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MEMO/04/126

Brussels, 26th May 2004

Alcohol tax report: Frequently Asked Questions
(see also IP/04/669)

What are the minimum excise duty rates on alcohol within the EU?

These are the minimum rate levels which are laid in EU legislation and which Member States have to respect when setting their national rates. The following table shows the minimum rates for each product category expressed in euro per hectolitre degree of alcohol, as well as the minimum rate expressed per litre of product at a degree of alcohol at which it is commonly sold.

Product category
Minimum rate expressed per 100 litres and per degree of alcohol (euros)
Minimum rate expressed per litre of product at a degree at which it is commonly sold (euros)
Wine
0
Wine (12°) 0
Beer
1.87
Beer (5°) 0.1
Fermented beverages other than wine and beer (e.g. cider and perry)
0
Cider (5°) 0
Intermediate products (e.g. fortified wines such as port wines, sherry etc. up to 22° alcohol)
2.5
Intermediate prod. (18°) 0.45
Ethyl alcohol and spirit drinks
5.5
Spirits (40°) 2.2

Why has the Commission not made a proposal concerning levels of alcohol taxation?

Because, although most Member States agree that the proper functioning of the Internal Market requires further rate approximation, there is no agreement on how this should be achieved. Member States have very different views on the importance of alcohol excise duty rates, reflecting their own national circumstances, cultures and traditions.

Some regard alcohol excise duty as an importance source of revenue and consider that maintaining their value in real terms makes good economic sense. Others tend to regard alcohol consumption as part of normal daily life. This is perhaps particularly noticeable in the case of wine - all the wine-producing Member States apply a zero rate of duty, except France and Hungary which levy a very modest rate of duty. Any EU proposals in the tax field, including in the field of excise duties, must be agreed unanimously by all Member States.

Are there any figures concerning the level of fraud in the alcohol tax area?

In a report of 24 April 1998, a High Level Group on Fraud consisting of tax experts of Member States concluded that fraud in the alcohol sector in 1996 for the EU as a whole was approximately €1.5 billion (about 8% of total excise duty receipts on alcoholic beverages). More recent figures are not available. However, the United Kingdom has estimated that in 2000-01 total revenue evasion and losses (duty and VAT) resulting from fraud and cross-Channel smuggling of alcohol stood at some £750 million (source HM Customs and Excise "Measuring indirect tax losses" November 2002).

What types of alcohol tax fraud exist?

The 1997 High Level Group on Fraud in the area of excise duties found that alcohol fraud tended to centre on abuse of the intra-Community holding and movement system. Under Directive 92/12/EEC, products subject to excise duty (alcohol, tobacco and mineral oils) coming from one Member State but intended for consumption in another can move under duty-suspension arrangements, i.e. the duty is chargeable only when the goods are actually released for consumption. The representatives of Member States in the Group reported an increased number of cases of diversion fraud whereby goods moving from one Member State to another under the duty-suspension arrangements are then diverted en route, often into Member States applying relatively high levels of duty.

Member States have also reported a significant amount of fraud by means of cross-border smuggling (not to be confused with legitimate cross-border shopping - private individuals can purchase duty-paid goods in the Member State of their choice and transport them to another Member State without having to pay duty again as long as the goods are not for commercial purposes, and are transported by them).

Why has the Commission's report not recommended higher taxation levels as a means of discouraging excessive alcohol consumption, alcoholism and alcohol abuse?

Because there are differing views on the health implications of alcohol consumption and on the effects of alcohol taxation. These are described in the report.

The report states that only one Member State (Sweden) gives predominance to health objectives in determining the duty levels on alcohol. For other high taxing countries (for instance Finland, the UK and Denmark) health objectives have become less of an issue today than they were in the past. The UK, for example, observes that there is conflicting scientific evidence on the benefits and risks of alcohol consumption with medical reports recently pointing towards the positive contribution of some alcoholic beverages to health if drunk moderately.

Producers emphasise their efforts to promote responsible attitudes towards alcohol consumption. In their opinion the great majority of European consumers drink sensibly, moderately and with pleasure. Producers feel that policies aimed at reducing overall per capital consumption through high taxation do not address those who abuse the product, and that experience shows that such an approach can even have unintended adverse effects (e.g. smuggling and illegal production).

On the other hand, health organisations, and in particular Eurocare (European Council for Alcohol Research, Rehabilitation and Education), are of the opinion that taxation should ensure a high price level, as in their view there is a clear relationship between price and consumption. Health organisations also call for great caution in attributing beneficial effects to alcohol consumption.

It is because of these and the other conflicting views on the issues involved in alcohol taxation that the Commission wants to launch a broad debate.

Is the Commission's report linked to its recently presented proposal to facilitate personal imports of alcohol?

The alcohol report has indeed a link with the proposal adopted by the Commission on 2 April 2004 (see IP/04/452). This proposal aims, amongst other things, to solve a number of the Internal Market problems highlighted in the alcohol report. In particular, it proposes to facilitate so-called distance purchasing of alcoholic beverages, which would enable private persons to purchase alcoholic beverages for private use in other Member States without having to pay excise duty in their home Member State and without having to comply with any formalities there, even if the transport of the products is not carried out by themselves but by another person on their behalf. Today, this is only possible if they transport the goods themselves. This restriction, which does not exist for products subject only to VAT, was introduced in 1993 because of the wide differences in excise duty rates between Member States which, as pointed out in the alcohol report, still exist today. The Commission considers that it is a perfectly legitimate freedom for citizens in the Internal Market to purchase duty-paid goods in the Member State of their choice and transport them to another Member State without having to pay duty again and that requirements that people have to transport the goods themselves should therefore no longer be maintained.

It is clear that the high 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, lead to increased legitimate cross-border shopping to the detriment of the revenues of high taxing countries. Most Member States agree that the answer is further rate approximation but there is no agreement on how this should be achieved.


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