COMMISSION STAFF WORKING DOCUMENT Executive Summary of the Evaluation Accompanying the document REPORT FROM THE COMMISSION TO THE COUNCIL on the evaluation of Council Directive 92/83/EEC on the structures of excise duties on alcohol and alcoholic beverages
Date: 2016-10-28
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, alcoholic beverage, approximation of laws, chemical alcohol, ethanol, excise duty, single market, tax exemption, tax harmonisation, tax relief

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   EUROPEAN COMMISSION  Brussels, 28.10.2016  SWD(2016) 337 final   COMMISSION STAFF WORKING DOCUMENT Executive Summary of the Evaluation Accompanying the document REPORT FROM THE COMMISSION TO THE COUNCIL on the evaluation of Council Directive 92/83/EEC on the structures of excise duties on alcohol and alcoholic beverages {COM(2016) 676 final} {SWD(2016) 336 final}  
 
 
EXECUTIVE SUMMARY 

Directive  92/83/EEC,  the  alcohol  "structures"  Directive  (hereinafter  also  referred  to  as  “the 
Directive”)  was  identified  for  a  retrospective  evaluation.  The  specific  arrangements  for  the 
taxation of alcoholic beverages were introduced on 1st of January 1993 in the run-up to the 
completion of the internal market, through the parallel adoption of two legislative instruments 
-the  structures  Directive  and  the  rates  Directive,  and  little  has  changed  since  then.  The 
evaluation was  proposed  because  of  the  significant  developments  since  1992 in  the  alcohol 
sector,  the  range  of  beverages  manufactured  and  available  now,  and  how  Member  States 
interpret those original rules of the structures of excise duty in this now diverse and changed 
market.  In  addition,  there  is  a  reporting  requirement  in  Article  22  (6)  to  review  the 
arrangements and report to the Council, in 2015, on the rules for 3 Member States to apply a 
reduced rate for ethyl alcohol produced by fruit growers' distilleries producing more than 10 
HL p.a. from fruit supplied by fruit growers' households, for personal consumption limited to 
50L of ethyl alcohol per fruit producing household per year. The wider evaluation examined 
whether the current arrangements do not impose unnecessary compliance costs and whether 
there is a scope for reducing costs for businesses and national administrations, while ensuring 
the objectives of the Directive could be met effectively. 

This  retrospective  evaluation  was  designed  to  provide  the  Commission  with  information  to 
assess the current policy regarding the structures of alcohol excise duties. It had to allow the 
Commission to: 

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Assess the extent to which the Directive meets the objectives it sought to achieve  
Verify whether the original objectives continue to be relevant 
Identify  legislative  weaknesses  caused  by  the  Directive  which  result  in  negative 
consequences for stakeholders  
Assess the coherence of the Directive’s provisions with EU and international law 
Examine the added value of the established common rules at EU level 
Formulate recommendations on how best to address the identified issues, such as EU 
added value, efficiency, relevance etc. 

The  evaluation  followed  the  logical  order  of  the  legislative  act,  covering  the  definitions  of 
different categories of alcoholic beverage for excise purposes, reduced rates, exemptions and 
other legislative provisions. 

The evaluation was supported by an external comprehensive study, including: 

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desk research 
survey  questionnaires  - open  to  responses  between  August and  November  2015  -  to 
Member States (all 28 replied), economic operators (323 replies) and to the public / 
EU citizen (328 replies) 
5  targeted  case  studies  to  Member  States  administrations  (tax/customs/finance  and 
health  authorities)  and  economic  operators  active  in  the  alcohol  market  and/or 
associations,  in  the  areas  of  classification  for  tax  purposes  of  alcoholic  beverages, 
application of reduced rates for small producers, the functioning of the exemptions for 
denatured alcohol, exemptions applicable to provide production for own consumption 
and coherence of the Directive with health aspects.  
triangulation and analysis of the data and feedback 

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The  responses  from  stakeholders  adequately  covered  the  different  product  categories,  all 
countries  and  the  coverage  also  included  a  good  distribution  between  small  and  large 
operators.  
The overall the sample size and composition is considered balanced and representative, and 
the analysis performed at EU level and for each sector is sufficiently accurate.  

The  evaluation  found  that  the  Directive  was  on  the  whole,  effective  in  achieving  the  three 
objectives of a clear and consistent framework, a “level playing field”; and limiting the risk 
of circumvention of excise duty. 
However,  there  are  several  points  where  the  Directive  does  not  provide the  necessary  legal 
clarity,  creating  an  adverse  effect  on  the  functioning  of  the  internal  market,  in  the  areas  of 
classification  of  certain  products,  the  exemptions  applied  to  completely  denatured  alcohol, 
and  for  products  manufactured  using  denatured  alcohol  which  are  not  for  human 
consumption, and reduced rates for small producers. 

Fraud  is  evident  in  the  area  of  denatured  alcohol  and  the  failure  to  provide  unambiguous 
classificatory definitions may result in the Member States losing revenue. In the area of the 
abuse of the exemption  for denatured alcohol, although fraud is  not  a major  concern in  the 
majority  of  Member  States,  the  evaluation  showed  that  in  some  Member  States,  it  was 
significant.  However,  when  asked  about  the  extent  to  which  excise  duty  loss  was  due  to 
fraudulent  activity,  most  Member  States  indicated  "do  not  know".  In  the  area  of 
classification,  the  evaluation  showed  that  the  current  rules  do  not  accurately  capture  all 
existing  products,  nor  do  they  provide  a  sufficient  degree  of  legal  certainty  and  clarity, 
particularly in the light of technological and market developments. These weaknesses result 
in an increased risk of lost revenue, in the application of differing rates of taxation, increased 
administrative costs and in an increased potential for competitive distortions. The evidence is 
clear that systemic flaws in the legislative environment are at the origin of these weaknesses. 
For  example,  detailed  modelling  was  performed  to  look  at  the  potential  impact  on  tax 
revenues,  through  scenarios  in  which  total  volumes  of  a  particular  product  group  are  taxed 
under one category (e.g. fermented beverages) and are then moved to another category (e.g. 
intermediate  products)  —  and  vice  versa.  The  results  varied  among  the  selected  case  study 
Member States, depending on consumption patterns of the particular alcoholic strength of the 
products. This should be further examined at impact assessment across a wider population.   

The  evaluation  found  that  the  Directive  is  inefficient  in  the area  of  cost  of  compliance  and 
administrative burdens which is now therefore identified as a reason for simplification. This 
evidence  stems  not  from  the  application  of  systematic  obligations  of  the  legislation;  rather, 
that they are the result of the complications, disputes and the inconsistent application of the 
Directive’s  provisions  that  arise  from  situations  in  which  stakeholders  disagree  on  their 
correct interpretation. The 2 main areas are the classification of products and the management 
of exemptions for denatured alcohol. 
The  evidence  from  the  evaluation,  when  assessing  effectiveness  and  efficiency,  shows  that 
the  current  Directive  provides  the  uniformity  and  harmonised  conditions  are  necessary  to 
ensure  the  proper  functioning  of  the  internal  market,  facilitate  trade,  prevent  competitive 
distortions,  reduce  administrative  costs  and  prevent  fraud.  Moreover,  the  evaluation  results 
indicate  that  the  same  results  would  not  be  possible  if  an  alternative  national,  bi-lateral  or 
international approach had been used. 

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According to the evaluation, the provisions still correspond to the needs of the stakeholders, 
although there are a few provisions which are no longer used or needed.  

In relation to the protection of public health the main findings of the evaluation show that all 
stakeholders (tax and health administrations in the Member States, EU citizens and industry) 
clearly expect the Directive to respond to the health risks connected with the consumption of 
alcohol. Some of the administrations (tax and health) suggested that excise duties should be 
imposed as a response to the negative externalities associated with alcohol consumption, and 
that  the  Directive  should  therefore  encourage  the  production  of  alcohol  and  alcoholic 
beverages having low alcoholic strength. Their objective being this should lead to a general 
reduction  in  the  consumption  of  alcoholic  beverages  by  increasing  the  price  of  higher 
strength  alcohol  and  alcoholic  beverages.  There  was  also  a  view  –  supported  by  the  health 
associations  and  health  administrations  in  the  Member  States  -  that,  for  health  policy 
purposes,  it  would  be  beneficial  to  tax  alcohol  and  alcoholic  beverages  on  their  alcoholic 
strength  rather  than  their  volume.  With  regard  to  the  effect  on  health  policy  of  the 
exemptions,  there  were  3  emerging  areas  connected  to  health  issues:  the  exemptions  for 
private production for own consumption; the potential introduction of exemptions for small 
producers; and the exemption of denatured alcohol, including the risk of its consumption.  

Concerning the coherence of the rules with other EU and international legislation, there are a 
number  of  references  in  the  Directive  92/83/EEC  which  need  to  be  updated  (CN  codes)  to 
mitigate  problems  of  interpretation,  but  there  were  no  other  significant  practical  problems, 
and the Directive and international agreements were found to be consistent.   

Finally, the evaluation recommended a targeted revision of the Directive in order to enable it 
to  fully  respond  to  the  challenges  identified.  The  main  areas  where  the  Commission  is  to 
present  recommendations  are  in  the  areas  of  the  exemptions  applied  to  denatured  alcohol, 
classification and reduced rates for small producers. Some areas may, however, be mitigated 
through soft law or through actions taken at Member State level.  

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