Opinion of the European Economic and Social Committee on the  Report from the Commission to the Council, the European Parliament and the European Economic and Social Committee on the rates of excise duty applied on alcohol and alcoholic beverages (presented pursuant to Article 8 of Council Directive 92/84/EEC on the approximation of excise duty on alcohol and alcoholic beverages) (COM(2004) 223 final)
Date: 2006-01-18
Institutions: European Economic and Social Committee
Subjects: ESC opinion, EU Member State, alcoholic beverage, basis of tax assessment, excise duty, fiscal policy, public health, tax harmonisation

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5.8
The capacity of the EU and Member States to assess the
implications of climate change for fisheries is fairly poor.
Efforts in this area are crucially linked to the future develop-
ment of water resource management. Fisheries policy will also
have to assess the adjustments the sector needs to make to
adapt to changes in water resources and fisheries conditions.

5.9
The EESC believes that the production and use of wood
resources should be increased and that the role of forests in
containing climate change should be taken seriously. The EESC

feels that it is important to increase afforestation, both within
the EU and globally. This should also be the key focus of EU
development policy.

5.10
The EESC suggests that the Commission propose the
launch of a wide-ranging information and education campaign
within the EU and at international level, with a view also to
raising awareness among civil society players and political deci-
sion-makers. This could help to speed up the preparation and
introduction of adaptation strategies.

Brussels, 18 January 2006.

The president

of the European Economic and Social Committee

Anne-Marie SIGMUND

Opinion of the European Economic and Social Committee on the ‘Report from the Commission to
the Council, the European Parliament and the European Economic and Social Committee on the
rates of excise duty applied on alcohol and alcoholic beverages (presented pursuant to Article 8 of
Council Directive 92/84/EEC on the approximation of excise duty on alcohol and alcoholic
beverages)’

(COM(2004) 223 final)

(2006/C 69/03)

On 27 May 2004, the European Commission decided to consult the European Economic and Social
Committee, under Article 262 of the Treaty establishing the European Community, on the abovementioned
report.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible
for preparing the Committee's work on the subject, adopted its opinion on 8 November 2005. The rappor-
teur was Mr Wilkinson.

At its 423rd plenary session of 18 and 19 January 2006 (meeting of 18 January 2006), the European
Economic and Social Committee adopted the following opinion by 81 votes to 33 with 15 abstentions.

1. Summary of Conclusion and Recommendations

to expect

1.1
The current system of taxation on alcohol and alcoholic
beverages is not working in accordance with what consumers
have a right
the
Member States (MS) have not agreed to harmonise the excise
rates applied to these products beyond the current agreement
on minimum rates. Excise is the term used by trade experts to
denote the tax payable in the country of consumption.

from the internal market but

coding in the Common Nomenclature. There are two major
categories of trade in these products to be taken into considera-
tion: trade between professionals and purchasing by private
individuals, which can take the form of either direct or mail-
order purchases, each of which raises separate issues.

1.4
Problems from the point of view of health are the result
of the abuse of alcohol by individuals, not the form in which
the alcohol is consumed.

1.2
The frequency of reports on the current system by the
Commission should be made more realistic by requiring them
no more frequently than every 5 years.

The current system regularly raises problems over the
1.3
place of certain products in the currently agreed structures to
which there is no simple answer; this can lead to each MS
finding its own solution. Problems also persist over the correct

1.5
Higher excise duties do not tackle the alcohol abuse
problems that exist with individuals. There is no conclusive
evidence that high rates of excise duty reduce the problems of
abuse over the longer term. Consequently, other measures
based essentially on education and prevention, must be
employed in order to tackle these problems and improve
public health.

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It

is

recommended that

1.6
the Commission considers
dividing alcoholic beverages into two basic categories, with the
implementation of a standard basis for all alcoholic beverages
included in these two categories as described at paragraphs 7.3
to 7.10 below, where all alcoholic drinks are taxed according
to their their type, taking into account their means of produc-
tion, effects on health and alcohol content. A separate
approach should however be adopted for wine and other
fermented drinks (beer, cider and perry).

1.7
It is recognised that such a change could not be imple-
mented quickly and would have to be introduced over a
considerable period of time.

2. Supporting arguments

The Commission has presented a report (1) on the opera-
2.1
tion of the EU wide system of minimum rates of taxation for
alcohol and alcoholic beverages. It considers the way in which
the current system works with respect to the functioning of the
Internal Market. It concludes that more convergence between
the rates of excise applied in the Member States could reduce
fraud and distortions to competition.

However,

it notes that Member States have widely
2.2
different views on appropriate levels for the minimum rates (2)
and, given that this is a subject that requires unanimity for
change, wishes to launch a wide debate on the subject consid-
ering all appropriate aspects of the matter. The provisions of
the structures directive (3) are also in need of further considera-
tion and are included in this debate. This is the Committee's
contribution.

3.2
It also gives data showing how important the revenues
that MS derive from excise duties on alcoholic drinks are (4)
and the extent to which they diverge (5).

3.3
Each MS has its own tax policies and they currently
show no sign of wanting to harmonise them. This accounts for
the failure of the Commission, despite its efforts, to report on
the implementation of
the intervals
required in the original directive. The frequency of reporting
should be made more realistic, possibly setting it at once every
5 years.

the current system at

3.4 When MS set such policies they take into account past
experience, public health, relevant research and the different
cultures and lifestyles of their populations. The taxation area is
one where changes can only be made by unanimity and so any
significant changes that may be agreed would have to take
effect over time.

It is worth recalling that the excise taxes (6) in question
3.5
are on beverages containing alcohol, but are applied at different
rates depending on the category of alcohol concerned.

4. Internal Market

3. General comments

3.1
The Commission's report provides a most useful analysis
of the situation and gives many facts to show that change is
needed if the Internal Market is to be more effective for the
benefit of European consumers, clearer for those who are
involved in the alcoholic drinks industry,
less distorting to
competition and instrumental in reducing the current problems
over fraud and smuggling.

(1) Report from the Commission to the Council, the European Parlia-
ment and the European Economic and Social Committee on the
rates of excise duty applied on alcohol and alcoholic beverages
(presented pursuant to Article 8 of Council Directive 92/84/EEC on
the approximation of excise duty on alcohol and alcoholic
beverages) COM(2004) 223 final.

(2) Council Directive 92/84/EEC on the approximation of excise duty

on alcohol and alcoholic beverages: OJ L 316, 31.10.1992.

(3) Council Directive 92/83/EEC on the harmonisation of the structures
of excise duties on alcohol and alcoholic beverages: OJ L 316,
31.10.1992. Subjects requiring consideration include whether it
should continue to be permissible to tax still and sparkling wines at
different excise rates, the need to update the codes of the combined
nomenclature and the classification of some similar products in
different ways.

Tax induced distortions of competition (7) and diversions
4.1
of trade are not in accord with the principles of the internal
market looked at in isolation; both are still features of the alco-
holic beverages market in the EU.

On the other hand, the internal market does allow the
4.2
consumer to benefit
from the possibility of making cross
border purchases of alcohol. This Committee supported the
recent proposal to increase and rationalise these benefits by
allowing, in particular, distance purchasing of alcohol, which is
positive from the point of view of free movement of goods.

(4) The total value to EU 15 GDP in 2001 was over EUR 25 billion; in
GDP percentage terms the highest was Finland (0,96 %) and the
lowest was Italy (0,06 %).

(5) Excise duty rates applied to alcoholic beverages vary between
highest and lowest taxing MS by 15,9 times for beer and ‘inter-
mediate products’ and 9,2 times for spirit drinks. No such compar-
ison is possible for wines (including sparkling wines) since wines are
not taxed at all in 15 of the 25 MS and a minimal tax (of about 2
eurocents) is applied in 2 further MS.

(6) Excise is tax payable on such goods in the country of purchase.
(7) Wineand beer have been found to be to some extent substitutable

by the ECJ: case C-170/78 and case C-166/98.

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4.3
However, most MS are having to accept the need to use more resources to fight the smuggling and
fraud that have resulted primarily from the different excise (and VAT) rates applied. This criminal activity
is a serious problem for the EU, most often directly affecting those MS that have chosen to tax alcohol the
most highly.

4.4
The effect of enlargement (if any in this area) is not yet clear. Since the same directives apply, and
since several ‘enlargement’ MS have had to increase the excise rates that they applied before accession,
there should not be very different results in these countries.

5. Minimum rates

The only step that MS would agree to take towards approximation in 1992 was to set ‘minimum

5.1
rates’ for each category of alcoholic drinks. These rates were set at the following rates:

— Spirits:

— Beer:

EUR 550 per hectolitre of pure alcohol

(EUR 5,5 per lpa (8))

EUR 1,87 per hectolitre/degree of alcohol

(EUR 1,87 per lpa)

— Intermediate products:

EUR 45 per hectolitre of product

(EUR 2,5 per lpa)

— Wine (still or sparkling):

zero

(zero)

5.2
Any MS may set an excise rate above the agreed minimum rate at any time. Thus failure to raise
the existing minimum rates is not crucial from the point of view of raising revenue. Some MS have been
forced to raise excise duty on alcohol whilst others have lowered it (9), providing closer approximation
and reducing the incentive for cross border purchases (legal) and fraud and alcohol smuggling in the single
market (illegal). The proposal merely brings the excise rates closer to the minimum rates rather than
achieving genuine harmonisation, as each Member State will continue to set its own base rate.

6. Wider objectives of the Treaty — health

Five MS (10) at present acknowledge that they take public health into account in setting their tax
6.1
policies. But a recent Economic and Financial Affairs Council considering the subject of this opinion (11)
noted that the great majority of MS do not consider that health and social questions should play a major
role in fixing of excise tax rates (12).

6.2
Alcohol is a part of a normal lifestyle for the majority of EU adult consumers. Of these the great
majority are responsible in their alcohol consumption habits. A certain amount of alcohol consumption
can bring health benefits for some groups. However, the problems from excessive consumption of alcohol
can be, and often are, serious. The problems affect their own health, but also cause serious social problems
and can have adverse economic effects. Of particular concern is the abuse by some younger consumers (13).
There is also a need for more education in the dietary aspects of alcohol (14). It is abuse that needs to be
tackled, rather than moderate consumption, and, in general, the need for comprehensive education in
nutrition.

(8) lpa: ‘litre of pure alcohol’; thus based on alcohol content, taking beer, wine and intermediate products at typical retail

strengths.

(9) In each of these cases this has primarily been the result of citizens in the MS concerned exercising their right to buy

in other MS in the internal market.

(10) Denmark, Estonia, Finland, Ireland and Sweden.
(11) Conclusions of Session 2651 held on 12 April 2005.
(12) The same ECOFIN Council meeting asked the Commission to make proposals to raise the current minimum rates in
line with inflation over the past years. This decision will force a significant number of MS to raise the rates that they
apply to some alcoholic drinks. The Commission recognises that some MS will have difficulties in imposing the
increases and may need derogations and/or transitional periods.

(13) European School Survey Project on Alcohol and on Drugs (ESPAD) 2003 report.
(14) ‘Obesity in Europe – role and responsibilities of civil society partners’ (own-initiative opinion) (OJ C 24, 31.1.2006).

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6.3
The question in this context is whether higher tax rates
(and hence higher prices, since the tax component of many
alcoholic drinks exceeds the product price) can provide a solu-
tion to abuse.

expect the sudden introduction of a radical new system; but it
is time to suggest a new system that could be introduced
gradually over a long period of time.

The evidence on which any answer to this question can
6.4
be based is not clear. Price rises can have an effect on overall
consumption but there is no reliable evidence that any such
reduction in consumption includes those who abuse alcohol.
There is evidence that where a particular form of alcoholic
beverage is taxed exceptionally highly relative to other products
its consumption is reduced as the consumer turns to other (less
highly taxed and therefore cheaper) products. We conclude that
high prices are not of themselves a solution to alcohol abuse.

6.5
Conversely it is not easy to establish whether the sudden
impact of significant reduction in taxation is likely to have an
unwelcome effect on consumption in other than the short
term; the indications are that significant reductions should be
phased in over time.

Abuse is best tackled by education,

6.6
information and
training programmes primarily aimed at those who do abuse
alcohol. The Commission should take this into account
in
proposing their public health policies (15).

7. Possible way forward

Faced with the realities of

7.1
the current situation we
conclude that the present system, which has evolved over time,
is unsatisfactory in the context of the single market. While the
internal market is working very well in many areas, in the alco-
holic drinks area diversions of trade and tax induced distortions
of competition persist. Further, despite increasing efforts by MS
illegality, in the form of fraud and smuggling, shows no sign of
being brought to significantly lower levels.

7.2
The Committee agrees that greater convergence would
contribute to reducing fraud and distortions to competition.
Further, while they have agreed to increase the existing
minimum rates in line with inflation they have not been able
to agree on the other problem areas (see footnote 3 above).
However, there is no good reason why the Commission should
not propose to MS changes in the existing structures and excise
system.

7.3
Recognising the current considerable variations within
the EU of both direct and indirect taxation, it is unrealistic to

(15) DG SANCO is working on an alcohol strategy proposal. It is unli-
kely that this study will be completed for a considerable time.

is to recognise that

The necessary start point

7.4
the
product should be taxed according to its classification as a
fermented or distilled beverage. Fermented drinks are natural
beverages, produced agriculturally and for consumption, made
exclusively by fermenting grapes, grains,
fleshy fruits or
berries. Distilled drinks or spirits refer to all those beverages
which have been distilled, or those which have been mixed
with other distilled drinks or other liquids, or any alcoholic
drinks whose production is not subject to specific regulations.

In particular the consequences on the CMO (16) for wine
7.5
would need very careful consideration; the EU wine industry is
already facing substantial challenges (such as falling consump-
tion in many MS and greater market penetration by imported
wine). Other categories of alcoholic drinks have similar difficul-
ties.

7.5.1
Further to the previous point, it should be pointed out
that wine represents a significant supplementary activity for
farmers. Many winegrowers produce wine for their own family
consumption, independently of their production for coopera-
tives or wholesalers, selling any surplus to a small number of
individuals. Article 10 of Council Directive
private local
92/83/EEC already allows MS to exempt from excise duty wine
produced by a private individual for personal consumption (by
self, family or guests, but not where a sale is involved) (17).
Similarly in article 29 of Council Directive 92/12/EEC MS are
permitted to exempt small wine producers (18) from the require-
ments relating to movements and monitoring of their products.
If MS do not allow these permitted exemptions they could
represent an additional economic burden for a wine-producing
sector which is already affected by competition from newly-
emerging third countries. Wine would then have a fair case to
be excluded from the ensuing rationale.

7.6 We therefore recommend that a minimum rate should
be set by the Commission for all alcoholic beverages in each
category; i.e. a minimum rate for fermented beverages and a
minimum rate for distilled beverages. In addition, we propose
taxing the alcohol content of each particular beverage within
the same quantity of product
each category;
would pay four times as much at 40 %abv (19) compared with
the same quantity of product at 10 %abv.

for example,

7.7
Fermented beverages have one particular problem that
other categories of alcoholic drink do not have. The alcohol
content of any fermented beverage can (and does) change
according to various factors that affect the raw material and
means of production. It will therefore be necessary to establish

(16) CMO: Common Market Organisation.
(17) Similar exemptions may be applied for beer (Article 6) and other

fermented beverages (Article 14) of this directive.

(18) Small wine producers'

is here taken as persons producing an
average of less than 100 000 litres of wine per year on average.
(19) ‘abv’ means alcohol by volume and denotes the percentage of the

product in question that is alcohol.

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a somewhat more flexible approach to fermented beverages, by
placing them in bands according to their strength, to avoid
unduly complicating the work of producers and traders.

7.8
Such a system would enable Member States to retain the
possibility of setting a zero rate for wine or other fermented
beverages, and to extend this option to the entire fermented
beverage category.

7.9
This would result in a genuine simplification of alcohol
taxation, though it would not decrease the scope for fraud
while MS continue to set widely different rates for alcohol taxa-
tion.

7.10
Under this system there would be no need to try to fit
the increasing number of new products into a structure not

suited to them; they would simply be charged based entirely on
their alcohol content (abv).

Further, the excise system would be more robust and
7.11
have no significant distortions and Common Nomenclature
(CN) problems would be resolved.

Alcohol and health, as stated above,

7.12
is a matter of
concern; but under such a system of all alcohol being taxed on
a standard basis, the tax burden would be heaviest on those
who consumed the most alcoholic beverages depending on
whether these are exclusively fermented or distilled. This would
help understanding that concerning health what matters
primarily are drinking patterns, bearing in mind the benefits of
moderate consumption as compared to the dangers of abusive
consumption.

Brussels, 18 January 2006.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

APPENDIX

to the Opinion of the European Economic and Social Committee

Rejected amendments

The following amendments, which were supported by a quarter of the votes cast, were rejected in the course of the
debate:

Point 7.5

Amend as follows:

‘In particular the consequences on the CMO (1) for wine would need very careful consideration; the EU wine
industry is already facing substantial challenges (such as falling consumption in many MS and greater market pene-
tration by imported wine). Other categories of fermented alcoholic drinks can have similar difficulties. In addition,
due to the proven link between moderate consumption of these drinks and their health benefits, it would be useful
to divide this classification into two categories (fermented and distilled). In each of these categories, the Member
States could establish a minimum excise rate based on alcohol content, irrespective of the form in which this
alcohol is present.’

Reason

Due to its agricultural origins and use as a food product, and to the health benefits that can come from moderate
consumption, we should express support for the entire fermented beverage sector, where consumption patterns for
wine, beer and cider are very similar. However, it is not logical to impose a single base rate model without taking into
account the type of drink or means of production, and to lay down an exception for one of these drinks — wine —
based on circumstances that also apply to other fermented drinks (cider and beer), as set down in the opinion adopted
on 19 December 2005.

Voting

For: 46

Against: 50

Abstentions: 23

(1) CMO: Common Market Organisation

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Point 7.5.1

Amend as follows:

‘Further to the previous point, it should be pointed out that wine represents a significant supplementary activity for
farmers, and that small-scale traditional beer or cider production is also a part of European culture. Many wine-
growers produce wine for their own family consumption, independently of their production for cooperatives or
wholesalers, selling any surplus to a small number of private local individuals. The same applies to small cider or
beer producers, whose products are intended for home or local consumption. This would mean that checks on taxa-
tion would have to be made, in each of the countries concerned, for hundreds of thousands of small producers: the
cost would be unsustainable for the Member States compared to what would certainly be modest revenues, and —
more importantly — would represent an additional economic burden for a wine-producing sectors which is already
affected by competition from newly-emerging third countries. Wine These beverages should therefore be excluded
from the ensuing rationale, retaining enabling a the current “zero-rating” to be applied to all of them.’

Reason

The reasons given in this point are also applicable to the small-scale, traditional production of other products covered
by Directives 92/83/EC and 92/84/EC, to which reduced rates may be applied. There do not seem to be sufficient argu-
ments for restricting the exclusion to the wine sector, if this exclusion is not applied to all similar products, avoiding the
discriminatory effects of Directive 92/84/EC.

Voting

For: 52

Against: 65

Abstentions: 8

Point 7.11

Amend as follows (new text is underlined):

‘7.11 Genuine simplification of the taxation system for alcohol is highly desirable, but it should be noted:

— 1)

that with base rates differing among Member States, they would have little chance of reducing smuggling

or fraud;

— 2)

that a single base rate based on alcohol content could:

— lead to new kinds of fraud, accomplished merely by changing the method of manufacturing a product

and its alcohol content;

— penalise wine-producers, who would have to distinguish between each of their wines containing a

different percentage of alcohol;

— for the same reason, considerably complicate the commercial activities of authorised warehouse keepers,
who would have to distinguish between each category for the payment of duties when a product is
released for consumption;

— 3)

that the proposed system, which does not distinguish between fermented and distilled products, will lead

to a loss of revenue for the Community budget as it moderates the tax burden on spirits;

— that, on the other hand, if wine were to be included in a taxation system of this kind, the tax burden on wine
would increase substantially at a time when the sector is suffering increasingly from competition from third
countries; there is therefore good reason for wine to remain in a separate category with zero excise duty.’

Voting

For: 35

Against: 75

Abstentions: 12