Proposal for a Council Decision authorising Portugal to apply a reduced rate of excise duty on locally produced beer in the autonomous region of Madeira
Date: 2007-12-06
Institutions: European Commission
Subjects: Madeira, beer, excise duty, location of production, tax relief

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 6.12.2007 
COM(2007) 772 final 

2007/0273 (CNS) 

Proposal for a 

COUNCIL DECISION 

authorising Portugal to apply a reduced rate of excise duty on locally produced beer in 
the autonomous region of Madeira 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

1) 

CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

By a request dated 30 May 2007 and referring to Article 299(2) of the Treaty, Portugal seeks 
a derogation from Article 90 of the Treaty in order to apply a rate of excise duty, lower than 
the national rate fixed in accordance with Council Directive 92/84/EEC of 19 October 1992 
on the approximation of the rates of excise duty on alcohol and alcoholic beverages1 to beer 
produced  in  Madeira,  in  cases  where  the  annual  production  of  the  brewery  does  not  exceed 
300 000 hectolitres. According to the request, production in excess of 200 000 hectolitres is 
supposed to benefit from the reduced only to the extent it is consumed locally. 

Portugal has explained that the continued application of a reduced rate of duty to beer locally 
produced  in  Madeira  by  breweries  whose  annual  production  does  not  exceed  300  000 
hectolitres is considered essential for the survival of the local brewing industry. It should be 
noted that provisions already exist in Article 4 of Council Directive 92/83/EEC which allow 
Member States to provide for the application of reduced rates of excise duty, which shall not 
be  set  more  than  50  per  cent  below  the  standard  national  rate,  on  beer  produced  by 
independent  small  breweries,  defined  as  breweries  whose  annual  beer  production  does  not 
exceed 200 000 hectolitres. Breweries located in Madeira already benefit from the full 50 per 
cent reduced rate under the corresponding national provisions. However, mainly as a result of 
increased tourism, one of the two breweries located in Madeira is closely approaching annual 
production  of  200  000  hectolitre  whereupon  its  entitlement  to  reduced  rates  under  existing 
provisions will cease. 

The  main  disadvantages  faced  by  the  breweries  in  question  arise  from  their  remoteness, 
fragmented terrain and tight local markets. However, these problems are compounded by the 
strong  competition  that  they  face  from  beers  from  other  Member  States  owing  to  the 
additional  costs  that  they  have  to  meet  as  a  result  of  their  remoteness,  namely  maintaining 
high level of stocks, transport of raw and secondary materials, and packaging from mainland 
Portugal.  Thus,  even  though  these  breweries  will,  upon  reaching  annual  production  of  200 
000  hectolitres,  cease  to  be  "small"  as  defined  in  the  said  Article  4,  they  will  nonetheless 
continue to be small compared to the large national and multi-national breweries with whom 
they compete. 

By  way  of  an  illustration,  notwithstanding  competitive  pressure,  the  retail  selling  price  of  a 
Madeira beer (at EUR 128 per hectolitre) is currently about 7.5 per cent higher than the retail 
selling price of beer brewed in mainland Portugal and sold on the market of Madeira (at EUR 
119  per  hectolitre),  .  Therefore,  if  those  breweries  lose  the  benefit  of  the  tax  reduction,  the 
difference  in  the  retail  selling  price  would  increase  to  at  least  15  per  cent  (EUR  137  per 
hectolitre). 

In order, therefore, to ensure the continued survival of these breweries it is essential that they 
be  permitted  to  benefit  from  a  reduced  rate  where  the  annual  production  of  the  brewery 
concerned exceeds 200 000 hectolitres but not 300 000 hectolitres. However, in order not to 

1 

OJ L 316, 31.10.92, p. 29. 

EN 

2 

   EN 

 
                                                 
undermine the single market the entitlement to a reduced rate for production above 200 000 
hectolitres will only apply to beer consumed locally in Madeira. 

The reduced rate would be set at 50 per cent below the standard national rate. Beer imported 
into Madeira from breweries located in mainland Portugal and in other Member States whose 
production exceeds 200 000 hectolitres would not be entitled to the reduced rate. Portugal's 
request is based on Article 299(2) of the EC Treaty.  

Weighing  the  importance  of  the  legal  certainty local  economic  operators  require  to  develop 
their  commercial  activities  against  the  need  to  set  a  time  limit  on  tax  derogations,  the 
Commission proposes authorising this decision for a period of six years on the understanding 
that Portugal will submit a mid-term report to the Commission enabling it to assess whether 
the reasons that justified the granting of the reduced rate still exist. 

•  General context 

The Community framework concerning excise duty on alcohol and alcoholic beverages is laid 
down  in  two  Directives.  Council  Directive  92/83/EEC  of  19  October  1992  on  the 
harmonization of the structures of excise duties on alcohol and alcoholic beverages lays down 
common definitions of the products subject to the duty, specifies the method of calculating the 
duty  and  the  criteria  under  which  certain  products  may  qualify  for  exemptions  or  reduced 
rates. Council Directive 92/84/EEC of 19 October 1992 on the approximation of the rates of 
excise  duty  on  alcohol  and  alcoholic  beverages  lays  down  minimum  rates  of  duty  for  each 
product category. 

In particular, Article 4 of Council Directive 92/83/EEC contains provisions which allow for 
the application of reduced rates of excise duty, which shall not be set more than 50 per cent 
below the standard national rate, on beer produced by independent small breweries, defined as 
breweries whose annual beer production does not exceed 200 000 hectolitres. The breweries 
located  in  Madeira  already  benefit  from  the  full  50  per  cent  reduced  rate  under  the 
corresponding national provisions. However, mainly as a result of increased tourism, one of 
the  two  breweries  located  in  Madeira  is  closely  approaching  annual  production  of  200  000 
hectolitre whereupon its entitlement to reduced rates under existing provisions will cease. 

•  Existing provisions in the area of the proposal 

Pursuant  to  Article 299(2)  of  the  EC  Treaty,  the  Treaty  applies  to  the  French  overseas 
departments, the Azores, Madeira and the Canary Islands (the outermost regions). However, 
taking account of the structural social and economic situation of the outermost regions, which 
is  compounded  by  their  remoteness,  insularity,  small  size,  difficult  topography  and  climate, 
economic dependence on a few products, the permanence and combination of which restrain 
their  development,  the  Council,  acting  by  a  qualified  majority  on  a  proposal  from  the 
Commission  and  after  consulting  the  European  Parliament,  shall  adopt  specific  measures 
aimed,  in  particular,  at  laying  down  the  conditions  of  application  of  the  EC  Treaty  to  those 
regions, including common policies. 

•  Consistency with the other policies and objectives of the Union 

The specific measures provided for in Article 299(2) of the EC Treaty must take account of 
the  special  characteristics  and  constraints  of  the  outermost  regions  without  undermining  the 
integrity and the coherence of the Community legal order, including the internal market and 

EN 

3 

   EN 

 
common policies. This requirement has been met by a particularly thorough examination of 
the Portuguese government’s request. In particular, and in order not to undermine the single 
market, the entitlement to a reduced rate for production above 200 000 hectolitres will only 
apply to beer produced and consumed locally in Madeira. 

2) 

CONSULTATION  OF 
ASSESSMENT 

INTERESTED 

PARTIES  AND 

IMPACT 

•  Consultation of interested parties 

The Portuguese government’s request was a response to requests from the economic operators 
concerned.  

•  Collection and use of expertise 

No recourse to external expertise has been necessary. 

•  Impact assessment 

The  economic  and  social  impact  of  the  proposal only  concerns Madeira  and one of the two 
breweries currently operating there and can, therefore, be considered as minimal. 

Notwithstanding competitive pressure, the retail selling price of a Madeira beer (at EUR 128 
per hectolitre) is currently about 7.5 per cent higher than the retail selling price of beer brewed 
in  mainland  Portugal  and  sold  on  the  market  of  Madeira  (at  EUR  119  per  hectolitre),  . 
Therefore, if those breweries lose the benefit of the tax reduction, the difference in the retail 
selling price would increase to at least 15 per cent (EUR 137 per hectolitre).  

In order, therefore, to ensure the continued survival of these breweries it is essential that they 
be  permitted  to  benefit  from  a  reduced  rate  in  case  the  annual  production  of  the  brewery 
concerned exceeds 200 000 hectolitres but not 300 000 hectolitres. However, in order not to 
undermine the single market the entitlement to a reduced rate for production above 200 000 
hectolitres will only apply to beer consumed locally in Madeira. 

The reduced rate would be set at 50 per cent below the standard national rate. Beer imported 
into Madeira from breweries located in mainland Portugal and in other Member States whose 
production exceeds 200 000 hectolitres would not be entitled to the reduced rate. 

3) 

LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposed action 

The proposed decision authorises Portugal to apply until 31 December 2013 a reduced rate of 
excise duty, which may fall below the minimum rate but shall not be set more than 50 per cent 
lower  than  the  standard  national  excise  duty  rate  for  Portugal,  to  beer  produced  in  the 
autonomous region of Madeira by independent breweries whose total annual production does 
not exceed 300 000 hectolitres; production in excess of 200 000 hectolitres will benefit from 
the reduced only to the extent it is consumed locally. 

EN 

4 

   EN 

 
•  Legal basis 

Article 299(2) of the Treaty. 

•  Subsidiarity principle 

Derogations  from  rules  of  the  treaty  in  accordance  with  Article  299(2)  thereof  fall  under 
exclusive Community competence. The subsidiarity principle does not therefore apply. 

•  Proportionality principle 

The  proposal  complies  with  the  proportionality  principle.  It  does  not  go  beyond  what  is 
necessary  to  offset  the  high  costs  associated  with  the  production  of  beer  produced  in  the 
autonomous region of Madeira. 

•  Choice of instruments 

Article 299(2)  of  the  Treaty  provides  for  specific  measures  for  the  outermost  regions  to  be 
adopted by decision of the Council. 

4) 

BUDGETARY IMPLICATIONS 

The proposal has no implication for the Community budget. 

5) 

ADDITIONAL INFORMATION 

•  Repeal of existing legislation 

Not applicable. 

•  Correlation table 

Not applicable. 

EN 

5 

   EN 

 
2007/0273 (CNS) 

Proposal for a 

COUNCIL DECISION 

authorising Portugal to apply a reduced rate of excise duty on locally produced beer in 
the autonomous region of Madeira 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal from the Commission2, 

Having regard to the opinion of the European Parliament3, 

Whereas: 

(1) 

(2) 

By a request dated 30 May 2007 and referring to Article 299(2) of the Treaty, Portugal 
seeks a derogation from Article 90 of the Treaty in order to apply a rate of excise duty, 
lower than the national rate set in accordance with Council Directive 92/84/EEC of 19 
October  1992  on  the  approximation  of  the  rates  of  excise  duty  on  alcohol  and 
alcoholic  beverages4  to  beer  produced  in  Madeira,  in  cases  where  the  annual 
production of the brewery does not exceed 300 000 hectolitres. Production in excess of 
200  000  hectolitres  is  supposed  to  benefit  from  the  reduced  only  to  the  extent  it  is 
consumed locally. 

By  way  of  justification  for  its  request,  Portugal  has  explained  that  the  possibilities 
offered  by  Article  4  of  Council  Directive  92/83/EEC  of  19  October  1992  on  the 
harmonization  of  the  structures  of  excise  duties  on  alcohol  and  alcoholic  beverages5 
are not sufficient to offset the disadvantages suffered by the breweries in Madeira on 
account of their remote location, fragmented terrain and tight local markets. Under that 
provision,  breweries  whose  annual  beer  production  does  not  exceed  200  000 
hectolitres may benefit from reduced rates of excise duty, provided that those rates are 
not set at more than 50 per cent below the standard national rate. Portugal has made 
use of this provision, applying a 50 % reduction to breweries whose annual production 
does  not  exceed  200 000  hectolitres.  However,  should  breweries  located  in  Madeira 
reach  production  in  excess  of  that  threshold,  this  will  not  signify  that  they  are  in  a 
sufficiently  strong  position  to  face  up  to  competition  from  beers  from  mainland 
Portugal  (or  mainland  Europe).  Their  share  of  the  local  market  would  continue  to 

2 
3 
4 
5 

OJ C […], […], p. […]. 
OJ C , , p. . 
OJ L 316, 31.10.92, p. 29. 
OJ L 316, 31.10.92, p .21. Directive as amended by the 2003 Act of Accession. 

EN 

6 

   EN 

 
                                                 
diminish  as  a  result  of  the  strong  competition  that  they  would  continue  to  face  from 
foreign beers owing to the additional costs that they would have to meet as a result of 
their  remoteness,  namely  maintaining  high  level  of  stocks,  transport  of  raw  and 
secondary materials, and packaging from mainland Portugal. Thus, even though such 
breweries  would,  upon  reaching  200  000  hectolitres  annual  production,  cease  to  be 
"small" as defined in the said Article 4, they would nonetheless continue to be small 
compared to the large national and multi-national breweries with whom they compete. 
It  is,  therefore,  essential  for  continued  survival  of  the  local  industry  that  a  brewery 
should  benefit  from  a  reduced  rate  in  case  its  annual  production  exceeds  200  000 
hectolitres, without however going beyond 300 000 hectolitres. 

Portugal therefore requests that the entitlement to a reduced rate, which would be set at 
50  per  cent  below  the  standard  national  rate,  should  be  available  to  beer  produced 
locally by independent brewers situated in Madeira whose annual production does not 
exceed  300  000  hectolitres.  However,  where  annual  production  exceeds  200  000 
hectolitres the entitlement to a reduced rate for quantities in excess of this figure will 
only apply to beer which is to be consumed locally in Madeira. 

A careful examination of the situation shows that it is essential, if a brewing industry 
is to be maintained in the outermost region of Madeira, to grant Portugal’s request. It 
is clear that,  in  the  circumstances of this  case and subject  to the  relevant conditions, 
the  effect  of  extending  the  tax  reduction  will  be  to  place  the  brewing  industry  of 
Madeira  on  an  equal  footing  with  its  competitors  in  mainland  Portugal  and  other 
Member States. The tax advantages gained will do no more than offset the extra costs 
necessarily incurred as a result of the remoteness of the industry’s location. 

In  order  not  to  undermine  the  single  market,  the  entitlement  to  a  reduced  rate  for 
production above 200 000 hectolitres will only apply to beer produced and consumed 
locally in Madeira. 

Although the requested derogation from Article 90 of the Treaty is necessary to ensure 
that the development of the outermost region of Madeira is not jeopardised, it is also 
necessary  to  set  a  time-limit  on  tax  derogations.  On  the  other  hand,  however,  it  is 
important  to  ensure  that  local  economic  operators  have  the  requisite  security  to 
develop their commercial activities. It is appropriate, therefore, that the derogation be 
granted for a period of six years. 

Furthermore,  the  production  of  a  mid-term  report  should  be  required,  so  that  the 
Commission  can  assess  whether  the  conditions  justifying  the  granting  of  such  a 
derogation continue to be fulfilled. 

The  measures  provided  for  in  this  Decision  should  be  without  prejudice  to  the 
application of Articles 87 and 88 of the Treaty. 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

HAS ADOPTED THIS DECISION: 

Article 1 

By way of derogation from Article 90 of the Treaty, Portugal is authorised to apply a rate of 
excise duty lower than the national rate fixed in accordance with Directive 92/84/EEC in the 

EN 

7 

   EN 

 
case of beer produced in the autonomous region of Madeira by independent breweries situated 
in that region, whose total annual production does not exceed 300 000 hectolitres. Production 
in excess of 200 000 hectolitres annually may benefit from the reduced rate only to the extent 
it is consumed locally in Madeira. 

The  term  ‘independent  brewery’  shall  mean  a  brewery  which  is  legally  and  economically 
independent of any other brewery, which uses premises situated physically apart from those 
of  any  other  brewery  and  does  not  operate  under  licence.  However,  where  two  or  more 
breweries  cooperate,  and  their  combined  annual  production  does  not  exceed  300  000 
hectolitres, those breweries may be treated as a single independent brewery. 

The reduced excise duty rate, which may fall below the minimum rate, shall not be set more 
than 50 per cent lower than the standard national excise duty rate for Portugal. 

Article 2 

By  31  December  2010  at  the  latest,  Portugal  shall  send  the  Commission  a  report  on  the 
situation, to enable it to assess whether the reasons justifying the derogation provided for in 
Article 1 still exist. 

This decision shall apply until 31 December 2013. 

Article 3 

Article 4 

This Decision is addressed to the Portuguese Republic. 

Done at Brussels,  

For the Council 
The President 

EN 

8 

   EN