2002/546/EC: Council Decision of 20 June 2002 on the AIEM tax applicable in the Canary Islands
Date: 2002-06-20
Institutions: Council of the European Union
Subjects: CCT duties, Canary Islands, customs territory (EU), derogation from EU law, indirect tax, production, tariff nomenclature, tax exemption

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Official Journal of the European Communities

9.7.2002

II

(Acts whose publication is not obligatory)

COUNCIL

COUNCIL DECISION

of 20 June 2002

on the AIEM tax applicable in the Canary Islands

(2002/546/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 299(2) thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Parliament (2),

Whereas:

(1)

(2)

social

Pursuant to Article 299(2) of the Treaty, the provisions
of the Treaty apply to the outermost regions and hence
the Canary Islands, account being taken of their struc-
tural
is
compounded by their remoteness, insularity, small size,
difficult topography and climate and economic depen-
dence on a few products, the permanence and combina-
tion of which factors severely restrain their development.

situation, which

economic

and

Specific measures should therefore be adopted in order
to establish the conditions for applying the Treaty to
those regions. Specific tax policy measures may be
adopted. They must take account of the special charac-
teristics and constraints of these regions, but without
undermining the integrity and coherence of the Commu-
nity legal order,
including the internal market and
common policies. The Council, the European Parliament,
the Committee of the Regions and the Economic and
Social Committee have on several occasions stressed the
need to adopt these specific measures.

(3)

On the question of taxation, specific measures to be
implemented must be based on the instruments most
appropriate to regional development and support of

in
these regions including long-term tax derogations,
accordance with the criteria of coherence of Community
law and the internal market and provided that these
measures are necessary and proportionate to the objec-
tives pursued.

(4)

The indirect
taxation arrangements applicable to the
Canary Islands comprise a number of taxes including the
Impuesto General Indirecto Canario (IGIC) and the ‘Arbi-
trio sobre la Producción y sobre las Importaciónes’
(APIM) (tax on production and imports) authorised until
31 December 2001 by Article 5 of Council Regulation
(EEC) No 1911/91 of 26 June 1991 on the application
of
the provisions of Community law to the Canary
Islands (3).

(5) When Regulation (EC) No 2674/1999 (4) was adopted,
the Council requested the Commission to examine with
the Spanish authorities the impact of suspending the
dismantling of the APIM tax on the economic sectors
concerned and more especially the products forming the
subject of the suspension measure.
It also asked the
Commission to present to it, where appropriate in the
light of
this examination, a proposal
concerning the measures to be taken on the basis of the
Treaty, in order to avoid jeopardising certain particularly
vulnerable local production activities, while ultimately
abolishing the tax. This objective of ultimate abolition of
the tax must now be included in the framework of
measures adopted on the basis of Article 299(2) of the
Treaty, which authorises specific long-term measures to
take account of the handicaps listed.

the results of

(1) OJ C 75 E, 26.3.2002, p. 328.
(2) Opinion delivered on 13 June 2002 (not yet published in the Offi-

cial Journal).

(3) OJ L 171, 29.6.1991. Regulation as last amended by Regulation

(EC) No 1105/2001 (OJ L 151, 7.6.2001, p. 1).

(4) OJ L 326, 18.12.1999, p. 3.

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(6)

(7)

(8)

(9)

In their letters of 25 July 2000 and 12 June 2001, the
Spanish authorities sent the Commission, on the basis of
Article 299(2) of the Treaty, details concerning a new
tax known as
Importaciones y
‘Arbitrio sobre las
Entregas de Mercancías en las islas Canarias (AIEM)’. This
is a tax on supplies of goods in the Canary Islands
effected by the producers of the goods and on imports
of comparable or similar goods of the same type defined
by reference to the Common Customs Tariff nomencla-
ture. The taxable base for imported goods will be based
on the customs value and that of supplies of goods
effected by producers in the Canary Islands will be based
on the total amount of the consideration. As with the
APIM, locally produced goods may be exempted from
the AIEM. The Commission evaluated this proposed tax
in the light of the undertakings it gave the Council when
Regulation (EC) No 2674/1999 was adopted and in the
light of the handicaps affecting industrial production in
the Canary Islands.

At the top of the list of handicaps identified is the predo-
minance of the services sector and in particular tourism
in the regional product and also the dependence of the
Canary Islands’ economy on this sector and the small
share of industry in the Canary Islands’ GDP. The AIEM
tax should serve the objective of the autonomous devel-
industrial production
the Canary Islands’
opment of
sectors and of diversifying the Islands’ economy.

In second place is the isolation inherent in an island
which hinders the free movement of persons, goods and
services. Dependence on certain modes of transport, air
transport and maritime transport, is increased since these
are modes of transport which have not yet been fully
liberalised. Production costs are greater because these
modes of transport are less efficient and more expensive
than road, rail or the trans-European networks.

As a further consequence of
isolation, higher
production costs result from dependence in terms of raw
materials and energy, the obligation to build up stocks
and difficulties affecting the supply of production equip-
ment.

this

(10)

The small size of the market and the low level of export
activity, the geographical fragmentation of the archipe-
lago, and the obligation to maintain diversified but only
small production lines in order to meet the requirements
of a small market, restrict the opportunities for econo-
mies of scale.

(11)

It is in many cases more difficult or more expensive to
obtain specialised and maintenance services, and training
for managers and technicians, or to subcontract or
promote business expansion beyond the Canary Islands’

market. The narrow range of distribution methods also
results in overstocking.

(12) As regards the environment, the disposal of industrial
waste and the treatment of toxic waste give rise to higher
environmental costs. These costs are higher because
there are no recycling plants, other than for certain
products, and waste has to be transported to the main-
land and toxic waste has to be treated outside the Canary
Islands.

(13) Generally speaking, the present trend towards the globa-
lisation of markets, which is characterised by the concen-
tration of production and consequently specialisation of
production sectors, does not enable business in the
Canary Islands to derive benefits comparable with busi-
ness situated in less isolated, larger markets. As a result,
to varying degrees depending on the sector and product,
local production in the Canary Islands is gradually being
replaced by imports. On top of this, a common feature
of local production is interdependence of local firms, in
a form which resembles vertical
integration, so that
when activities are relocated in one sector this triggers
the loss of activities in other related sectors.

(14) On the basis of all this information and the notification
from the Spanish authorities, it is advisable to authorise
the application of a tax to a list of industrial products for
which exemptions for local products may be allowed.

(15)

(16)

It is nevertheless advisable to combine the requirements
of Articles 299(2) and 90 of the Treaty and observance
of the need for coherence of Community law and the
internal market. This means applying only the measures
strictly necessary and proportionate to the objectives set,
account being taken of the handicaps of a remote loca-
tion. The proposed Community framework therefore
comprises a list of sensitive products for which the
Canary Islands’ authorities are authorised to provide for
exemptions within limits determined by Council decision
for products which are produced locally.

foodstuffs

industries,

agricultural

following categories:

Industrial products for which there is exemption fall into
the
and fisheries
products, building materials, chemicals, products of the
metalworking
and beverages,
tobacco products, textiles and leather, paper, graphic arts
largely
and publishing. These sectors and products
correspond to the sensitive sectors identified by Regula-
tion (EC) No 2674/1999. The provisions of this Decision
shall apply to the implementation of these exemptions
without prejudice to the possible application of Articles
87 and 88 of the Treaty.

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The maximum exemptions which may be applied to the
industrial products in question vary depending on sector
and product, by 5 % to 15 %. The rates applicable to
these products correspond, according to the Spanish
authorities, to the level of the APIM tax as it resulted in
1996 from the application of Regulation (EEC) No
1911/91 and the acts adopted pursuant to that Regula-
tion and the Regulation on the ‘tarifa especial’ tax.

The maximum exemption applicable to finished tobacco
products is nevertheless higher, because the tobacco
sector is an exceptional case. The tobacco industry,
which had greatly expanded in the Canary Islands, has
been declining very markedly for a number of years. The
traditional handicaps of insularity described above are of
course at the root of the decline in local tobacco produc-
tion in the Canary Islands. The phenomenon of
numerous relocations of firms established in the Canary
Islands is also the result of
the
economy and concentration of production and the emer-
gence and development of new markets outside Europe.
The decline in local production led to 67 % job losses
between 1985 and 2000. The series of relocations and
closures has involved the production plants of multina-
tionals which are among the world’s leading manufac-
turers.

the globalisation of

production is exported and only 24 % goes to the Canary
Islands’ market. Comparison of the figures reveals that
the volume of exports from the Canary Islands has been
increasing since 1995, but the volume of imports has
increased even more. This means that,
in a growing
market, local production does not cover all requirements.
These findings underpin the argument that substantial
exemption from the AIEM is needed as a sufficient incen-
tive to maintain or restore local production given the
importance of trade in this sector.

(22) Account being taken of these factors, and the fact that
local producers enjoy a benefit
in relation to other
producers, comprising the opportunity to import up to
20 000 tonnes a year of raw and semi-manufactured
tobacco, the initial proposal drawn up by the Spanish
authorities, who suggested a rate of 45 %, seems exces-
sive. For that reason a much higher exemption option
than for all the other products but not exceeding 25 % is
proposed.
In addition, given the importance of an
adequate exemption incentive for local production, it is
suggested that the Spanish authorities be authorised to
fix a specific minimum tax of EUR 6 per 1 000 cigar-
ettes, corresponding to an AIEM level of 25 % for the
cheapest cigarette category in 2001. This measure is not
an additional safeguard. It is rather an alternative to a
maximum exemption of 25 % that will ensure that the
latter continues to have a satisfactory impact.

(17)

(18)

(19)

This phenomenon of declining local production is in
contrast, furthermore, with a local market on which sales
increased steadily over the same period. The increased
sales of tobacco are attributed by producers partly to the
buoyant market created by tourists. The retail price of
tobacco products in the Canary Islands is still very attrac-
tive. A comparison shows price differences of about half
compared with the selling prices of tobacco in the rest of
Spain. Increased taxes on tobacco since 1995, in parti-
cular the IGIC, have not slowed down sales of tobacco
products, which rose steadily over the corresponding
period. A large volume of supply has been maintained
on this growing market, despite the drop in local
production, solely as a result of the increase in imports
from 5 % to 32 % between 1992 and 2000.

(23)

(24)

(20) Account being taken of all

there are
grounds for a substantial exemption for tobacco. Exemp-
tion from taxation is in direct relation with the objective
of maintaining production in the Canary Islands.

these factors,

The objectives of promoting the socio-economic devel-
opment of the Canary Islands are reflected at national
level in the purpose of the tax and the allocation of the
revenue it generates. The incorporation of the revenue
from this tax in the resources of the Canary Islands’
economic and tax system and its use for an economic
and social development strategy involving the promotion
of local activities is a legal obligation.

The arrangements are to apply for 10 years. It will never-
theless be necessary to evaluate the proposed system
after five years. The Spanish authorities must therefore
present to the Commission by 31 December 2005 at the
latest a report on the application of the arrangements
referred to in Article 1, in order to check the impact of
the measures taken and their contribution to promoting
or maintaining local economic activities, account being
taken of the handicaps affecting the outermost regions.
On this basis, the scope and the exemptions authorised
under Community rules will be revised if necessary.

(21)

It is nevertheless necessary to bear in mind the coher-
ence of the internal market, as required by Article 299(2)
of the Treaty. Trade is important in this sector. Imports
of
into the Canary Islands have
increased in recent years but the proportion of exports
of tobacco from the Canary Islands is also large. At
the Canary Islands’ cigarette
present some 76 % of

tobacco products

(25)

To ensure continuity with the system of indirect taxation
applicable in the Canary Islands pursuant to Regulation
(EEC) No 1911/91, this Decision should apply as from 1
January 2002,

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HAS ADOPTED THIS DECISION:

Article 1

1.
By way of derogation from Articles 23, 25 and 90 of the
Treaty, the Spanish authorities shall be authorised until 31
December 2011 to lay down, in respect of products listed in
the Annex that are produced locally in the Canary Islands, total
exemptions from or partial reductions of the tax known as
‘Arbitrio sobre las Importaciones y Entregas de Mercancías en
las islas Canarias (AIEM)’. These exemptions must form part of
the strategy for economic and social development of the Canary
Islands and contribute to the promotion of local activities.

Application of the total exemptions or reductions referred

2.
to in paragraph 1 may not lead to differences in excess of:

(a) 5 % for the products listed in the Annex, Section A;

(b) 15 % for the products listed in the Annex, Section B;

(c) 25 % for the products listed in the Annex, section C. Never-
theless, the Spanish authorities may establish a minimum
tax on cigarettes of not more than EUR 6 per 1 000 cigar-
ettes, applicable only if the AIEM tax resulting from the
application of general types of taxation is below this figure.

Article 2

The Spanish authorities shall present to the Commission at the
latest by 31 December 2005 a report on the application of the

arrangements referred to in Article 1, in order to check the
impact of the measures taken and their contribution to the
promotion or maintenance of local economic activities, account
being taken of handicaps affecting the outermost regions.

On this basis, the Commission shall present a report to the
Council comprising a full analysis of the economic and social
aspects and where appropriate a proposal for adapting the
provisions of this Decision.

Article 3

This Decision shall be applicable from 1 January 2002.

Article 4

This Decision is addressed to the Kingdom of Spain.

Done at Madrid, 20 June 2002.

For the Council

The President

R. DE RATO Y FIGAREDO

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ANNEX

A.

List of products referred to in Article 1(2)(a) according to the classification of the Common Customs Tariff
nomenclature:

Agricultural and fishery products

0203 11/0203 12/0203 19/0207 11/0207 13/0302 69 94 00/0302 69 95 00/0701 90/0702/0703/0803

Building materials:

3816/3824 40 00 00/3824 90 45 00/3824 90 70 00/6809

Chemicals:

2804 30 00/2804 40 00/2851 00 30/3208/3209/3210/3212 90 90 00/3213/3214/3401/3402/3406/
3814 00 90 90/3920 30 00 90/3921 90 60/3923 90 90/4012 11 00/4012 12 00/4012 13/4012 19 00

Metal-working industries:

7604/7608/8428 39 98 00/8479 50 00 00

Food industry:

0210 11 11 00/0210 11 31 00/0210 12 19 00/0210 19 40 00/0210 19 81 00/0305 41 00/0901 22 00 00/1101/
1901 20 00 90/1901 90 91 96/2006 00 31 00/1601/1602/1704 90 30 00/1704 90 51 90/1704 90 55 00/
1704 90 71/1704 90 75 00/1806/1901 90 99/1904 10 10/1905/2007 91 10/2008 99 61/2008 99 68/2009 11/
2009 19/2009 41/2009 49/2009 50/2009 71/2009 79/2009 80/2009 90/2105/2309

Beverages:

2201/2202/2204

Textiles and leather:

6112 31/6112 41

Paper:

4822 90/4823 90 90 90

Graphic arts and publishing:

4910

B.

List of products referred to in Article 1(2)(b) according to the classification of the Common Customs Tariff
nomenclature

Agricultural and fishery products:

0407 00 30

Building materials:

2523 29 00 00/2523 90/7010

Chemicals:

3809 91 00/3917/3923 10 00/3923 21 00/3923 30 10/3924 10 00

Metal-working industries:

7309 00/7325/7610/9403 20 99 00/9404

Food industry:

0403/0901 21/1902/2103/2106 90 98

Beverages:

2203/2208 40

Textiles and leather:

6302

Paper:

4808/4818 10/4818 20/4818 30/4818 90 90 10/4819/4821/4823 90 14

Graphic arts and publishing:

4909/4911

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C.

List of products referred to in Article 1(2)(c) according to the classification of the Common Customs Tariff
nomenclature

Tobacco:

2402