty-rates

The table attached in the Annex shows the rates applied in the current Member States to the most common alcoholic beverages at typical alcoholic strengths and volumes.

The full text of the report is available on the Europa website at:

http://ec.europa.eu/taxation_customs/whatsnew.htm

Excise duty rates applied to the most common alcoholic beverages at typical alcoholic strengths and volumes (in euros)

Member State
Beer –
1 litre at 5% vol
Still wine – 70cl bottle up to 15% vol
Sparkling wine – 70cl bottle up to 15% vol
Intermediate products – 70cl bottle up to 22% vol
Spirits – 70cl bottle at 40% vol
Belgium
0.21
0.33
1.13
0.69
4.65
Czech Republic
0.09
0
0.51
0.51
2.33
Denmark
0.47
0.66
0.99
0.99
5.66
Germany
0.10
0
0.95
1.07
3.65
Estonia
0.18
0.47
0.47
0.72
2.60
Greece
0.14
0
0
0.31
2.54
Spain
0.10
0
0
0.35
2.07
France
0.13
0.02
0.06
1.50
4.06
Ireland
0.99
1.91
3.82
2.77
10.99
Italy
0.17
0
0
0.35
1.80
Cyprus
0.24
0
0
0.32
1.68
Latvia
0.09
0.32
0.32
0.75
2.37
Lithuania
0.10
0.30
0.30
0.47
2.60
Luxembourg
0.10
0
0
0.47
2.91
Hungary
0.21
0.02
0.25
0.36
2.12
Malta
0.09
0
0
0.33
6.53
Netherlands
0.25
0.41
1.41
0.72
4.97
Austria
0.26
0
1.01
0.51
2.80
Poland
0.19
0.21
0.21
0.42
2.70
Portugal
0.15
0
0
0.36
2.47
Slovakia
0.15
0
0.41
0.41
1.70
Slovenia
0.35
0
0
0.45
1.98
Finland
1.43
1.65
1.65
4.94
14.13
Sweden
0.81
1.70
1.70
3.25
15.41
UK
0.97
1.77
1.54
2.36
8.72
Minimum rates
0.0935
0
0
0.315
1.54


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