Brussels, 18 December 2006
The European Commission has decided to send Ireland a reasoned opinion – the second stage in the infringement procedure provided for in Article 226 of the EC Treaty – because of the fixing of minimum and maximum retail prices for cigarettes by that country. The Commission takes the view, based on well established case law of the Court of Justice of the European Communities, that such prices infringe Community law, distort competition and benefit only manufacturers, by safeguarding their profit margins (see IP/06/483). Unless the legislation in the Member States concerned is brought into compliance within two months of receipt of the reasoned opinion, the Commission may decide to refer the case to the Court of Justice of the European Communities.
“I strongly support Member States in their efforts to implement new health policy. However, this must respect Community law." said Taxation Commissioner László Kovács. "Introducing minimum retail prices for cigarettes is against Community law and mainly benefits manufacturers who are able to protect their profit margins”.
Health protection objectives may be adequately attained by increasing excise duties
The Commission recognizes that price and tax measures are effective means for reducing tobacco consumption. However, tax and price measures must be in line with other Treaty obligations.
In this respect, the European Court of Justice has already stated that:
The Commission fully supports Member States in designing measures on tobacco control in order to ensure a high level of public health protection. Among the measures that could be used, the European Commission advocates minimum taxes to tackle cigarettes’ consumption. This would have the same impact on the prices and would not hamper price competition to the sole benefit of manufacturers.
This is demonstrated by a legislative proposal currently pending before the Belgian Parliament to modify the legislation on minimum retail prices of cigarettes in Belgium (see IP/06/866).
Cigarettes are taxed by means of a specific and an ad valorem-excise duty. Specific excise duties are taxes on the quantities of cigarettes. Ad-valorem excises are a percentage applied to the price of the cigarettes. Consequently, for cheap cigarettes, the ad-valorem excise duty will be small.
In order to increase the price of cheap cigarettes, Member States can either increase the specific excise duties and/or the minimum ad-valorem excise duties. Minimum excise duties (calculated on the quantity) are independent of the price of the cigarettes and also ensure that all cigarettes, whether cheap or premium brands, are properly taxed.
The Council, acting on the basis of a report from the Commission, must re-examine the rates and structures of excise duties on tobacco products before the end of 2006. In the context of this review, the Commission will examine whether and to what extent the current EU directives can be improved with a view to health protection whilst also respecting the principle of "proportionality".
Commission case reference number is 2006/2083.
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