IP/06/866

Brussels, 28 June 206

Excise duty/cigarettes: Minimum retail prices of cigarettes Infringement proceedings against France and Belgium

The European Commission has decided to send France and Belgium 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 retail prices for cigarettes by those countries. 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). To achieve the objective of reducing tobacco consumption, the Commission advocates increasing the excise duty on cheap cigarettes. 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 cases to the Court of Justice of the European Communities.

“I strongly support Member States in their efforts to implement new health policy” said Taxation Commissioner László Kovács. "However, this must respect Community law. 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 duty

The Commission recognises that price and tax measures constitute effective means of reducing tobacco consumption. Such measures must, however, be in line with obligations under Community law.

In this respect, the Court of Justice of the European Communities has already ruled that:

• imposing minimum prices is incompatible with the current legal framework (Article 9(1) of Council Directive 95/59/EC of 27 November 1995), since the setting, by the public authorities, of such prices inevitably has the effect of limiting the freedom of producers and importers to determine their selling prices (see in particular the Judgment in Case C-302/00 Commission v France [2002] ECR I 2055);
• minimum prices are not necessary, since the public health objectives may be attained by increased taxation of tobacco products (Judgment in Case C-216/98 Commission v Greece [2000] ECR I 8921).

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 an increase in excise duty and minimum taxes to tackle cigarette consumption. This would have the same impact on prices but would not hamper price competition to the sole benefit of manufacturers.

Background

Cigarettes are taxed by means of specific and ad valorem excise duties. Specific excise duty is based on the quantity of cigarettes. Ad valorem excise duty is a percentage applied to the price of the cigarettes. Consequently the ad valorem excise duty on cheap cigarettes will be small.

In order to increase the price of cheap cigarettes, Member States can increase the specific and/or minimum ad valorem excise duties. Minimum excise duties (calculated on the quantity) are independent of the price and ensure that all cigarettes, whether cheap or premium brands, are properly taxed.

The European Council, acting on the basis of a report from the Commission, must re-examine the rates and structures of excise duty 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".

The cases reference numbers are 2005/2003 (France) and 2005/2248 (Belgium).
For the latest news on infringement cases (all Member States), see:

http://ec.europa.eu/community_law/eulaw/index_en.htm
Further information on current legislation on tobacco products is available on the following website:

http://ec.europa.eu /comm/taxation_customs/taxation/excise_duties/tobacco_products/index_en.htm