CELEX: 52014PC0117
Language: en
Date: 2014-03-05
Title: Proposal for a COUNCIL DECISION authorising Portugal to apply a reduced rate of excise duty in the autonomous region of Madeira on locally produced and consumed rum and liqueurs and in the autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-vie

EUROPEAN
                            COMMISSION
                                                     Brussels, 5.3.2014
                                                     COM(2014) 117 final
                                                     2014/0064 (CNS)
                                        Proposal for a
                                   COUNCIL DECISION
   authorising Portugal to apply a reduced rate of excise duty in the autonomous region of
    Madeira on locally produced and consumed rum and liqueurs and in the autonomous
      region of the Azores on locally produced and consumed liqueurs and eaux-de-vie
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 ---pagebreak---                                     EXPLANATORY MEMORANDUM
   1.         CONTEXT OF THE PROPOSAL
   Pursuant to Council Decision 2009/831/EC of 10 November 20091, adopted on the basis of
   Article 299(2) of the EC Treaty, Portugal was authorised to apply up to 31 December 2013 a
   reduced rate of excise duty in the autonomous region of Madeira on locally produced and
   consumed rum and liqueurs and in the autonomous region of the Azores on locally produced
   and consumed liqueurs and eaux-de-vie. Article 2 of that Decision confines the above
   derogation to specific products. Portugal can apply to those products a rate of excise duty
   lower than the full rate on alcohol laid down in Article 3 of Council Directive 92/84/EEC2,
   and lower than the minimum rate of excise duty on alcohol set by this Directive but not more
   than 75% lower than the standard national excise duty on alcohol.
   Decision 2009/831/EC sets out the reasons for adopting specific measures, which include the
   small size, fragmented nature and low mechanisation of agricultural holdings. Moreover, the
   transport to the islands of certain raw and packaging materials not produced locally leads to
   additional cost, as compared to the transport merely of the finished product. Transport and
   installation of equipment in those remote insular regions further increase the additional costs.
   Finally, the producers concerned also bear extra costs generally borne by the local economies,
   in particular increases labour and energy costs.
   The 75% reduction does not go beyond what is necessary to counterbalance the levels of
   additional costs that are incurred by operators as a result of the particular characteristics of
   Madeira and of the Azores as outermost regions referred to in Article 349 TFEU.
   Since the tax advantage is limited to what is necessary to offset additional costs and since the
   volumes at stake remain modest the measure does not undermine the integrity and coherence
   of the Community legal order. Moreover, the tax advantage is limited to consumption in the
   regions concerned.
   The Portuguese authorities have requested the renewal of the authorisation to apply a reduced
   rate of excise duty in the autonomous region of Madeira on locally produced and consumed
   rum and liqueurs and in autonomous region of the Azores on locally produced and consumed
   liqueurs and eaux-de-vie until 31 December 2020. The renewal needs to be approved both by
   a Council Decision under Article 349 TFEU and by a Commission Decision on State Aid. The
   Council Decision under Article 349 TFEU is without prejudice to the Commission's Decision
   on the prolongation of this measure under State aid rules.
   2.         PROPORTIONALITY OF THE DEROGATION
   According to Article 110 TFEU no Member State shall impose, directly or indirectly, on the
   products of other Member States any internal taxation of any kind in excess of that imposed
   directly or indirectly on similar domestic products. Furthermore, no Member State shall
   impose on the products of other Member States any internal taxation of such a nature as to
   afford indirect protection to other products.
   1
            Council Decision of 10 November 2009 authorising Portugal to apply a reduced rate of excise duty rate
            of excise duty in the autonomous region of Madeira on locally produced and consumed rum and
            liqueurs and in the autonomous region of the Azores on locally produced and consumed liqueurs and
            eaux-de-vie (OJ L 297, 13.11.2009, p. 9)
   2
            Council Directive 92/84/EEC of 19 October 1992 on the approximation of the rates of excise duty on
   alcohol and alcoholic beverages (OJ L 316, 31.10.1992, p.29).
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 ---pagebreak---    However, on the basis of Article 349 TFEU the Council may authorise Member States with
   outermost regionsto derogate from the provisions of Article 110 TFEU so as to take account
   of the structural social and economic situation of these regions which is compounded by other
   factors that severely restrain their development. Such derogation may not undermine the
   integrity and the coherence of the Union legal order, including the internal market and
   common policies, such as common taxation policies based on Article 113 TFEU. Thus, such
   derogations must remain proportionate, i.e. they must not go further than necessary to address
   the adverse framework conditions hampering the economic development of these regions and
   it must not excessively distort competition in the single market. In consequence, any
   derogation from Article 110 TFEU should remain limited to fully or partially compensating
   the cost disadvantage from which producers in these regions suffer.
   The reports submitted by Portugal according to Article 4 of Council decision 2009/831/EC
   include the calculation of the additional costs and excise duty reductions for the year 2011:
   Madeira
       •   Liqueurs (bottle of 70 cl. 20º alc/vol)
           Additional cost: 1.21 €
           Excise duty reduction: 1.06 €
       •   Rum (bottle of 70 cl. 40º alc/vol)
           Additional cost: 2.20 €
           Excise duty reduction: 2.12 €
   The Azores
       •   Liqueurs (bottle of 70 cl. 20º alc/vol)
           Additional cost: 1.17 €
           Excise duty reduction: 1.08 €
       •   Eaux-de-vie (bottle of 100 cl. 40º alc/vol)
           Additional cost: 3.31 €
           Excise duty reduction: 3.09 €
   Source: Reports referred to in Article 4 of Council Decision 2009/831/EC
   It should be mentioned that the calculation of the additional costs mentioned above did not
   include some factors that proved difficult to quantify. Nevertheless, it is possible to confirm
   that the 75% reduction in standard excise duties does not go beyond what is necessary to
   counterbalance the levels of additional costs that are incurred by operators as a result of the
   particular characteristics of Madeira and of the Azores as outermost regions.
   The reports also include data on the market share of these products in the local markets
   between 2004 and 2010:
EN                                                  3                                              EN
 ---pagebreak---    Madeira - Rum and Liqueurs combined (by volume of alcohol)
   Year                            2004     2005     2006     2007       2008      2009     2010
   Share of local production       15.86%   20.19%   23.03%   20.33%     26.91%    30.76%   33.89%
   The Azores - Liqueurs (by volume of alcohol)
   Year                            2004     2005     2006     2007       2008      2009     2010
   Share of local production       56.43%   50.60%   49.70%   46.73%     39.19%    45.28%   48.57%
   The Azores – Eaux-de-vie (by volume of alcohol)
   Year                            2004     2005     2006     2007       2008      2009     2010
   Share of local production       47.99%   41.62%   42.51%   33.53%     23.19%    34.28%   31.74%
   Source : Own calculation using data from the reports referred to in Article 4 of Council
   Decision 2009/831/EC
   The table confirms a downwards tendency in the share of the local production of liqueurs and
   eaux-de-vie in the Azores and the increase in Madeira for rum and liqueurs. However, for
   Madeira it should be taken into account the very low share of the local production in 2004.
   The evolution of the market shares for local production confirms that the current reduced rate
   of excise duty is balanced and has not created any distortion of competition in the internal
   market.
   The local industry employs 134 workers in Madeira and 90 workers in the Azores. In
   Madeira, the cultivation and processing of sugar cane and fruits provide work for around 1
   000 family-owned agricultural holdings.
   The granting of new authorisation for Portugal to apply a reduced rate of excise duty in the
   autonomous region of Madeira on locally produced and consumed rum and liqueurs and in the
   autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-vie
   is justified in order to avoid endangering the development of these outermost regions and does
   not distort competition in the internal market.
   3.         LEGAL ELEMENTS OF THE PROPOSAL
   Summary of the proposed measures
   The proposed Decision authorises Portugal to apply form 1 July 2014 to 31 December 2020 a
   reduced rate of excise duty in the autonomous region of Madeira on locally produced and
   consumed rum and liqueurs and in the autonomous region of the Azores on locally produced
   and consumed liqueurs and eaux-de-vie which may be lower than the minimum rate of excise
   duty set by Directive 92/84/EEC but not more than 75% lower than the standard national
   excise duty on alcohol.
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 ---pagebreak---    The Portuguese authorities will have to send a mid-term report to the Commission by 30
   September 2017 in order to assess whether the reasons which justify the granting of the tax
   derogation still apply and whether the fiscal advantage granted by Portugal remains
   proportionate.
   Legal basis
   Article 349 TFEU.
   Subsidiary Principle
   Only the Council is authorised, on the basis of Article 349 TFEU, to adopt specific measures
   in favour of the outermost regions to adjust the application of the Treaties to those regions,
   including the common policies, because of the permanent handicaps which affect the
   economic and social conditions of the outermost regions.
   The proposal therefore complies with the subsidiary principle.
   Proportionality Principle
   The proposal complies with the proportionality principle for the following reasons:
   The tax advantage is limited to what is necessary to offset additional costs.
   Choice of instrument
   Proposed instrument: Council Decision
   Other instruments would not have been appropriate for the following reason:
   Derogations granted under Article 349 TFEU are contained in Council Decisions.
   4.       BUDGETARY IMPLICATION
   The proposal has no impact on the budget of the European Union.
EN                                                5                                               EN
 ---pagebreak---                                                            2014/0064 (CNS)
                                             Proposal for a
                                       COUNCIL DECISION
     authorising Portugal to apply a reduced rate of excise duty in the autonomous region of
      Madeira on locally produced and consumed rum and liqueurs and in the autonomous
        region of the Azores on locally produced and consumed liqueurs and eaux-de-vie
   THE COUNCIL OF THE EUROPEAN UNION,
   Having regard to the Treaty on the Functioning of the European Union, and in particular
   Article 349 thereof,
   Having regard to the proposal from the European Commission,
   After transmission of the draft legislative act to the national Parliaments,
   Having regard to the opinion of the European Parliament3,
   Acting in accordance with a special legislative procedure,
   Whereas:
   (1)     Council Decision 2009/831/EC of 10 November 2009, adopted on the basis of Article
           299(2) of the EC Treaty (now Article 349 TFEU), authorised Portugal to apply a
           reduced rate of excise duty in the autonomous region of Madeira on locally produced
           and consumed rum and liqueurs and in the autonomous region of the Azores on locally
           produced and consumed liqueurs and eaux-de-vie which may be lower than the
           minimum rate of excise duty set by Directive 92/84/EEC but not more than 75% lower
           than the standard national excise duty on alcohol.
   (2)     On 30 July 2013, the Portuguese authorities asked the Commission to submit a
           proposal for a Council Decision extending Council Decision 2009/831/EC, under the
           same conditions until 31 December 2020. This request was modified on 19 November
           2013, when Portugal requested an extension of Council Decision 2009/831/EC for 6
           months until 30 June 2014 to coincide with the current regional aid guidelines that
           would be followed by a new extension covering the period 1 July 2014 – 31 December
           2020.
   (3)     The granting of the new authorisation is justified in order to avoid endangering the
           development of these outermost regions. Faced with difficulties in exporting outside
           the regions, the regional markets are the only possible outlets to sell those products.
   (4)     In the autonomous regions of Azores and Madeira, raw materials of agricultural origin
           are more expensive than under normal conditions of production, due to the small size,
           fragmented nature and low mechanisation of agricultural holdings. In the case of
           Madeira, in addition, output from the processing of sugar cane is lower than in other
           outermost regions, owing to topography, climate, soil and artisanal production. The
           transport to the islands of certain raw and packaging materials not produced locally
   3
           OJ C , , p. .
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 ---pagebreak---           leads to additional cost, as compared to the transport merely of the finished product. In
          the case of the Azores, the insularity is twofold, since the islands are widely spread.
          Transport and installation of equipment in those remote and insular regions further
          increase the additional costs. The same applies to certain necessary travels and
          shipments to the mainland. Additional costs are also required for the storage of
          finished products as local consumption does not absorb output as it materialises, but
          stretches throughout the year. The small size of the regional market increases per unit
          costs in various ways, notably through the unfavourable relationship between fixed
          costs and output, both as regards equipment and costs necessary to meet
          environmental norms. Moreover, rum producers in Madeira have to treat waste from
          the processing of sugar cane, whereas producers in other regions can recycle these
          products. Finally, the producers concerned also bear extra costs generally borne by the
          local economies, in particular increased labour and energy costs.
   (5)    The detailed calculations provided in the reports referred in article 4 of Decision
          2009/831/EC confirm that the reduction of 75% of the rate of excise duty does not
          offset completely the competitive disadvantage which distilled alcoholic beverages
          produced in Madeira and Azores face as a result of higher production and marketing
          costs. Therefore, a reduction of the rate of excise duty should continue to be authorised
          at the level requested.
   (6)    A careful examination of the situation confirms that it is necessary to grant Portugal’s
          request in order to ensure that the alcohol industry is maintained in the outermost
          regions concerned.
   (7)    Since the tax advantage does not go beyond what is necessary to offset additional costs
          and since the volumes at stake remain modest and the tax advantage limited to
          consumption in the regions concerned, the measure does not undermine the integrity
          and coherence of the Community legal order.
   (8)    The submission of a mid-term report should be required, so that the Commission can
          assess whether the conditions justifying the granting of such derogation continue to be
          fulfilled.
   (9)    This Decision is without prejudice to the possible application of Articles 107 and 108
          TFEU,
   HAS ADOPTED THIS DECISION:
                                               Article 1
   By derogation from Article 110 of the Treaty, Portugal is hereby authorised to apply a rate of
   excise duty lower than the full rate for alcohol set by Article 3 of Directive 92/84/EEC in the
   autonomous region of Madeira on locally produced and consumed rum and liqueurs and in the
   autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-
   vie.
                                               Article 2
   The derogation referred in Article 1 shall be confined:
   1. in Madeira
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 ---pagebreak---    (a) to rum as defined in category 1 of Annex II of Regulation(EC) No 110/2008 of the
   European Parliament and of the Council of 15 January 2008 on the definition, description,
   presentation, labelling and the protection of geographical indications of spirit drinks4, having
   the geographical indication ‘Rum da Madeira’ referred to in category 1 of Annex III of that
   Regulation,
   (b) to liqueurs and ‘crème de’ as defined in categories 32 and 33 respectively of Annex II of
   Regulation (EC) No 110/2008 produced from regional fruit or plants;
   2. in the Azores
   (a) to liqueurs and ‘crème de’ as defined in categories 32 and 33 respectively of Annex II of
   Regulation (EC) No 110/2008 produced from regional fruit or raw materials,
   (b) to eaux-de-vie made from wine or grape marc having the characteristics and qualities
   defined in categories 4 and 6 of Annex II of Regulation (EC) No 110/2008.
                                               Article 3
   The reduced rate of excise duty applicable to the productsreferred to in Article 1 may be
   lower than the minimum rate of excise duty on alcohol set by Directive 92/84/EEC, but may
   not be more than 75 % lower than the standard national excise duty on alcohol.
                                               Article 4
   By 30 September 2017 at the latest, Portugal shall send the Commission a report to enable it
   to assess whether the reasons which justified the granting of the reduced rate stillexist.
                                               Article 5
   The Decision shall apply from 1 July 2014 until 31 December 2020.
                                               Article 6
   This Decision is addressed to the Portuguese Republic.
   Done at Brussels,
                                                For the Council
                                                The President
   4
            OJ L 39, 13.2.2008, p. 16.
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