Proposal for a Council Directive amending Directives 92/79/EEC and 92/80/EEC, authorising France to prolong the application of lower rates of excise duty to tobacco products released for consumption in Corsica
Date: 2003-04-16
Institutions: European Commission
Subjects: Corsica, consumer price, derogation from EU law, excise duty, tax harmonisation, tobacco industry

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 16.4.2003
COM(2003) 186 final

2003/0075 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directives 92/79/EEC and 92/80/EEC,
authorising France to prolong the application of lower rates of excise duty to tobacco
products released for consumption in Corsica

(presented by the Commission)

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

Article  2  of  Directive  92/79/CEE1  provides  that  each  Member  State  shall  apply  an  overall
minimum excise duty (specific duty plus  ad valorem  duty  excluding  VAT) the incidence of
which shall be set at 57 % of the retail selling price (inclusive of all taxes) and not less than
EUR  60  per  1000  units  for  cigarettes  of  the  price  category  most  in  demand  (referred  to  in
what follows as CPCD cigarettes). From 1 July 2006, "EUR 60" will go up to "EUR 64". For
manufactured  tobacco  other  than  cigarettes,  Directive  92/80/EEC2  lays  down  the
following minimum rates of excise duties:

–  for cigars and cigarillos: 5% of the retail selling price inclusive of all taxes, or EUR 11 per

1 000 items or per kilogram;

–  for fine-cut smoking tobacco intended for the rolling of cigarettes: 32% of the retail selling
price inclusive of  all taxes, or EUR 27 per kilogram (these  rates must  go up  to  36%  and
EUR 32 respectively from 1 July 2004);

–  other smoking tobaccos: 20% of the  retail selling price inclusive of  all  taxes,  or  EUR  20

per kilogram.

At  the  time  the  two  Directives  were  adopted  the  Council  and  the  Commission  recorded  in
Council minutes that they had authorised France to keep the excise duty charged on tobacco
in  the  Corsican  departments  below  the  level  applicable  elsewhere  in  France,  provided  the
excise duty applicable in Corsica was gradually raised to the national level by 31 December
1997  at  the  latest.  The  authorisation  was  prolonged  to  31  December  2002  by  Directive
1999/81/EC3 by which the above Directives were amended in response to a request submitted
by France whilst the Directive was before the Council.

2.

TAX RULES FOR TOBACCO PRODUCTS IN CORSICA

The  special  rules  on  the  taxation  of  tobacco  products  in  Corsica,  based  on  the  above
authorisations, are laid down in Article 268a of the French customs code. This provides that
excise duty on cigarettes, fine-cut hand-rolling tobacco and other smoking tobaccos shall be
set at a rate that allows the products to be sold at retail in Corsica at two-thirds of the retail
selling  price  in  mainland  France.  For  cigars  and  cigarillos,  the  Article  provides  that  excise
duty shall be set at a rate that allows them to be sold in Corsica at a retail selling price of 85%
of that in mainland France.

In application of the said Article 268a, the French Ministerial Decree of 14 January 1993 laid
down the amount of excise duty to be charged per 1 000 cigarettes, this being  based on  the
selling  price  charged  to  consumers.  The  following  Table  compares  the  taxation  of  CPCD
cigarettes in Corsica and mainland France:

1

2

3

OJ L 316, 31.10.1992, p. 8, as last amended by Directive 2002/10/EC (OJ L 46, 16.2.2002, p. 26).
OJ L 316, 31.10.1992, p. 10, as last amended by Directive 2002/10/EC (OJ L 46, 16.2.2002, p. 26).
OJ L 211, 11.8.1999, p. 47, as last amended by Directive 2002/10/EC (OJ L 46, 16.2.2002, p. 26).

2

                                                
Mainland France

Corsica

Minimum
Community rate

Situation at the end of 2002

EUR 180

EUR 120

Retail selling price for
CPCD cigarettes

Amount of excise duty

EUR 106.18

EUR 38.65

EUR 60

Excise duty  as  a  proportion
of the retail selling price

58.99%

32.21%

57%

VAT (19.6%)

EUR 29.50

EUR 19.67

Price excluding taxes

EUR 44.32

EUR 61.68

This means that under the special tax arrangements the price in Corsica before tax is higher
than  in  mainland  France  and  gives  producers  and  distributors  established  in  Corsica  larger
margins.

For  manufactured  tobaccos  other  than  cigarettes  the  Ministerial  Decree  of  14  January  1993
laid down a single tax rate for each category of product expressed as a proportion of the retail
selling price. The Table below compares tax levels on these products in Corsica and mainland
France:

Mainland France

Corsica

Minimum
Community rate

 Product category

Situation at the end of 2002

Cigars and cigarillos

Fine-cut  smoking  tobacco
intended  for  the  rolling  of
cigarettes

20%

51.69%

Other smoking tobaccos

47.43%

10%

25%

22%

5%

32%

22%

3.

REQUEST FOR THE "CORSICA" DEROGATION TO BE PROLONGED

In  a  Memorandum  of  26  July  2000  pleading  recognition  of  Corsica's  special  position  as  an
island within the European Union, and in a subsequent letter dated 5 November 2002, France
asked for the existing derogations to be prolonged to 31 December 2002. It made the request
because  it  considered  that  more  time  was  needed  to  bring  the  tax  rules  applicable  to
manufactured tobaccos in Corsica into line with those applicable on the mainland.

The extra time was considered necessary in order to protect island jobs in the production and
distribution of manufactured tobaccos.

Cigarette  production  in  Corsica  provided  jobs  for  53  people.  France  stressed  that  the
tax  provisions
additional  margin  resulting  from 

the  application  of 

the  derogating 

3

counterbalanced  the higher cost  of producing cigarettes on  the island. Some  of  these  higher
costs were due to the lower productivity rate of the factory which, because it was small, had
higher production costs (in terms of quantities produced per factory employee) than factories
elsewhere  in  the  EU.  But  some  of  the  additional  costs  were  due  to  the  isolation  and
topography  of  the  island  which  meant  extra  expenditure  on  transport  of  the  raw  materials
(tobacco) and other essential inputs, on services needed to run the factory and on distribution
of the finished products.

The tobacco products were sold by some 350 retailers who employed approximately the same
number of shop assistants, mainly in the four to five-month tourist season. A fair proportion
of these businesses were in the sparsely populated mountain areas where they also represented
a neighbourhood service and therefore helped indirectly to keep the population from moving
away.  The  tax  derogations  for  tobacco  products  in  Corsica  meant  that  Corsican  distributors
could  earn  a  bigger  margin  (11%  of  the  retail  selling  price  as  opposed  to  8%  in  mainland
France) and that they obtained a large part of their income from the sale of tobacco products.

In its request of 5 November 2002 France set out the tax measures for manufactured tobaccos
sold  in  Corsica  that  were  to  be  brought  in  during  the  further  transitional  period  it  was
requesting. The measures it proposed were:

Cigarettes

(cid:1)  Replace  the  current  tax  structures  with  new  structures  fully  compliant  with  Community
requirements (specific ad valorem duty calculated on the basis of the retail selling price for
cigarettes of the most popular price category in Corsica).

(cid:1)  Fix the specific duty at 5% of the amount of tax levied (Community minimum).

(cid:1)  By the end of the five-year derogation period, ensure that the total amount of excise duty

levied is at least that laid down in Directive 2002/10/EEC (EUR 64).

(cid:1)  By the end of the five-year derogation period, ensure that the total amount of excise duty is

44% of the price of cigarettes of the most popular price category in Corsica.

(cid:1)  Grant  a  tax  derogation  for  a  quota  based  on  the  volume  of  tobacco  sales  on  the  island

(1200 tonnes).

(cid:1)  Evaluate the situation at the end of the five-year derogation period.

Other tobacco products

(cid:1)  For  cigars  and  cigarillos:  keep 

the  (10%)  rate  applicable 

in  Corsica  up 

to

31 December 2002; this is higher than the minimum Community rate (5%).

(cid:1)  For fine-cut tobacco intended for the rolling of cigarettes: keep the (25%) rate applicable
up  to  31  December  2002;  this  is  lower  than  the  minimum  Community  rate  (30%),  but
during  the  five-year  derogation  period  France  will  aim  to  bring  it  up  to  the  minimum
Community rate (36%).

(cid:1)  For other smoking tobaccos: keep the (22%) rate applicable up to 31 December 2002; this

is higher than the minimum Community rate (20%).

4

Although these latest proposals are a major improvement on France's original proposals, they
still  do  not  fully  comply  with  the  conditions  originally  laid  down  by  the  Commission  and
Council,  namely,  that  by  the  end  of  the  derogation  period  France  must  have  brought  the
excise duties applied to cigarettes and other tobacco products in Corsica fully  into line with
those applicable in mainland France.

With a view to  resolving the problems of non-compliance with Community  requirements,  a
meeting between the Commission and the French Government was held on 7 January 2003.

By  the  end  of  the  meeting  the  Commission  and  the  French  Government  had  reached
agreement.  This  fulfils  the  Commission's  requirements,  allowing  the  latter  to  accept  that
immediate and complete alignment with the tax rules for tobacco in mainland France could
undermine  Corsica's  economic  and  social  equilibrium  and  to  propose  legislation  which,
provided the conditions set out below are met, permits prolongation of the tax derogation for
tobacco products consumed in Corsica.

Cigarettes

(cid:1)  from  1  January  2003  to  31  December  2007  the  total  rate  of  excise  duty  applicable  to
cigarettes released for consumption in Corsica must  be  at least  35% of the  price  charged
for cigarettes of the most popular price category in Corsica.

(cid:1)  From 1 January 2008 to 31 December 2009 the rate of excise duty must be at least 44% of

the price charged for cigarettes of the most popular price category in Corsica.

(cid:1)  By the end of the derogation period the taxes applicable in Corsica must have been brought

fully into line with those applicable in mainland France.

(cid:1)  Reduced rates of excise duty may be applied only to an annual quota of 1200 tonnes. This
quota is for all cigarettes released for consumption on the island, whether produced there
or elsewhere.

Other tobacco products

(cid:1)  The reduced rate proposed by France in its application for a derogation in the letter dated

5 November 2002 will apply.

(cid:1)  The  reduced  rate  of  excise  duty  will  apply  for  the  period  from  1  January  2003  to

31 December 2009.

(cid:1)  By the  end of this period the taxes applied in Corsica must have been brought  fully  into

line with those applicable in mainland France.

5

4.

OBSERVATIONS ON THE PROPOSALS

Article  1  authorises  France  to  continue  applying  a  lower  rate  of  excise  duty  until
31 December  2009  to  cigarettes  released  for  consumption  in  Corsica.  It  lays  down  the
minimum rate of excise duty with which France has to comply and restricts application to an
annual quota of 1200 tonnes.

Article  2  authorises  France  to  continue  applying  a  lower  rate  of  excise  duty  until
31 December 2009 to manufactured tobaccos other than  cigarettes released  for  consumption
in Corsica. It lays down the minimum rate of excise duty with which France has to comply.

Articles 3, 4 and 5 are purely formal.

6

2003/0075 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directives 92/79/EEC and 92/80/EEC,
authorising France to prolong the application of lower rates of excise duty to tobacco
products released for consumption in Corsica

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 93 thereof,

Having regard to the proposal from the Commission,4

Having regard to the opinion of the European Parliament,5

Having regard to the opinion of the European Economic and Social Committee,6

Having regard to the opinion of the Committee of the Regions,7

Whereas:

(1)

(2)

By  the  provisions  of  Council  Directive  92/79/EEC  of  19  October  1992  on  the
approximation  of  taxes  on  cigarettes8  and  Council  Directive  92/80/EEC  of  the  same
date  on  the  approximation  of  taxes  on  manufactured  tobacco  other  than  cigarettes,9
France  was authorised to continue  applying  up  to  31  December  2002  the  same  rates
for  cigarettes  and  tobacco  products  sold  in  Corsica  as  those  in  force  on
31 December 1997.

France  considered  that  more  time  was  needed  to  bring  the  taxes  applied  to
manufactured  tobaccos  in  Corsica  into  line  with  the  taxes  applicable  in  mainland
France.  Therefore,  inter  alia  in  a  Memorandum  dated  26  July  2000  pleading
recognition  of  Corsica's  special  position  as  an  island  within  the  European  Union,
France requested authorisation to prolong until 31 December 2009 the application of
certain tax rules derogating from the Community's requirements regarding the taxation
of tobacco products.

(3)

The  economic  activity  linked  with  manufactured  tobaccos  helps  maintain  economic
and  social  equilibrium  in  Corsica.  This  is  because  the  said  activity  provides  a

4

5

6

7

8

9

OJ C , , p. .
OJ C , , p. .
OJ C , , p. .
OJ C , , p. .
OJ L 316, 31.10.1992, p. 8, as last amended by Directive 2002/10/EC (OJ L 46, 16.2.2002, p. 26).
OJ L 316, 31.10.1992, p. 10, as last amended by Directive 2002/10/EC (OJ L 46, 16.2.2002, p. 26).

7

                                                
livelihood for some 350 retailers who employ about the same number of wage earners.
Quite  a  large  proportion  of  the  retail  outlets  are  in  the  sparsely  populated  mountain
areas where they provide a neighbourhood service and thereby helps indirectly to keep
the population from moving away.

Immediate and complete alignment with the tax rules for tobacco in mainland France
would depress economic activity linked to manufactured tobacco in Corsica which, at
present, provides the abovementioned jobs.

Therefore,  to  prevent  damage  to  the  island's  economic  and  social  equilibrium,  it  is
both essential and justifiable to grant a derogation with effect from 1 January 2003 to
31 December 2009, by which France may apply a rate of excise duty that is lower than
the  national  rate  to  cigarettes  and  other  manufactured  tobaccos  released  for
consumption in Corsica.

By the end of this derogation period the tax rules for manufactured tobaccos released
for consumption in Corsica must have been brought fully into line  with  the rules for
mainland  France.  Nevertheless,  too  abrupt  a  change  should  be  avoided  and  there
should  therefore  be  an  intermediate  increase  in  the  excise  duty  currently  levied  on
cigarettes in Corsica.

To  avoid  undermining  the  smooth  functioning  of  the  internal  market,  the  volume  of
cigarettes eligible for this derogating measure should be limited to an annual quota of
1200 tonnes.

(4)

(5)

(6)

(7)

(8)

Directives 92/79/EEC and 92/80/EEC therefore need to be amended.

HAS ADOPTED THIS DIRECTIVE:

Article 3(4) of Directive 92/79/EEC is replaced by the following:

Article 1

"4.  By  derogation  from  Article  2,  from  1  January  2003  to  31  December  2009  France  may
continue  to  apply  a  reduced  rate  of  excise  duty  to  cigarettes  released  for  consumption  in
Corsica. This rate shall apply solely to an annual quota of 1200 tonnes.

From 1 January 2003 to 31 December 2007 the reduced rate must equal at least 35% of the
price for cigarettes in the price category most in demand in Corsica.

From 1 January 2008 to 31 December 2009 the reduced rate must equal at least 44% of the
price for cigarettes in the price category most in demand in Corsica."

8

Article 3(4) of Directive 92/80/EEC is replaced by the following:

Article 2

"4. By derogation from Article 3(1), from 1 January 2003 to 31 December 2009 France may
continue to apply a reduced rate of excise duty to manufactured tobaccos other than cigarettes
released for consumption in Corsica. The reduced rate shall be:

a)  for  cigars  and  cigarillos,  at  least  10%  of  the  retail  selling  price,  inclusive  of  all  taxes,
charged in Corsica;

b) for fine-cut tobacco intended for the rolling of cigarettes, at least 25% of the retail selling
price, inclusive of all taxes, charged in Corsica;

c) for other smoking tobaccos, at least 22% of the retail selling price, inclusive of all taxes,
charged in Corsica."

Article 3

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative  provisions
necessary  to  comply  with  this  Directive  not  later  than  [...].  They  shall  forthwith  inform  the
Commission thereof.

When Member States adopt these measures, they shall 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 States.

This Directive shall enter into force on the day of its publication in the Official Journal of the
European Union.

Article 4

Article 5

This Directive is addressed to the Member States.

Done at Brussels,

For the Council
The President

9