Proposal for a COUNCIL DIRECTIVE amending Council Directive 92/12/EEC on the general arrangements for products subject to excise duty and on the holding movement and monitoring of such products.
Date: 1996-11-13
Institutions: European Commission
Subjects: customs inspection, excise duty, free movement of goods, quantitative restriction, single market

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  13.11.1996 
COM(96)  548 final 

96/0266 (CNS) 

Proposal  for a 

COUNCIL  DIRECTIVE 

amending Council Directive 92/12/EEC 
on the general arrangements for products subject to 
excise duty and on the holding movement and 
monitoring of such products. 

(presented  by the Commission) 

EXPLANATORY  MEMORANDUM 

I. INTRODUCTION. 

Article 26 of Directive 92/12/EEC1 together with the Act of Accession of Austria, Finland 
and  Sweden2  (which  refers  to  the  same  article)  provide  a  derogation  from  a  general 
principle  of  the  internal  market  in  permitting  Denmark,  Sweden  and  Finland  to  charge 
their national excise duties on certain goods which individuals acquire excise duty paid in 
other Member  States  and  import  for  their  own  personal  use.  The  goods  concerned  are 
alcoholic  drinks  and  tobacco  products  which  exceed  various  quantities.  The  derogation 
applies  "until  31 December  1996 and  subject  to  a review  mechanism  similar to  that  laid 
down in Article 28(1) of Directive 77/388/EEC3. 

However, for the reasons set out below, this proposal for  a Directive seeks to extend  the 
period  of validity  of the  derogation  while at  the  same time  progressively  liberalising  the 
quantities of the goods concerned. 

II. BACKGROUND. 

The derogation under Article 26 of Directive 92/12/EEC should be viewed in the context 
of events both at the time of its adoption and  subsequently. It was adopted  as part of the 
preparations  for  the  removal  of  fiscal  controls  at  frontiers  on  31  December  J 992,  and 
therefore originally concerned only Denmark. 

As an important  source of revenue,  and  also  for  health  reasons, that  Member  State had 
traditionally charged excise duties on alcoholic drinks and tobacco products at rates much 
higher  than  the  Community  norm.  Consequently,  Denmark  had  -  from  the  date  of  its 
accession  to  the  Community  -  benefited  from  derogations  permitting  it  to  grant  less 
generous travellers' allowances than the general Community level. 

Within  the  context  of  the  1992  exercise,  it  was  clear  that  in  the  absence  of  a  similar 
derogation  in a Europe without frontiers, Denmark  would be forced  either to cut its rates 
of  duty  on  these  products,  or  accept  a  significant  increase  in  purely  tax-induced  cross-
frontier  shopping by its citizens. 

The Council  therefore  adopted  Article  26  of Directive  92/12/EEC  as a  means of easing 
the problems which would result from  an immediate total removal of excise limitations on 
31 December  1992. The derogation  was limited in time until 31 December  1996, and was 
made subject to review. 

At the time of adoption  of the proposal,  in February  1992, the Commission  declared  not 
only  its  intention  to  submit  a  proposal  by  the  end  of  1993  gradually  to  increase  the 
quantitative  limits  laid  down  in Article  26, but  also  that  -  being  aware  of  the  problems 
which the new tax arrangements might cause for Member States after  1992 - it w..jld take 
a flexible approach  to their  resolution,  in particular  as regards the  specific  arrangements 

'OJNol.76,  23.3.92, p  I. 
2O.I No C 241.  19.8.94. p.339, IX  TAXATION  § 3/3921. 108. 
*OJ No L 76. 23.03. 1992. p. 11 

for Denmark  For its part, Denmark declared that it would gradually raise the limits of the 
allowances it granted, "in line with the approximation of the excise duty rates". 

It  should  also  be  noted  that,  at  the  time  of  the  text's  adoption,  the  Commission's 
proposals  to  approximate  the  rates  of  excise  duty  on  alcoholic  drinks  were  still  under 
consideration  by  Council.  They  were  not  adopted  until  the  Autumn  of  1992,  when  the 
Commission's  proposals  were  heavily  amended,  in  particular  as  regards  the  proposed 
minimum rates of duty on alcoholic drinks. 

During  1993,  negotiations  commenced  for  the  accession  of  Sweden  and  Finland.  The 
excise  duty  rates  applied  in  those  countries  to  alcoholic  drinks  and  tobaccos  have 
traditionally  been  higher  even than  Denmark's,  and  the problems  envisaged  from  a total 
removal  of  excise  limitations  immediately  on  accession  were  similar  to  those  faced  by 
Denmark  in  1992  Consequently,  a  derogation  was  agreed  in  the  Treaty  of  Accession, 
permitting  Sweden  and  Finland  to  apply  fiscal  limitations  to  a  rather  wider  range  of 
alcohol and tobaccos than Denmark but (by virtue of a reference to Article 26 of Directive 
92/12/EEC),  under  exactly  the  same  conditions.  In the  light  of  these  developments,  the 
Commission  changed  its  declared  intention  of  proposing  increases  in  the  Danish 
allowances during 1993. 

The next development was provided by Article 8 of Directive 92/84/EEC and Article 4 of 
Directive 92/79/EEC. Under those provisions, "every two years, and for the first time not 
later  than  31  December  1994,  the  Council,  acting  on  the  basis  of  a  report  and  where 
appropriate  a  proposal  from  the  Commission"  was  to  examine  the  minimum  rates  laid 
down  in the Directives  concerned  and  adopt  the necessary  measures.  The  Commission's 
first report  under those provisions  did  not,  however,  make  any  proposal  for  increases in 
any of the minimum rates. 

In the result, the minimum rates which will apply on 31 December  1996, will remain lower 
than  might  have been  expected  when the  deadline was  set  in February  1992.  Moreover, 
Denmark's  undertaking  to  raise  the  limits  it  applies  under  Article  26  "in  line  with  the 
approximation  of excise duty rates" has consequently  never been called  into operation. It 
will  be  recalled,  however,  that  Denmark  reduced  its  rates  of  duty  on  beer  and  wine in 
preparation for the  1992 exercise. , 

* ** 

That  said, the provision in question is an obvious derogation from a major principle of the 
internal  market  - the unfettered  right  of its citizens to transport  goods for  their  own  use 
throughout  the Community  without  incurring liability to  new duty  charges. The  scope of 
the  derogation  should  therefore  be  severely  restricted  to  the  minimum  necessary  to 
prevent unacceptable upheaval. 

In deciding where that minimum lies, account  should be taken of the fact  that, on the one 
hand  Denmark  has  known  for  many  years  that  the  development  of  the  Community  as 
required by the Treaty implied inevitable problems should it not bring its excise rates more 
into line with the Community norm and, on the other hand,  Sweden and Finland  must be 
taken to have been aware from the outset of the problems they would face in this  field. 

4 
The Commission  has kept  the operation  of the limitations under  review from the  outset, 
observing the policing of the  limitations at  ports, airports  and  land boundaries as well as 
consulting  the  administrations  of the  Member  States  concerned  and the trading  interests 
most  affected. 

Although  approaches to  control  varied  from  Member  State to  Member  State - Denmark 
applying no policing along its land frontier, whereas Sweden's approach to policing on the 
short  ferry  crossing  from  Denmark  was  quite  high  profile  -  it  seems  clear  that  the 
limitations  are  generally  controlled  unobtrusively,  and  with  minimum  disturbance  to  the 
travelling public. 

Domestic producers and importers alike have expressed  a wish to see restrictions retained 
for  some  time,  so  as  to  avoid  a  sudden  increased  diversion  of  traffic  and  distortion  of 
competition  as  a  result  of  purely  tax-induced  cross-frontier  shopping.  Administrations 
have  indicated  that  an  immediate  reduction  of  national  excise  rates  sufficient  to  remove 
the attraction of cross-frontier  shopping is - because of the loss of revenue it would entail, 
as well as for health and social reasons - politically  difficult. 

The Commission  accepts that  it  may be  difficult  for  the  countries  concerned  to  accept  a 
complete end to the existing derogation  at the end of this year. However, it would  stress, 
on the one hand, the legitimate expectation  of Nordic citizens that the restrictions will end 
- or at least be considerably liberalised  - on 31 December  1996 and, on the other hand, the 
paradox  that  Sweden  and  Finland  in particular  permit  very  extensive duty-free  shopping 
on ferries between their two countries. 

For those reasons, while the Commission  considers that  an extension  of the  derogation's 
period  of validity should be accorded  to  Denmark,  Sweden and  Finland, in order to give 
them further  time to adjust  to the full implications of the Internal Market, at the same time 
it considers that the extension  should be of short  duration and  accompanied by a gradual 
liberalising of the quantitative restrictions permitted by that provision. 

HI. COMMISSION  PROPOSAL. 

The Commission  proposes that  the existing Article 26 be entirely replaced  by a provision 
under which Denmark  Sweden and  Finland  may continue to limit the quantities of excise 
goods  which  individuals  may  import  without  further  payment  of  excise  duty.  Under  the 
proposal, the quantities concerned are to be gradually increased  until 30 June 2002, when 
all  allowances  will  be  abolished  and  only  the  guide  levels  laid  down  in  Article  9  of  the 
Directive will apply  The progressive liberalisation  of the allowances is to be accompanied 
by an  immediate  reduction  . from  36  hours  to  24  hours - of the  minimum  period  which 
residents  must  have  travelled  outside  the  territories  of  their  countries  before  they  may 
benefit  from  any allowance. 

* ** 

Proposal for a 

Council Directive 

amending Council Directive 92/12/KEC 
on the general arrangements for products subject to excise duty and on the holding 
monitoring and movement of such products. 

THE COUNCIL OF THE EUROPEAN UNION 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 99 thereof, 

Having regard to the proposal from  the Commission, 

Having regard to the opinion of the European Parliament,4 

Having regard to the opinion of the Economic and Social Committee,5 

Whereas  Council  Directive  92/12/EEC6  lays  down  the  general  arrangements  for  the 
holding movement and monitoring of products subject to excise duty; 

Whereas Article 26 of that  Directive provides  a derogation  permitting  Denmark  to apply 
excise  duty  to  alcoholic  drinks  and  tobacco  products  exceeding  certain  quantities  when 
they  have  been  acquired  excise  duty  paid  in  other  Member  States  by  individuals  who 
import them for their own use; 

Whereas  the  Act  of  Accession7  provides,  also  by  reference  to  Article  26  of  Directive 
92/12/EEC, that  Sweden  and  Finland  may  apply  excise  duty to  a  more  extensive  list  of 
alcoholic drinks and tobacco products under the same conditions; 

Whereas  the  derogations  were  accorded  because  in  a  Europe  without  frontiers  where 
excise  rates  vary  widely,  an  immediate  total  removal  of  excise  limitations  would  have 
caused an unacceptable diversion of trade and revenue and distortion of competition in the 
Member  States  concerned,  which  have  traditionally  applied  high  excise  duties  to  the 
products concerned both as an important source of revenue, and for health reasons; 

Whereas, the derogations were granted  "until 31 December  1996 and  subject  to a review 
mechanism similar to that laid down in Article 28(1) of Directive 77/388/EEC";8 

Whereas,  however,  on  31  December  1996  minimum  rates  of  excise  duty  applied 
throughout  the Community  will be  lower  than  had  been  expected  when  the  derogations 

4 
5 
6OJ  No L 76, 23.3.  1992, p  J 
70.1 NoC  241.  19.8 1994. p  339. IX. TAXATION  § 3/392  L0012. 
K)J No L  76, 23.03.1992. p.l 1. 

6 
were  accorded,  so  that  their  abolition  on  that  date  will  cause  greater  problems  than  had 
been envisaged; 

Whereas,  therefore,  it  is  appropriate  to  provide  further  time  for  adjustment  in  these 
Member States by extending the deadline laid down in Article 26; 

Whereas, however, the provisions of Article 26 represent a derogation from a fundamental 
principle of the internal market - the right of its citizens to transport goods purchased  for 
their own use throughout the Community without  incurring liability to new duty charges -
so that it is necessary to limit its effects  as far as possible; 

Whereas  it  is  therefore  appropriate,  on  the  one  hand  to  provide  for  the  gradual 
liberalisation  of the quantitative  restrictions which  may be applied  prior to their complete 
removal  on 30 June 2002 and, on the other hand, to reduce from 36 hours to 24  hours the 
qualifying  period  set  out  in  Article  26(2)  2nd  indent,  which  demands  a  minimum  stay 
outside the territory of the country before residents may benefit from any allowance; 

Whereas, the Member States concerned  may decide the precise details of the liberalisation 
process in the light of all relevant  factors; 

Whereas, however, the process should be subject to monitoring not later than the  halfway 
stage; 

HAS  ADOPTED THIS DIRECTIVE: 

Article 1 

Council  Directive 92/12/  EEC is hereby amended as follows: 

Article 26 of the Directive is replaced by the following: 

1  Without  prejudice to  Article 8,  until  30 June 2002, Denmark,  Finland and Sweden shall 
be authorised  to  apply the  specific  arrangements  laid  down  in paragraphs  2  and  3  of  this 
Article to  certain alcoholic  drinks and tobacco  products acquired  in other Member  States 
and brought into their territory by private individuals for their own use. 

2  From  1 January  1997,  Denmark,  Finland and Sweden shall be authorised to continue to 
apply  the  same  restrictions  on  the  quantity  of  goods  which  may  be  brought  into  their 
territories  without  further  excise  duty  payment  as  they  applied  on  31  December  1996. 
Those restrictions shall be progressively  removed by the Member States concerned. 

3.  Where  such  goods  are  imported  by  persons  resident  within  their territories,  Denmark, 
Finland and Sweden shall be authorised  to restrict the grant of admission without  payment 
of duty to  persons who have been  absent from their territory for a period  of more than  24 
hours. 

4.  Before  31  December  1999,  the  Commission  shall  report  to  the  Council  and  the 
Parliament on the operation of this Article. 

Article  2 

1. Member  States shafl bring into force the laws regulations and administrative  provisions 
necessary to  comply with this Directive  not  later than  1 January  1997.  They  shaM inform 
the Commission  thereof. 

When  Member  States  adopt  these  measures,  they  shafl  contain  a  reference  to  this 
Directive  or  shall  be  accompanied  by  such  reference  on  the  occasion  of  their  official 
publication  The  methods  of  making  such  reference  shall  be  laid  down  by  the  Member 
Stales. 

2  Member  States  shall communicate to  the Commission  the texts of the  main  provisions 
of national law which they adopt in the field covered by this Directive. 

This Directive is addressed to the Member States 

Article  3 

Done at 

For the Council. 

* #* 

STATEMENT OF IMPACT ON SMEs AND EMPLOYMENT» 

The  present  proposal  seeks  to  extend  the  period  of  validity  of  a  derogation  aimed  at 
minimising  diversion  of  trade  and  revenue,  distortion  of  competition,  and  general 
disruption  of  business  conditions  arising  from  the  removal  of  all  frontier  controls  in 
Member  States which have traditionally  applied  to alcoholic drinks and tobacco products 
rates of excise duty which considerably exceed the Community norm. At the same time it 
seeks to  bring  the  Member  States  concerned  progressively  to  the  point  of  removing  all 
frontier  controls. 

I.  Administrative  obligations  on  businesses  arising  from  application  of  the  present 
Directive: 

•  None. 

II  What are the advantages for businesses? 

•  One  purpose  of  the  present  Directive  is to  reduce the  problems  for  business  which 
might  be  associated  with  a  sudden  tax-related  change  in  trading  conditions.  To  the 
extent that  such changes tend to be more difficult  to bear for  small and medium sized 
enterprises than for their larger competitors, the proposal caters to their needs. 

III  Are there any drawbacks for businesses in terms of additional costs? 

•  Application of the present Directive will not impose additional costs on businesses. 

IV  Effects  on employment. 

•  No negative effects  on employment are to be expected.. 

V. The two sides of industry have not been consulted 

VI. No less binding alternative is available. 

* ** 

FINANCIAL STATEMENT, 

Application  of  the  present  Directive  will  not  produce  an  increase  in  Community  own 

resources. 

4o 

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COM(96) 548 final 

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