Opinion of the European Economic and Social Committee on the Proposal for a Council Directive amending Directive 92/84/EEC on the approximation of the rates of excise duty on alcohol and alcoholic beverages COM(2006) 486 final
Date: 2007-05-30
Institutions: European Economic and Social Committee
Subjects: alcohol, alcoholic beverage, excise duty, tax harmonisation

27.7.2007

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Official Journal of the European Union

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III

(Preparatory Acts)

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

436th PLENARY SESSION, HELD ON 30 AND 31 MAY 2007

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Directive
amending Directive 92/84/EEC on the approximation of the rates of excise duty on alcohol and
alcoholic beverages’

COM(2006) 486 final

(2007/C 175/01)

On 26 September 2006 the Council decided to consult the European Economic and Social Committee,
under Article 93 of the Treaty establishing the European Community, on the abovementioned proposal.

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 19 April 2007. The rapporteur
was Mr Iozia.

At its 436th plenary session, held on 30 and 31 May 2007 (meeting of 30 May 2007), the European
Economic and Social Committee adopted the following opinion by 78 votes to 10 with 0 abstentions.

1. Conclusions and recommendations

1.1
The Committee thinks it would be wrong to apply an
automatic adjustment for the rate of inflation in the EU-15
since 1992, given that another three countries joined the Union
in 1995, a further ten on 1 May 2004 and two more on
1 January 2007.

1.2
The Committee thinks that if the desired harmonisation
is to be achieved in the EU-27, the adoption of a maximum rate
of duty should be considered: this is certainly one measure that
holds out the prospect of effectively combating smuggling and
thus facilitating the
fraud and approximating taxation rates,
emergence of a real single market. The way to protect
the
interests of consumers — who should not be seen as smugglers
simply for buying alcoholic beverages where they cost less — is
through progressive harmonisation.

1.4
In the Committee's view, the proposal does not suffi-
ciently justify the choice of Article 93 of the Treaty as the legal
basis, authorising the Council to adopt measures to harmonise
issues by unanimous vote. By
national
leaving the Member States free to set their own rates above the
minimum, the proposal does not, in fact, harmonise anything.

legislation on fiscal

The Committee thinks the Commission is wrong to play
1.5
down the proposal and in this way justify the absence of an
impact assessment and a consultation of interested parties. In a
hearing held at the Committee, all the participants not only
declared their own opposition to the Commission proposal, but
also called on it to carry out a thorough impact assessment in
the future.

1.6
The Committee wishes the proposal to be withdrawn
and calls on the Commission, in its future work, to update refe-
rences to the codes in the Common Nomenclature set out in
Directive 92/83 and revise the methods of classification.

1.3
The Committee recommends that Member States be
explicitly forbidden to add to the normal duty and VAT regimes
other forms of consumer taxation — for which, as the European
Court of Justice has found (1), they sometimes invent the name
‘Community tax’.

(1) C-437/97 Evangelischer Krankenhausverein Wien (EKW).

2. The Commission proposal

2.1
The Proposal for a Council Directive amending Directive
92/84/EEC on the approximation of the rates of excise duty on
alcohol and alcoholic beverages sets minimum rates for excise

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duty on alcohol and the different categories of alcoholic
beverages. Article 8 of the Directive obliges the Commission to
carry out periodical inspections and submit a report and, where
appropriate, a proposal for amendment.

2.2
The debate following the report issued by the Commis-
sion on 26 May 2004 — in which it concluded that greater
convergence of
the minimum rates of excise duty in the
different Member States was needed to ensure proper func-
tioning of the internal market and prevent the fraud and smug-
gling which was facilitated by the different regimes in the
Member States — led to the initiative, prompted by the Coun-
cil's call for it ‘to come forward with a proposal to adjust the
minimum rates of excise duty in order to avoid a fall in the real
value of the Community minimum rates, providing transitional
periods and derogations for those Member States who may have
difficulties in increasing their rates’. The Council also added that
‘the Commission should also duly take into account the overall
political sensitivity of this special issue’.

The Commission therefore proposes

2.3
Directive by:

amending the

— revalorising the minimum rates on alcohol,

intermediate
products and beer in line with inflation from 1993 to
2005, which is in the order of 31 %, to take effect from
1 January 2008;

— providing transitional periods to one year for those coun-
tries which should increase their rate by more than 10 %
and equal to two years for those which should increase
theirs by over 20 %;

— prolonging the review period of the review procedure under

Article 8 of the Directive from two to four years.

2.4
The primary aim of the proposal, as requested by the
Council, is to restore the real value of rates to the 1992 level —
‘ensure the func-
a value which the Commission thinks will
tioning of the Internal Market without fiscal borders’.

3. Remarks

3.1
In the absence of an impact assessment, the Committee
decided to hear for itself the views of producers' associations,
consumers and trade unions. In the course of the hearing, parti-
cipants spoke with one voice of
the
proposal for a directive. Some organisations also noted that the
proposal would further increase the unequal treatment of alco-
holic beverages — to the manifest detriment of those liable to
duty. Producers of beverages not liable to duty, on the other
hand, called for the present structure — which was, moreover,
set defined in the Common Agricultural Policy agreements — to
remain unchanged.

their bewilderment at

Those participating in the hearing (2) also agreed that
3.2
social and health aspects should be taken into consideration, but
should not determine taxation. At the same time, they called for
support for a ‘responsible consumption’ campaign to limit risks
of abuses — a demand which the Committee endorses. It was
also stressed that the European industry led the world and made
a by no means negligible contribution to Europe's GDP and to
both direct and indirect employment.

3.3
At first sight, the draft Directive would appear to be a
routine measure simply adjusting the figures to match inflation
since 1993. However, it deals with an extremely involved and
sensitive issue that exposes how far national policies and inter-
ests are from giving way to a high degree of Community fiscal
convergence. The Committee has on several occasions expressed
its desire for a process of fiscal harmonisation, which is abso-
lutely vital
if consumers are to appreciate the benefits of the
single market.

3.4
The ECOFIN meetings of 7 and 28 November 2006, at
which this proposal was one of the items on the agenda, have
reopened the interminable discussions between Member States,
in many ways recreating the situation which back in 1992 gave
rise to the Directive, which succeeded only in setting minimum
rates and offered no possibility of identifying a joint approach
for harmonising and converging excise duties.

3.5
Close inspection reveals truly vast differences in the rates
in the various Member States. The report of 26 May 2004
included measures applied for various categories in the then
25 Member Sates and the candidate countries Romania and
Bulgaria (3), members since 1 January 2007. The gap between
the lowest and highest rates amounted to 1 100 %!

3.6
By way of example, for wine the range was from 0 to
EUR 273; for sparkling wine from 0 to EUR 546 per hl.; for
beer, from 0.748 per degree Plato (4), equivalent to EUR 1.87 to
EUR 19.87 per hl./degree of alcohol; for still and sparkling inter-
mediate products from EUR 45 to 497 per hl.; for pure alcohol
from EUR 550 to 5 519 per hl., equivalent to a range of
between EUR 220 and EUR 2 210 per hl. for 40o alcoholic
beverages.

(2) CEPS — The European Spirits Organisation; AICV — The Association
of Cider and Fruit Wine; The Brewers of Europe; Comité Européen des
Entreprises Vins.

(3) See appendix: the charts published by the Commission on 26 May
2004 in its Proposal for a Council Directive amending Directive
92/84/EEC on the approximation of the rates of excise duty on alcohol
and alcoholic beverages.

(4) According to the free online encyclopaedia Wikipedia, the degree Plato
is a unit of measurement to determine the density of a solution. The
Plato scale is used especially in the beer industry for its ease of use. The
density of a solution measured in degrees Plato is defined as the
equivalent of the density measured in weight/weight percentage of a
water-sucrose solution. In other words, if a litre of beer wort has a
content equal to 12 degrees Plato, the density of the extract (or sugars
dissolved in the wort) in question is equal to that of a litre of solution
containing 12 % wt/wt of sucrose approximating the specific gravity of
water at 1 Kg/l and at sea level and ambient temperature. Our sample
contains around 120 grams of extract.

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3.7
Revalorising the minimum rate as proposed by the
Commission would reduce the gap between the rates used in
different countries from 1 100 % to somewhere between 800 %
and 1 000 %. The suggestion that this measure would ensure
the operation of the internal market seems bold, to say the
least. The Committee suggests that the effective solution is to
introduce not only a minimum rate, but also a maximum rate
— a measure that holds out the prospect of combating smug-
gling and fraud.

The Committee wonders whether

3.12
the Commission
should continue to perform a merely administrative role on
what has been stated to be an extremely sensitive subject, or
whether it should not instead put forward proposals, in some
cases in dialogue with the Member States, to effectively mitigate
the substantial distortions to competition entailed in main-
taining such a fragmented taxation regime.

information,

In the interests of providing fuller

The insistence that adjusting the minimum rates to the
3.8
rate of inflation will not increase real value is equally unconvin-
cing.
the
Commission should have supplied a dynamic model of the way
excise duty has operated in the Member States, starting with the
year in which the proposal for harmonisation was put forward
in a White Paper, namely 1985. The truth is that the result of
this, with one or two exceptions, has been to increase the real
value of duties in Member States once the derogation granted to
some countries had expired. The Committee is critical of all
national practices that add other forms of taxation to duties, in
some cases calling them ‘Community tax’.

3.9
That this is indeed the case has been confirmed by a
study instigated by the Commission itself (5), which makes it
clear that all but three of the Member States have increased the
value of their duties every year or every few years.

3.10
The same study, which took into account demand elas-
ticity in response to prices, showed that if the minimum rates
were readjusted in line with inflation:

— spirits would benefit substantially from a change in rates —
this would be particularly the case in Nordic countries, but
also in the UK and Ireland;

— under the relatively high price elasticity option the increases
in spirits consumption would be greater when compared to
the
relationship
between demand for a certain types of product and the cost
of other categories of product) (6) as far as high-proof spirits
are concerned;

assumption (the

crossprice

elasticity

that

aspect

Another

3.13
the Commission completely
ignored in drafting its proposal for amending the directive is
that in the 12-member European Community in 1992 the gap
in per capita income was not such as to make the rates in force
onerous. In the Europe of 27, where there is a very diverse
range of salary and pension levels, continuing the same degree
of taxation for new and old Member States is an unfair measure
that hits only more modest incomes. For households containing
workers and pensioners whose salaries and pensions are no
higher than EUR 100 to EUR 150 a month and who have
already had to suffer an increase in alcohol duties of between
50 % and 400 %, a further 31 % hike would undoubtedly
adversely affect consumption. In the particular light of the acces-
sions that have occurred in the meantime, bringing in 12 new
countries, the Committee does not believe it would be right to
apply an automatic adjustment for an inflation rate recorded in
the EU-15 from 1992 onwards.

3.14
Save for very rare exceptions, then, the system proposed
is at odds with all the anti-inflation policies put in place by the
Member Sates which some time ago abolished, where they
existed, mechanisms indexing wages and pensions to the infla-
tion rate. The Commission fails to explain adequately why such
a mechanism should be retained only for taxes and duties.

3.15
the
The Committee believes, on the contrary,
current regime is entirely unfit for purpose and finds adjustment
to the rate of inflation (of the EU of 12, 25 or 27?) to be an
lowest
unnecessarily punitive measure,
incomes, as are all forms of indirect taxation that eat into the
tax-payer's net income.

especially for

that

the

— in the high elasticity option, the main losers would be in
beer and wine — the Nordic countries would see significant
losses in wine consumption and Germany, Belgium, France
and Luxembourg would see a drop in beer consumption.

3.16
Just as the consumption of wine in moderation is part
of the culture and history of some Member States, the same is
true for other types of alcoholic beverages for other European
peoples. The issue, in all its ramifications, needs to be seen in a
broader perspective.

3.11
It would be interesting to compare this study, which
was limited to the EU-15, with the effect of variation of the
minimum rates in the new EU of 27 Member States.

(5) Customs Associates Ltd, Study on the competition between alcoholic

drinks — Final report — February 2001.

(6) Crossprice elasticity in relation to price gives an indication of the

degree of competition between beverages.

The Committee respects the decision of some countries
3.17
to adopt a stringent
fiscal policy on alcohol and tobacco,
probably because of the abuse involved, especially among young
people. Some Member States have made it clear that their fiscal
policies must take account of public health. Nevertheless, these
decisions they have chosen to make cannot influence the choice
and motivations of other Member States.

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3.18
In this regard, the Committee has already expressed its
position in a detailed opinion (7) which stressed that: ‘Abuse is
best tackled by education, information and training programmes
primarily aimed at those who do abuse alcohol.’

States in the field of direct taxation, certain excise duties and
taxation of insurance.

3.19
In the Committee's view, the requirements of Article 93
of the Treaty are not met, authorising the Council to decide by
unanimous vote on measures to harmonise tax regimes in order
to implement or improve the operation of the internal market
within the scope of Article 14. The fact
increasing
minimum duties does not contribute to harmonisation, but
merely sets a minimum level
that every Member State can
decide to raise as much as it wishes. The fact that actual rates
have further diverged since the adoption of Directive 92/84 EEC
shows that harmonisation cannot be achieved through a direc-
tive of this kind.

is that

4. Combating fraud and smuggling

4.1
One adverse consequence of wide-ranging differences in
taxation, apart from hindering sound operation of the internal
market, is the strong tendency to avoid duties — either in part,
by paying them in a Member State other than that of end
consumption, or completely by importing goods from third
countries or rerouting goods while they are in transit and duties
are suspended.

fiscal

The arrival of e-commerce has provided another area of
4.2
potential
fraud, given the impossibility of monitoring
online sales and the absence of a coordinated policy to combat
alcohol duty fraud, since some Member Sates do not consider
this to be a problem and it is almost the exclusive concern of
areas with the highest taxation.

4.3
Enlargement has brought the Union's external borders to
countries where taxation levels are far lower than the EU
average and the potential for fraud has increased exponentially.
Corruption is rampant in some of these countries, with customs
authorities themselves involved in some cases. Measures to
combat smuggling must be further strengthened and if an
increase in duties is adopted in the form proposed, the profit
margins for international smugglers will be even greater.

As far back as 1992,

the Union was aware of

4.4
the
problem of combating fraud on goods liable to excise duty, and
published the Council Directive 92/12/EEC of 25 February
to
1992 on the general arrangements for products subject
excise duty and on the holding, movement and monitoring of
such products. As this met with little success, it was amended in
2004 by Council Directive 2004/106/EC of 16 November
2004, which amends also Directive 77/799/EEC concerning
mutual assistance by the competent authorities of the Member

4.5
On this issue, the Committee maintains in one of its
opinions (8) that in order to effectively combat fraud ‘there is a
clear need to modernise, strengthen, simplify and make more
for administrative cooperation and
efficient
exchange of
information between Member States on excise
duties’.

the instrument

4.6
The same opinion highlighted the fact that: ‘Once again
the benefits which would flow from more effective operation of
the single market, and in the case in point from procedures
likely to detect and combat fraud and tax evasion, are being
limited by the wish to safeguard national interests.’ And again:
‘There is no doubt that many fraudulent practices are directly
related to the differences — sometimes significant — which
exist between excise rates applied in the different Member
States.’

‘The Committee takes this opportunity to criticise the limita-
tions arising from the unanimity principle, which at present
governs most Community decisions on tax law, and reiterates
the need to replace it with the qualified majority principle when
it is a matter of taxes which influence the operation of the
internal market or cause distortions of competition’.

The Committee has, over the years, repeatedly empha-

4.7
sised the following key concepts:

— strengthening

administrative

permanent
dialogue between fiscal administrations, mutual assistance,
ongoing and identical training for those combating fraud,
networks of police forces and tax authorities on compatible
platforms and sharing databases;

cooperation,

— facilitating processes of fiscal harmonisation in both direct

taxation and the more intricate field of excise;

— launching a process to abandon the requirement of unani-
issues, starting with those that are

mity for certain fiscal
easiest to implement;

— abandoning the VAT taxation model, which makes fraud

easier, and

— not increasing the tax burden.

4.8
In Sweden in 2004, for example, travellers or smugglers
imported around 164 million litres of beer alone, which was
roughly the same volume — 173 million litres — sold by the
state monopoly (Systembolaget) and represented a loss of
around EUR 190 million in revenues from excise tax and VAT.
Such purchases have risen 40 % since 2002 and the lifting of a
special regime restricting purchases from abroad. Smuggling is

(7) OJ C 69 of 21.3.2006 (Rapporteur: Mr Wilkinson).

(8) OJ C 112 of 30.4.2004, p. 64 (Rapporteur: Mr Pezzini).

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and still wines differently by saying that the arguments which
had originally informed this decision — namely that sparkling
wines were still a luxury product — were now less valid. (In
point of fact, quite the opposite is true for certain still wines!).

5.3
Regarding the second point, Article 26 of Directive
92/83 (on the structure of excise) stipulates that the Common
Nomenclature codes to which the directive refers are those in
force on the day that the directive was adopted (19 October
1992). The Commission, however, proposes a reference instead
to the most recent applicable Common Nomenclature codes
and for future modifications to be adopted in line with Article
24 of Directive 92/12 EEC (involving a Committee on Excise
Duties of the kind set up for energy products).

5.4
On the third point: to avoid the problem raised by many
operators regarding the directive's vague wording, which fails to
specify the amount of distilled alcohol that can be added to
‘other fermented beverages’, the Commission proposes to make
the definition of alcoholic beverages for excise purposes less
dependent on the Common Nomenclature classification.

5.5
The Committee finds the changes requested by operators
to ensure simplification and protection of competition to be
well
It endorses the proposals made
earlier by the Commission and wonders why these changes have
not been introduced to amend Directive 92/83 to this end.

founded and coherent.

5.6
The Committee calls for the proposal for a directive to
be withdrawn, while recommending that the changes to Direc-
tive 92/83 proposed by the Commission be adopted.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

estimated to have doubled in the past two years. Denmark puts
the amount of beer that travellers have bought in Germany and
then imported at 95 million litres and this, added to 10 % of
smuggled goods, means that around 30 % of beer consumed in
the country is not subject to Danish taxation. In 2005, travellers
imported more than 42 million litres, 10 % of total consump-
tion,
in excess of
causing revenue
EUR 50 million. Thirty million litres were imported into Austria
from Germany and the Czech Republic and more than
100 million into the UK (in addition to large-scale
smuggling) (9).

into Finland,

losses

5. The structure of excise applied to alcoholic beverages

5.1
In its 2004 report, the Commission set out some of the
problems identified over time in the actual implementation of
Directive 92/84/EEC, highlighting three in particular:

— Member States are allowed to tax still and sparkling

alcoholic beverages differently;

— the need to update references to the codes in the
Common Nomenclature in Directive 92/83/EEC for
defining the categories of alcoholic beverages for excise
purposes, to take account of possible changes to those codes
since 1992;

— the classification of alcoholic beverages in the cate-
gories contained in Directive 92/83/EEC has resulted in
differing classifications and, in consequence, different taxa-
tion of the same products in different Member States.

5.2
As far as the first point is concerned, the Commission
justifies its proposal to remove the option of treating sparkling

Brussels, 30 May 2007.

(9) Oxford economics ‘The consequences of the proposed Increase in the

minimum excise duty rates for beer’. February 2007.

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APPENDIX

to the Opinion of the European Economic and Social Committee

The following amendments, which received at least a quarter of the votes cast, were rejected in the course of the debate:

Point 4.6

Delete text:

‘The same opinion highlighted the fact that: “Once again the benefits which would flow from more effective operation of the
single market, and in the case in point from procedures likely to detect and combat fraud and tax evasion, are being limited by
the wish to safeguard national interests.” And again: “There is no doubt that many fraudulent practices are directly related to the
differences — sometimes significant — which exist between excise rates applied in the different Member States.”

“The Committee takes this opportunity to criticise the limitations arising from the unanimity principle, which at present governs
most Community decisions on tax law, and reiterates the need to replace it with the qualified majority principle when it is a
matter of taxes which influence the operation of the internal market or cause distortions of competition”.’

Reason

The decision-making procedure is a highly sensitive political issue which will have to be agreed on in the future treaty.
Fiscal policy — once the single currency is established and the subsequent abolition of the possibility of developing mone-
tary policies geared to the economic situation in each country — is the sole tool which the Member States have for
directing their economic policy. For as long as no further progress is made on economic and social cohesion, it should
not be proposed that a majority, even a qualified majority, can impose its criteria on all the Member States.

Furthermore, abandoning the unanimity rule would mean that some countries, which thanks to this rule are able to main-
tain their support for key sectors of their economy (such as wine and/or beer in certain countries), would be obliged to
agree to a different decision-making scenario, losing the possibility of continuing to block certain policies contrary to
their national interests, a possibility of which they make use at the moment.

Voting:

For: 21

Against: 54

Abstentions: 4

Point 4.7

Add the following:

‘The Committee has, over the years, repeatedly emphasised the following key concepts:

— strengthening administrative cooperation, permanent dialogue between fiscal administrations, mutual assistance, ongoing and
identical training for those combating fraud, networks of police forces and tax authorities on compatible platforms and sharing
databases;

— making it easier for consumers to exercise their rights when distance-buying all products on the internal market;

— facilitating processes of fiscal harmonisation in both direct taxation and the more intricate field of excise;

— launching a process to abandon the requirement of unanimity for certain fiscal issues, starting with those that are easiest to imple-

ment, as part of a coherent European tax policy;

— abandoning the VAT taxation model, which makes fraud easier, and;

— not increasing the tax burden.’

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Reason

Reason 1: The concept of a maximum rate should be uncoupled, at least formally, from those of harmonisation, approxi-
mation of rates of duty and progressive harmonisation. Although one of the effects of a maximum rate would
be to squeeze the present differentials between existing rates, as explained in points 3.5, 3.6 and 3.7, with an
ensuing increase in real harmonisation, the way the point is worded could suggest that the maximum rate is
the same as the objective rate. The proposed amendment seeks to avoid this.

Indeed, the present problem is caused by the high rates imposed by some countries (Ireland, United Kingdom,
Finland and Sweden, for example), which have generated enormous differentials with their neighbouring
countries.

[The following paragraph does not apply to the English text].

Moreover, an effective way to boost the internal market and combat fraud is to allow EU citizens to exercise
their right to buy these beverages from a distance, as happens with other foodstuffs. This would establish legal
distribution channels subject to checks by the tax or health authorities, leading to greater consumer knowledge
of these products. It would also comply with the principle of free movement of goods, which does not cover
only the professional trade, but also transactions carried out by private individuals. Freedom of movement
means that consumers living in one Member State must be able to buy goods in the territory of another
Member State, subject to a minimum, standard set of fair rules governing the buying and selling of consumer
goods.

The Committee has recently stated that promoting the benefits of the single market among consumers must
be a priority for its completion (EESC Opinion on the Review of the Single Market, OJ C 93 of 27.4.2007
(opinion INT/332)).

Reason 2: Clarification is needed since, as mentioned in the following point, the model established under the VAT frame-
work has generated abundant case-law, due to the loopholes in legislation and in its implementation at
European and national level. If the process discussed in the opinion is to be put into action, it is important to
ensure coordination.

Voting:

For: 20

Against: 55

Abstentions: 4