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14.2.3.  Excise duties in the EU

    In a fiscally integrated European Community/Union a number of major special taxes on consumption (excise duties), i.e. taxes on the consumption of certain products, yielding substantial revenue to the States, must be maintained alongside VAT. Excise duties make it possible to impose a much larger tax burden on a small number of products than that borne by the vast majority of goods that are only subject to VAT, which has very few, and fairly low, rates. If the various excise duties in the EC/EU States were abolished, the resultant losses of revenue would have to be offset by increasing VAT rates, which would be certain to have an inflationary effect on their economies. Thus, for example, manufactured tobacco products and mineral oils bear, without major drawbacks, very high taxes, which on average yield more than 10% of the tax revenue of the EU States. Moreover, within the overall context of a tax scheme, excise duties constitute flexible components, which can easily be manoeuvred if further tax revenue is needed. As they are separate taxes, excise duties can easily be adapted to the various economic, social and structural requirements. Lastly, they can be levied specifically in order to reduce consumption of certain products, such as tobacco products and alcoholic drinks, for public health reasons, and petroleum products for reasons of environment linked energy savings and reduction of energy dependence.

    But if some excise duties had to be maintained in the EC/EU two conditions had to be met so as not to disturb the common market: their structures had to be harmonised, so as to remove taxation indirectly protecting national production; and their rates had to be harmonised so as to eliminate, in trade between Member States, taxation and tax refunds as well as frontier controls, which disturbed the free movement of goods within the common market.

    Taking account of these conditions, a Directive defines the general arrangements for excise duty [Directive 2008/118]. In contrast to the harmonised VAT system, the general arrangements for excise duties are definitive. The taxable event takes place at the stage of manufacture in the EU or of import into the EU from a third country. The tax is payable when the product is put up for consumption and must be acquitted in the country of actual consumption. The Member States have the option of introducing or maintaining taxation on other products and services, provided however that this taxation does not give rise to border crossing formalities in trade between the Member States.

    Excise duties are paid by the consignee in the country of destination and the appropriate provisions are taken to this effect. For commercial operations, the European system is similar to that applied within a state. The movement of products subject to suspended excise duty is run through interconnected bonded warehouses and is covered by an accompanying document, which has been harmonised at European level. The payment of the excise due in the Member State of destination can be assumed by a fiscal representative established in this State and designated by the consignor. The appropriate provisions are taken to enable the exchange of information between all the Member States concerned by the movement of goods subject to excise with a view to ensuring effective fraud control [Decision 1152/2003]. Individuals can purchase the products of their choice in other Member States, inclusive of tax, for their personal use. Denmark, Finland and Sweden are, however, authorised by the Council to continue restricting the quantities of certain alcoholic drinks and tobacco products which individuals purchase in other Member States and import for their own consumption. Following these general guidelines, seven specific directives harmonise the structures and minimum excise duty rates on manufactured tobaccos, mineral oils, spirits and alcoholic beverages.

    The Directive on the structure and rates of excise duty applied to manufactured tobacco was codified in 2011 [Directive 2011/64]. It lays down general principles for the harmonisation of the structure and rates of the excise duty on manufactured tobacco. It aims to ensure the proper functioning of the internal market and, at the same time, a high level of health protection, as required by Article 168 of the Treaty on the Functioning of the European Union. As regards manufactured tobacco, the Directive ensures that the application in the Member States of taxes affecting the consumption of products in this sector does not distort conditions of competition and does not impede their free movement within the Union. Concerning cigarettes - by far the most important category of tobacco products – the Directive stipulates that total excise duty (specific duty plus proportional duty calculated on the basis of the maximum retail sales price, before VAT) must constitute at least 57% of the retail selling price (inclusive of all taxes) and which shall not be less than EUR 64 per 1000 cigarettes for cigarettes of the price category most in demand. As regards products other than cigarettes (cigars, cigarillos, tobacco for rolling cigarettes and other tobaccos for smoking), a harmonised incidence of tax should be established for all products belonging to the same group of manufactured tobacco, expressed as a percentage, as an amount per kilogram or for a given number of items.

    Directive 2003/96 restructured the European framework for the taxation of energy products and electricity, establishing minimum rates of taxation of mineral oils, coal, natural gas and electricity when used as motor fuel or heating fuel [Directive 2003/96].

    Directive 92/83 covers the harmonisation of excise-duty structures on spirits and alcoholic beverages [Directive 92/83]. Directive 92/84 sets minimum excise duties on spirits and alcoholic beverages at the following levels: EUR 550 per hectolitre of pure alcohol; EUR 45 per hectolitre for intermediary products; EUR 0 for wine; EUR 1.87 per hectolitre per degree of alcohol in the finished product for beer. However, the Commission rightly believes that greater convergence is needed between the rates of excise duty applied in different Member States, so as to reduce distortions of competition and fraud, induced by different rates for the various categories of alcoholic drinks [COM/2004/223].

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