EN    EN  
 EUROPEAN  
COMMISSION 
Brussels, 5.3.2014  
COM(2014) 117 final 
2014/0064 (CNS) 
  
Proposal for a 
COUNCIL DECISION 
authorising Portugal to apply a reduced rate of excise duty in the autonomous region of 
Madeira on locally produced and consumed rum and liqueurs and in the autonomous 
region of the Azores on locally produced  and consumed liqueurs and eaux-de-vie 
 
EN 2   EN EXPLANATORY MEMORANDUM  
1. CONTEXT  OF THE  PROPOSAL 
Pursuant to Council Decision 2009 /831/EC of 10 November 20091, adopted on the basis of 
Article 299(2) of the EC Treaty, Portugal was authorised to apply up to 31 December 2013 a 
reduced rate of excise duty in the autonom ous region of Madeira on locally produced and 
consumed rum and liqueurs and in the autonomous  region of the Azor es on locally produced 
and consumed liqueurs and eaux-de-vie. Article  2 of that Decision confines the above 
derogation to specific products. Portugal can appl y to those products a rate of excise duty 
lower than the full rate on alcohol laid dow n in Article 3 of Council Directive 92/84/EEC2, 
and lower than the minimum rate of excise duty  on alcohol set by this Directive but not more 
than 75% lower than the standard  national excise duty on alcohol. 
Decision 2009/831/EC sets out the reasons for a dopting specific measures, which include the 
small size, fragmented nature and low mechanis ation of agricultural ho ldings. Moreover, the 
transport to the islands of certain raw and pack aging materials not produced locally leads to 
additional cost, as compared to  the transport merely of the finished product. Transport and 
installation of equipment in those remote insula r regions further increase the additional costs. 
Finally, the producers concerned also bear extra costs generally borne by  the local economies, 
in particular increases labour and energy costs. 
The 75% reduction does not go beyond what is n ecessary to counterbalance the levels of 
additional costs that are incurred by operators as a resu lt of the particular characteristics of 
Madeira and of the Azores as outermost regions referred to in Article 349 TFEU. 
Since the tax advantage is limited to what is necessary to offset additional costs and since the 
volumes at stake remain modest the measure does not undermine the integrity and coherence of the Community legal order. Moreover, the ta x advantage is limited to consumption in the 
regions concerned. 
The Portuguese authorities have requested the re newal of the authorisation to apply a reduced 
rate of excise duty in the autonomous region of  Madeira on locally produced and consumed 
rum and liqueurs and in autonomous region of th e Azores on locally produced and consumed 
liqueurs and eaux-de-vie until 31 December 2020. The renewal needs to be approved both by a Council Decision under Article 349 TFEU a nd by a Commission Decision on State Aid. The 
Council Decision under Article 349 TFEU is without prejudice to the Commission's Decision 
on the prolongation of this measure under State aid rules. 
2. PROPORTIONALITY
 OF THE  DEROGATION   
According to Article 110 TFEU no Member State shall impose, directly or indirectly, on the 
products of other Member States any internal taxation of any kind in excess of that imposed 
directly or indirectly on similar domestic products. Furthermore, no Member State shall 
impose on the products of other Me mber States any internal taxa tion of such a nature as to 
afford indirect protection to other products. 
                                                 
1 Council Decision of 10 November 2009 authorising Portugal to apply a reduced rate of excise duty rate 
of excise duty in the autonomous region of Madeira on locally produced and consumed rum and 
liqueurs and in the autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-vie (OJ L 297, 13.11.2009, p. 9) 
2 Council Directive 92/84/EEC of 19 October 1992 on the approximation of the rates of excise duty on 
alcohol and alcoholic beverages (OJ L 316, 31.10.1992, p.29). 
EN 3   EN However, on the basis of Article 349 TFEU th e Council may authorise Member States with 
outermost regionsto derogate from  the provisions of Article 110 TFEU so as to take account 
of the structural social and economic situation of these regions which is compounded by other 
factors that severely restra in their development. Such derogation may not undermine the 
integrity and the coherence of the Union lega l order, including the internal market and 
common policies, such as common taxation polic ies based on Article 113 TFEU. Thus, such 
derogations must remain proportionate, i.e. they must not go further than necessary to address 
the adverse framework conditions hampering th e economic development of these regions and 
it must not excessively distort competition in the single market. In consequence, any derogation from Article 110 TFEU should remain  limited to fully or partially compensating 
the cost disadvantage from which producers in these regions suffer. 
The reports submitted by Portugal according to Article 4 of Council decision 2009/831/EC 
include the calculation of the additional costs and excise duty reductions for the year 2011: 
 Madeira
 
• Liqueurs (bottle of 70 cl. 20º alc/vol) 
Additional cost: 1.21 € 
Excise duty reduction: 1.06 €  
• Rum (bottle of 70 cl. 40º alc/vol) 
Additional cost: 2.20 € 
Excise duty reduction: 2.12 €  
The Azores
      
• Liqueurs (bottle of 70 cl. 20º alc/vol) 
Additional cost: 1.17 € Excise duty reduction: 1.08 €  
• Eaux-de-vie (bottle of  100 cl. 40º alc/vol) 
Additional cost: 3.31 € 
Excise duty reduction: 3.09 € 
Source: Reports referred to in Arti cle 4 of Council Decision 2009/831/EC 
 It should be mentioned that the calculation of the additiona l costs mentioned above did not 
include some factors that proved difficult to qua ntify. Nevertheless, it is  possible to confirm 
that the 75% reduction in standard excise duties does not go beyond what is necessary to 
counterbalance the levels of additional costs that  are incurred by operators as a result of the 
particular characteristics of Madeira and of the Azor es as outermost regions. 
The reports also include data on the market share of these products in the local markets 
between 2004 and 2010: 
EN 4   EN  
Madeira - Rum and Liqueurs combined (by volume of alcohol) 
Year 2004 2005 2006 2007 2008 2009 2010 
Share of local production 15.86% 20.19% 23.03% 20.33%  26.91%  30.76%  33.89%  
 
The Azores - Liqueurs (by volume of alcohol) 
Year 2004 2005 2006 2007 2008 2009 2010 
Share of local production 56.43% 50.60% 49.70% 46.73%  39.19%  45.28%  48.57%  
 
The Azores – Eaux-de-vie (by volume of alcohol) 
Year 2004 2005 2006 2007 2008 2009 2010 
Share of local production 47.99% 41.62% 42.51% 33.53%  23.19%  34.28%  31.74%  
Source : Own calculation using data from the re ports referred to in Article 4 of Council 
Decision 2009/831/EC 
The table confirms a downwards tendency in the share of the local production of liqueurs and 
eaux-de-vie in the Azores and the increase in  Madeira for rum and liqueurs. However, for 
Madeira it should be taken into account the very low share of the local production in 2004.  
The evolution of the market shares for local pr oduction confirms that the current reduced rate 
of excise duty is bala nced and has not created any distorti on of competition in the internal 
market.  
The local industry employs 134 workers in Ma deira and 90 workers in the Azores. In 
Madeira, the cultivation and processing of s ugar cane and fruits provide work for around 1 
000 family-owned agricultural holdings.  
The granting of new authorisation for Portugal to  apply a reduced rate of excise duty in the 
autonomous region of Madeira on  locally produced a nd consumed rum and liqueurs and in the 
autonomous region of the Azores on locally prod uced and consumed liqueurs and eaux-de-vie 
is justified in order to  avoid endangering the development of  these outermost regions and does 
not distort competition in the internal market.  
3. LEGAL  ELEMENTS  OF THE  PROPOSAL 
Summary of the proposed measures 
The proposed Decision authorises Portugal to apply form 1 July 2014 to 31 December 2020 a 
reduced rate of excise duty in the autonom ous region of Madeira on locally produced and 
consumed rum and liqueurs and in the autonomous  region of the Azor es on locally produced 
and consumed liqueurs and eaux-de-vie which may be lower than the minimum rate of excise 
duty set by Directive 92/84/EEC but not more than 75% lower than the standard national 
excise duty on alcohol. 
EN 5   EN The Portuguese authorities wi ll have to send a mid-term report to the Commission by 30 
September 2017 in order to assess whether the r easons which justify th e granting of the tax 
derogation still apply and whether the fisc al advantage granted by Portugal remains 
proportionate. 
Legal basis 
Article 349 TFEU. 
Subsidiary Principle 
Only the Council is authorised, on the basis of Article 349 TFEU, to adopt specific measures 
in favour of the outermost regions to adjust th e application of the Trea ties to those regions, 
including the common policies, because of the permanent handicaps which affect the economic and social conditions of the outermost regions. 
The proposal therefore complies wi th the subsidiary principle. 
Proportionality Principle 
The proposal complies with the proportiona lity principle for the following reasons: 
The tax advantage is limited to what is  necessary to offset additional costs. 
Choice of instrument 
Proposed instrument: Council Decision 
Other instruments would not have been  appropriate for the following reason: 
Derogations granted under Article 349 TF EU are contained in Council Decisions.  
4. BUDGETARY
 IMPLICATION 
The proposal has no impact on the budget of the European Union. 
EN 6   EN 2014/0064 (CNS) 
Proposal for a 
COUNCIL DECISION 
authorising Portugal to apply a reduced rate of excise duty in the autonomous region of 
Madeira on locally produced and consumed  rum and liqueurs and in the autonomous 
region of the Azores on locally produced  and consumed liqueurs and eaux-de-vie 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty on the Functioning of the European Union, and in particular 
Article 349 thereof, 
Having regard to the proposal from the European Commission, 
After transmission of the draft legislative act to the national Parliaments, Having regard to the opinion of the European Parliament
3, 
Acting in accordance with a sp ecial legislative procedure, 
Whereas: (1) Council Decision 2009/831/EC of 10 Nove mber 2009, adopted on the basis of Article 
299(2) of the EC Treaty (now Article 349 TFEU), authorised Portugal to apply a 
reduced rate of excise duty in the aut onomous region of Madeira on locally produced 
and consumed rum and liqueurs and in the au tonomous region of the Azores on locally 
produced and consumed liqueurs and eaux- de-vie which may be lower than the 
minimum rate of excise duty set by Directiv e 92/84/EEC but not more than 75% lower 
than the standard nationa l excise duty on alcohol.  
(2) On 30 July 2013, the Portuguese author ities asked the Commission to submit a 
proposal for a Council Decision extendi ng Council Decision 2009/831/EC, under the 
same conditions until 31 December 2020. This  request was modified on 19 November 
2013, when Portugal requested an extensi on of Council Decision 2009/831/EC for 6 
months until 30 June 2014 to coincide with  the current regional aid guidelines that 
would be followed by a new extension c overing the period 1 July 2014 – 31 December 
2020. 
(3) The granting of the new authorisation is justified in order to avoid endangering the 
development of these outermost regions. F aced with difficulties in exporting outside 
the regions, the regional markets are the onl y possible outlets to sell those products. 
(4) In the autonomous regions of Azores and Madeira, raw materials of agricultural origin 
are more expensive than under normal conditions of produc tion, due to the small size, 
fragmented nature and low mechanisation of agricultural holdi ngs. In the case of 
Madeira, in addition, output fr om the processing of sugar cane is lower than in other 
outermost regions, owing to topography, clim ate, soil and artisanal production. The 
transport to the islands of certain raw and packaging materials not produced locally 
                                                
 
3 OJ C , , p. . 
EN 7   EN leads to additional cost, as compared to the transport merely of the finished product. In 
the case of the Azores, the insularity is tw ofold, since the islands are widely spread. 
Transport and installation of equipment in those remote and insular regions further 
increase the additional costs. The same applies to certain necessary travels and shipments to the mainland. Additional cost s are also required for the storage of 
finished products as local consumption does not absorb output as it materialises, but stretches throughout the year. The small size of the regional market increases per unit 
costs in various ways, notably through th e unfavourable relationship between fixed 
costs and output, both as regards equi pment and costs necessary to meet 
environmental norms. Moreover, rum producers in Madeira have to treat waste from 
the processing of sugar cane, whereas produc ers in other regions can recycle these 
products. Finally, the producers concerned also  bear extra costs generally borne by the 
local economies, in particular in creased labour and energy costs. 
(5) The detailed calculations provided in the reports referred in ar ticle 4 of Decision 
2009/831/EC confirm that the reduction of 75%  of the rate of excise duty does not 
offset completely the competitive disadvantage which distilled alcoholic beverages produced in Madeira and Azores face as a result of higher production and marketing 
costs. Therefore, a reduction of the rate of excise duty should continue to be authorised 
at the level requested. 
(6) A careful examination of the situation confirms that it is necessary to grant Portugal’s 
request in order to ensure th at the alcohol industry is maintained in the outermost 
regions concerned. 
(7) Since the tax advantage does not go beyond what is necessary to offset additional costs 
and since the volumes at stake remain modest and the tax advantage limited to 
consumption in the regions concerned, th e measure does not undermine the integrity 
and coherence of the Community legal order. 
(8) The submission of a mid-term report shoul d be required, so that the Commission can 
assess whether the conditions justifying the gr anting of such derogation continue to be 
fulfilled. 
(9) This Decision is without prejudice to the possible application of Articles 107 and 108 
TFEU, 
HAS ADOPTED THIS DECISION:  
Article 1 
By derogation from Article 110 of the Treaty, Port ugal is hereby authorised to apply a rate of 
excise duty lower than the full rate for alcoho l set by Article 3 of Directive 92/84/EEC in the 
autonomous region of Madeira on  locally produced a nd consumed rum and liqueurs and in the 
autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-
vie. 
Article 2 
The derogation referred in Article 1 shall be confined: 
1. in Madeira 
EN 8   EN (a) to rum as defined in category 1 of Annex II of Regulation(EC) No 110/2008 of the 
European Parliament  and of the Council of 15 Ja nuary 2008 on the definition,  description, 
presentation, labelling and the protection of  geographical indication s of spirit drinks4, having 
the geographical indication ‘Rum da Madeira’ referred to in  category 1 of Annex III of that 
Regulation,  
(b) to liqueurs and ‘crème de’ as defined in categories 32 and 33 respectively of Annex II of 
Regulation (EC) No 110/2008 produced from regional fruit or plants; 
2. in the Azores (a) to liqueurs and ‘crème de’ as defined in ca tegories 32 and 33 respectively of Annex II of 
Regulation (EC) No 110/2008 produced from  regional fruit or raw materials, 
(b) to eaux-de-vie made from wine or grape marc having the characteristics and qualities 
defined in categories 4 and 6 of An nex II of Regulation (EC) No 110/2008. 
Article 3  
The reduced rate of excise dut y applicable to the productsreferred to in Article 1 may be 
lower than the minimum rate of excise duty on alcohol set by Dire ctive 92/84/EEC, but may 
not be more than 75 % lower than the standard national ex cise duty on alcohol. 
Article 4  
By 30 September 2017 at the latest, Portugal sha ll send the Commission a report to enable it 
to assess whether the reasons which justified the granting of the reduced rate stillexist. 
Article 5  
The Decision shall apply from 1 July 2014 until 31 December 2020. 
Article 6 
This Decision is addressed to the Portuguese Republic. 
Done at Brussels, 
 For the Council 
 The President 
                                                
 
4 OJ L 39, 13.2.2008, p. 16.