CELEX: 51987PC0325
Language: en
Date: 1987-08-21
Title: Proposal for a Council Directive on the approximation of taxes on cigarettes (presented by the Commission)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (87) 325
Vol. 1987/0189
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                  COM(87 ) 325 final / 2
 REVISED VERSION
                                                  Brussels , 21 August 1987
                              Proposal for a Council Directive on
                          the approximation of taxes on cigarettes
                             ( presented by the Commission )
                                                     ÏT l>
                                                    o^                    ES |
                                                            a ^ ^s<  -   ,W
                                                               j l
   C0M(87 ) 325 final / 2
 ---pagebreak---                    Proposal for a Council Directive on
                 the approximation of taxes on cigarettes
                           EXPLANATORY MEMORANDUM
I. Introduction
The overall approach towards completing the internal market as far as
indirect taxation is concerned is described in the Commission 's
                                       (1 )
Global Communication to the Council         . That Communication sets out
the reasons underlying the proposals which the Commission is making
and deploys the arguments in their support . It is particularly important
therefore that the present document should be read in conjunction with
the Global Communication .
The present proposal deals with the excise duty on cigarettes : it
lays down the common structure and rates that are to apply with effect
from 31 December 1992 . It does not cover other tobacco products , which
are dealt with in a separate proposal .
( 1 ) C0M(87 ) 320 final
 ---pagebreak---                               - 2 -
II . Present structure of taxation
Under Counci l Oi rective 72/464/EEC of 19 December 1972 ^*, all Member
States apply to cigarettes a mixed tax structure comprising a specific
component ( specific excise duty ) - expressed as an amount per
1000 cigarettes - and two proportional components ( ad valorem excise duty
and VAT ) - both expressed as percentages of the retail selling price .
This tax structure which is unique - no other excise duty consists of
both a specific component and an ad valorem component - is designed to
ensure that the price differentials which exist between different cigarettes
are not unduly exacerbated by the tax system . The Commission does not
propose to change fundamentally the current mixed tax structure , whose
various components are assessed in the following way :
        - the specific excise duty is straightforward ; it is in all cases
           simply expressed as a fixed amount per 1000 cigarettes ;
               S
        - the ad valorem excise duty is more complex . For each brand of
           cigarette , the basis of assessment is the maximum retail selling price ,
           itself inclusive of all taxes . In other words , as well as the
           manufacturer 's delivery price and any trade margins , the basis of
           assessment includes the specific excise duty , the VAT and the ad
           valorem excise duty itself ;
        -• the VAT element , equally is calculated on the basis of the maximum
           retail selling price , inclusive of all taxes ( i.e. both excise duties
           plus the VAT itself ).
Under this mixed system , therefore , the various components of taxation
interact with one another . The ad valorem and VAT in particular compound
each other in a way which has a multiplier effect on prices and on the
fiscally induced disparities between them .
                                                                       ./.
( 1 ) 0J N° L 303 of 31.12.72
 ---pagebreak--- III . Present degree of harmonisation of structures
Hitherto the Commission 's objective has been to establish in all
Member States the same ratio between the specific excise duty and the
total tax burden ( excise duty and VAT ) in such a way that the range
of retail selling prices reflects , and does not distort , the difference in
manufacturers' delivery prices . This was to be done in stages .
At present in each Member State , the amount of specific excise duty must
fall within a range of between 5 % and 55 % of the total tax burden
calculated on the basis of the price of cigarettes in the most popular
                                                                     (1)
price category . This constituted the second stage of harmonisation
A proposal for a third stage ^ proposed a narrower range for the
specific component of between 10 % and 35 % of the total tax burden .
However, this proposal is still before the Council . Differences of opinion
between Member States , and until now the lack of a compelling reason
for harmonisation, have meant that harmonisation of the ratio between the
specific excise duty and total tax burden within the mixed structure
remains very incomplete .
Moreover , this approach to harmonisation of structures has afforded the
Member States considerable discretion in setting their own specific and
ad valorem parameters , both in terms of the levels of taxation and of tax
burdens , though these must be the same for all cigarettes , whether
home-produced or imported , within a single Member State .
( 1 ) Directive 77 /805 / EEC amending Directive 72 /464 / EEC .
( 2 ) J.O. No . C 264 of 11 October 1980 , p. 6 .
 ---pagebreak---                               - 4 -
IV . Present Levels of taxation and prices
Annex 1 contains a table giving the excise duty and VAT rates applicable
to cigarettes in the Member States , together with the incidence and amount
of those taxes , calculated by reference to cigarettes in the most popular
price category in each country .
Annex 2 contains a graph depicting the structure of those prices and taxes .
1 . Within Member States
    The difference within Member States in the retail selling prices of home -
    produced cigarettes are , as a rule , relatively small . There are two
    reasons for this : ( i ) the delivery prices ( exclusive of taxes ) set
    by the national manufacturer or manufacturers are fairly similar and
    ( ii ) cigarettes are subject to the same tax system . In the countries with
    a cigarette monopoly ( France , Italy , Spain, Portugal ) and in two other
    countries ( Luxemburg , Denmark ), there is , in any event , only one national
    manufacturer .
    There is , however , a wider spread of retail selling prices between
    home-produced cigarettes and imported cigarettes ( or cigarettes manufactured
    under licence ) since differences in delivery prices are generally more
    marked and since those differences are accentuated by the ad valorem
    components of taxation .
    Even so, in spite of the fairly pronounced impact of the proportional
    component of taxation, it is unusual to find in a Member State a cigarette
    that , at the level of the consumer , costs over . twice as much as a
    cigarette in the most popular price category or one costing appreciably
    less than a cigarette in that price category .
                                                                             ./.
 ---pagebreak---                                       5
    It is obvious that the spread of retail selling prices is , generally
    speaking , not as wide in the countries with a high specific component
     ( Denmark , United Kingdom, Ireland , Germany and Netherlands ) as in the countries
    with a high ad valorem component ( the other Member States ).
2.  Between Member States
    While differences in retail selling prices between the different brands of
    cigarette sold in a particular Member State are relatively small ( owing
    to the application of a uniform tax system ), this is not the case as
    regards differences in the retail selling prices of cigarettes sold in
    different Member States , including cigarettes of the same brand . This
    is because the combined effect of applying different tax burdens
     ( specific amounts and proportional rates ) and different delivery prices
     ( exclusive of tax ) creates considerable disparities ( see Annex 3 ).
                                                                                     <4
V. Proposed structure of taxation
Having reviewed the progress made to date in harmonising the structure of
cigarette taxation , the Commission has come to the inescapable conclusion
that an approach different from that pursued so-far is essential if the
necessary degree of tax approximation is to be realised . Harmonisation cf
tax structures alone will clearly not eliminate the current substantial tax
differentials which produce unduly wide disparities , as between one Member
State and another in the retail selling prices for each brand of cigarettes .
As mentioned above , the Commission does not propose to change fundamentally
the current mixed structure of excise duty and VAT . Rather , within the
framework of a mixed tax structure , the Commission has focussed directly
on the crucial issue of approximating the level of taxation on cigarettes .
Mention has already been made of the way in which the specific excise
duty , the ad valorem excise duty and VAT interact with each other within
the mixed tax structure . In particular , the ad valorem excise duty and VAT
both have a similar multiplier effect on manufacturers' delivery prices . This effe
magnifies any differences between the delivery prices of individual
                                                                           ./.
 ---pagebreak---                                   - 6 -
manufacturers and indeed differences between the Levels of the taxation
itself in the Member States . In the Commission 's view this interaction
makes it impossible to dissociate the ad valorem excise duty from the VAT
when seeking to approximate rates of taxation . A combined rate for
the ad valorem excise duty and VAT taken together must be fixed in order
to avoid the wide divergences caused by their multiplier effect . The
precise ad valorem excise duty rate to be applied in a Member State would
depend on which rate of VAT that Member State chose within the proposed
five point rate band . For the reasons mentioned in the Global Communication ,
the flexibility provided by the proposed 5 point VAT rate band effectively
rules out any flexibility in the rate of specific excise duty to be applied
if tax-induced differences in retail price are to be kept within acceptable
limits . A common rate of specific excise duty for cigarettes must therefore
be fixed at Community level .
The question thus arises as to what specific amount and what sum of ad
valorem rates (ad valorem excise duty and VAT combined ) should be adopted .
In this context it is necessary to produce a level of taxation which would
be broadly consistent with the Commission 's health policy, as set out in its
                                                      (1 )
1982 Report to the Parliament on tobacco excises           and recently reaffirmed
in its action programme : "Europe against cancer"^.
As a starting point for determining the amount and the rate for the present
proposal , the alternatives of the pure arithmetic average , and the arithmetic
average weighted by consumption, have been considered . In both cases the
calculation was made on the rates applicable at 1 April 1987 .
The weighted average figure which emerged from the calculation gives a
revenue-neutral result for the Community as a whole, with actual reductions
in current levels of cigarette taxation for at least 4 Member States .
The arithmetic average , on the other hand would generate higher levels of
7T)
      C0M(82 ) 61 final , 18 February 1982 , Chapter 13 .
 ( 2) C0M(86) 717 final , 16 December 1986 .
                                                                   ./.
 ---pagebreak---                                    - 7 -
     taxation for the Community as a whole than the weighted average and
     would result in an increase in the existing tax burden of about
     30 Z. The arithmetic average is also the most equitable approach since
     it gives equal weight to each Member State , irrespective of size .
     Accordingly, the Commission has taken the arithmetic average of existing
     cigarette duties as the basis for the calculation of the proposal .
     The pure arithmetic average produces a specific excise of 19.5 ECU per
     1000 cigarettes and an ad valorem ( excise + VAT ) rate of 53 X.
     The result of this combination of elements is to produce a level of
     taxation which will be higher for 9 Member States and practically the same
     for 2 Member States ( U.K. , Ireland ). It entails a significant fall in the
     level of taxation in one Member State ( Denmark ), where the current level
     of taxation is extremely high .
VI . Proposai for a Directive
     1 . The Commission , in its White Paper and the global Communication
         accompanying this proposal , recognises the need for a certain flexibility
         in the common rates of indirect taxation . In goods subject only to VAT ,
         this flexibility is achieved through a 5 to 6 (Joint rate band . In the case
         of cigarettes , with its mixed excise duty and its interaction with VAT,
         a similar effect is produced by a margin of 1 point around the composite
         ad valorem rate . The specific element would be fixed ( see the detailed
         commentary on Article 2 of the proposal )..
     2 . The common rates of taxation will therefore be :
         (i )   a specific excise duty of 19.5 ECU per 1.000 cigarettes ; this
                figure will be periodically, adjusted in line with the consumer
                price index in the Community, taking 1987 as the reference year .
         ( ii ) and ad valorem rate ( comprising the ad valorem excise plus VAT )
                situated between 52 Z and 54 Z of the retail selling price
                inclusive of all taxes .
                                                                                 ./.
 ---pagebreak---                                    - 8 -
3 . It is proposed that the common rates specified in paragraph 2 ,
     suitably updated as regards the specific amount , should enter
     into force as from 31 December 1992 . Member States may choose their
     own pace of progress towards those rates provided they are reached
     by the operative date . In the meantime , the Commission 's convergence
     proposal provides that Member States should not move their rates away
     from the common ones .
4 . In the absence of comprehensive data on the ex-factory prices
     of all cigarette brands and their market shares , it is not possible to
     calculate the precise    effects of the proposed common rates on retail
     prices or on tax revenues .
 5 . The table in Annex 4 gives , for the most popular categories of cigarettes ,
     an indication of the prices and taxes that can be expected to result from
     tlfe proposed rates on the assumption that tax-exclusive prices remain un¬
     changed , and without making any provision for the potential effect of indexing
     the specific component between now and 1992 . This table should be looked at
     in conjunction with Annex 2 giving the situation as at 1 April 1987 .
6 . It must be stressed that these price effects are approximations based on the
     most popular price category of the cigarette market in each Member State .
     The application of the same rates to the higher price categories will mitigate
     these effects . In Member States where the specific duty is currently prepon ¬
     derant ( DK, IRL, U.K. ), the decrease in price will be smaller for the more
     expensive brands . In the other Member States the increases in price will be
      less than those shown for the most popular cigarettes . A second factor affec ¬
     ting the outcome will be the choice of the composite ad valorem rate within
     the permitted range of 2 points . Furthermore , it should be noted that the
     proposal will have the effect of enlarging the current price spread ( between
     the cheapest and most expensive cigarettes ) in DK, D , NL, IRL and U.K. and
     of narrowing the price spread in the other Member States . Finally it should
     be noted that under this proposal the tax incidence will be situated between
     71 X and 86 % of the retail selling price compared with the present range of
     54 X to 87 X.
 ---pagebreak---                                        - 9
VII . Detailed commentary
      The following comments are called for on the individual articles
      of the proposal for a Directive :
      Article 1
      This Article lays down the principle of applying approximated taxes
      on the consumption of cigarettes as from 31 December 1992 . It
      stipulates that both the specific component of the excise duty and
      the two proportional components ( ad valorem excise duty and VAT ),
      which are applied in all Member States pursuant to Directive
      72 / 464/ EEC , come within this provision .
      Article 2
      1.    This Article specifies the amount of the basic specific excise
            duty and the permitted range for the sum of the ad valorem
            excise duty and VAT that is to apply from 31 December 1992 .
            Provision is made for the amount of the basic specific excise
            duty ( 19.5 ECU ) to be adjusted periodically in line with the
            general consumer price index in the Community , taking 1987 as
            the reference year .    The practicalities of this adjustment
            will be determined at a later date ( see Article 3 ).
      2.    No flexibility is provided for as regards the specific component .
            As for the sum of the ad valorem components , some flexibility ,
            equivalent to one percentage point above or below the average rate of
            53% , is permitted .  The principle of allowing flexibility
             is mentioned in the global Communication on indirect tax approximation .
            Underlying all discussion of flexibility is the necessity of
            ensuring that the amount of specific excise duty and the sum
            of the ad valorem rates to be applied by all Member States do
            not cause retail selling prices to differ unduly from one
            country to another and thus provoke cross-frontier distortions .
                                                            ./.
 ---pagebreak---                                - 10 -
It has been agreed that flexibility will be achieved for all consumption
goods by applying VAT rates within a 5~6 point rate band . There is no
prospect of provision being made for additional flexibility as regards
excise duties since the combined effect of these two measures - bearing in
mind that VAT is invariably calculated on the basis of the excise duty -
would once again lead to unduly wide disparities in tax burdens and hence
in prices .
With a combination of a specific excise duty , an ad valorem excise duty
and VAT as in the case of cigarettes , any change , even a slight one , in
the VAT rate has a very large effect on the total tax burden and hence
on prices . This is because the ad valorem excise duty must be calculated on
the basis of a retail selling price that includes the excise duty itself
and VAT and because VAT is in turn calculated on the basis of a price that
already includes the excise duty ( see Point Hof the Explanatory Memorandum ).
In the case of cigarettes , a difference of 6   points in the VAT rate may generate
a difference in the total tax burden ( excise duty + VAT ) of over 15 % and a
difference in prices inclusive of all taxes of over 10% . To keep within
a retail price differential of between 5 % and 6 % , the sum of the
ad valorem rates resulting from the combination of ad valorem excise duty
and VAT must be maintained within the specified range of 52 % to 54 % ,
no matter what VAT rate is applied by the Member State concerned . The
precise ad valorem excise rate chosen by a Member State will depend on
where it situates the VAT rate within the permitted VAT rate band .
Article 3
This Article provides that the Commission will present to the Council
proposals for periodic adjustments in the amount of the specific excise duty
to reflect movements in the price index . Proposals will also be drawn up
regarding the arrangements for collecting tax ( tax stamps or other means )
and the period allowed for payment of tax , the purpose being to eliminate
the distortions of competition that may result from divergent practices in
these areas .
                                                                        ./.
 ---pagebreak---                                          - 11 -
 Article 4
Approximation of nates does not consist merely in approximating the
 simple ratio between the components of the composite structure . The effect
 of approximation will be to reduce automatically the range of ratios
 between specific and proportional taxes and , in so doing , to establish
 automatically in all Member States the same ratios for the same price
 categories . The method applied hitherto allows this ratio to be established
 only for cigarettes in the most popular price category , i.e. by reference
 to prices that differ widely from one Member State to another .
 However , since the transitional period for the approximation of rates lasts
 until 31 December 1992 , and in order to avoid any slippage in the adjustment
 of rates by Member States , the achievements of the Community to date , as
 set out in Directive 72 / 464 / EEC ( second stage of harmonization : specific
 excise duty between 5 % and 55 % of the total tax burden calculated in
 each country on the basis of the most popular price category ), should be
 safeguarded during that period .
 The present proposal for a Directive does not , therefore/ necessi tate
 repeal of Directive 72 / 464 / EEC , which contains some general provisions
 that should be retained and some special provisions that are no longer
 applicable ( first stage of harmonization ) or that will become
 redundant only when Member States have complied with this Directive .
 Article 4 of this Directive deals with this situation .
 ---pagebreak---                                                                                           \г
                                                                                                                                                         Annex           1
                                                                                                                                                                     TOP. 1
  COHNISSION D E S C.E.                                                    .                    COUNTS SION OF THE E. C.
    TAXATION Of POPULAR CIGARETTES < 1000 pcs )                                    TAXATION OK CICOREiHS POPULfilliES ( 1000 pc?)
                                     BESTEUEWJHC CER HEISTVtRSP.'JFTEK ZICaKTïEM < 1000 SUL .                    SITUSTION 1.0.1987
                                        8             OX          0          F          GR        IPX       I         L      HL         UX                ESP               P
 RETAIL PRICE IN NAT.CURR .                                                                                                                          il »                   (2)
 CUR . -PRIX DET . EH KON . NAT .
 ΝΑΤ,-KVP. IN NAT.VHRG .                  2920          1265         200       205       3300      90.5    80000      2200      170          76   21ÍM        5000          5125
   OTO . IN ECU                         68.03        161 . SO     96.52    35.0»        21.65    121.70    50.16     51.26   72.67     106.15    10.01      30.31         31.89
 SPECIF . EXCISE F.1000 CIG.IN
N.C. -ACCISE SPEC . P. 100(1 CIG
                                      •
 EH H.N.-SPEZ.VERBR . STEUER
 F. 1000 ZIG . IN H. U.                     107       6C6.6         56.5   9.143        92.22         38    2710        70     60.8     30.61      100         tao            3S8
   OTO . IN ECU ( 1000pcs /St)            2.09        77.09       27.27      1.33        0.61     08.90     1.83      1.72   25.99      02.75     0.69        0.69           2.23
 EXC.DUTY AO . VAL . -ACCISE
80.VAL.-A0.VAL.VERBR.ST . (Z
 RET . PR . -Z PR.DET.-Z XVP)           60.70Z        21.22Z      31.50X    05.06Z      33 . »5Z  13.61Z   53.39Z    57.55Z   19.06Z    21 . COX 28.G0Z      oo.ooz        51.037
 OTO . IN ECU ( 1000pcs/St )            01.29         30.28       30.00     16.13        7.35     16.56    23.91     29.50    13.85     22.29     0.03       13.72         16.27
 EXC . OUTY-ACCI SE-VERER . ST ,
 TOTAL-INSGESAKT ( IN 1) :              60.36Z        69.19Z      59.75Z   69.20X       36.79Ï    53.82Z   56.78Z    60.91Z   50.821    61.28Z   32.76Z      02.00Z        58.027
OTO . IN ECU ( 1000pcs/St )             03.79        111.77       57.67     17.06        7.96     65.50    30.75     31.22   39.80      65.05     0.72       10.01         18.50
VAT-TVA-MHSt (Z OF RET . PR . -
7 OU PR.DET.-Z D.KVPr .)                  S.66Z       18.03Z      12.261   25.60Z       26.07%    20.00Ï   15.25Z     6.0QZ   16.67Z    13.00Z   Π.90Ζ       11.907        13.797
 TOTAL TAX/TAXE/STEUER-IN Z
 OF RETPR-0 . PR . OEÏ . -0 . KVPR ,    70.02Z        B7.22Z      72.03Z   70.80Z       63.21Z    73.82Z   72.03Z    66.91%  71.09Z     70.32Z   00.70Z      53.90Z        71.817
 OTO . IH ECU ( 1000pcs/St)             07.60        100.89       69.52    26.55        13.69     89.80    39.01     30.30    51.95     78.89     6.00       18.51         22.90
 SPEC . EXC . /ACC . SPEC . /SPEZ .              -
                                                               -
VPR.ST.IN/EN Z OF TOT . TAX/              -
 TAXE TOT . /GES . STEUER                 5.23Z       55.00Z      39.22Z     5.00Ï       0.02Z    50.07Z    0.70Z     5.03Z   50.02Z    S6.2BZ   10.65%       3 . 717        °.737
FISC.HULTIPL .                           2.97          1.65         1.7B     3.06        2.53      1.51     3.19      2.70     1.56       1.5?    1.67        2.08           2 80
NON-TAX PRICE PORTION-PART
NON-FISC . O.PRIX-NICHTSTEUER
LICHEK PREISANT.IN/EN Z                 29.93Z        12.78Z '    27.97%   25.20%       36.79Z    26.18Z   27.97Z    33.09Z   28.51Z    25 . 66% 55.3QZ     06.06Z         2S.197
OTO . IN ECU                            20.39         20.45     . 27.00      8.90        7.97     31.86    15.15     16.96   20.71      27.26     7.97       15.80           S.99
KANUFACT . SHARE/PART PROD ./
IN/EN Z                                 20 . S8X       7.16Z    : 18.97Z   17.202       25.29Z    17.58Z . 19.07Z    23.29Z   18.51Z    16.6SZ   08.50Z     37.307         22.097
OTO . IN ECU                            10.00         11.57       18.31      6.10        5.08     21.39    10.55     11.90    13.05     17.71     6.99       12.80           7.00
OISTR . SHARE/PART OISTRIB ./
VEKTR . ANT . (WHOLES/RET-GROS/
OET-GRHDL/KLHDL) IN/EN Z                 9.00Z         5.62%       9.00Z     8.00Z      11.50%     8.60Z    6.50%     9.S0Z   10.001     9,003   12.00Z      10.007          P.007
TOT.HULTIPL. /KULTIPIIXAT .              0.13          1.81        2.12      0.78    .   3.56      1.73     0.37 .    3.75     1.80      1.76     2.08        2.63           3.82
        1 ECU AT/AU/AH :                FB          dKr           OH       FF           Ora      Lirl      Lit      FL       hfl        ist      Pes        Fes            Esc
              1.00.1987              02.9222       7.83076     2.07221   6.90315       152.39 O.7760A8   1077.20 02.9222 2.33907 0.715957 105.703 105.703 160.715
( l)Derogation tenporaire pour certaines cigarettes .                              Tcsporary dérogation for certain cigarettes
(2)Taxes diffcrentes pour 2 autres categories de prix ( infraction). Different taxes for 2 other price categories (infringeeent).
                        27-Hay-87                                                                                                   TlTB0087/ak.
 ---pagebreak---                                                                                                           Annex         2
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 î'ton–,ta:< eteirôVt                         '..4 ,\ Specitc exiss
                          Ad-\o1 E<c + VAT
                                                   TAXES     1.4.1987
        Member State                         Specific Excise                            Ad-valorem Excise
                                         ( ECU / IOOQ Cigarettes )                            +     T.U.A.
               B                                         2.49                                             66 . 36 /
               Dk  '                                   77 . ή *                                          3"  .  2 5·/:·
               D                                       27 . 27                                            43  . 78 /
               F                                         1.33                                            71  .  06'/
               Gr                                        0.61                                             60  . 427
               Irl                                     4-8 . 94                                          33 . ·6 IX
               I                                         1.83                                             68 . 64X
               L                                         1.72                                            63.55:·:
               NI                                      25.99                                              35.72··/
               UK                                      42.75                                             34.047.
               Esp                                       0.69                                             51.94·/
               P                                         2.23                                            64 . 82'/
 ---pagebreak---                                      \ч
                                                                ANNEX 3
               DISPARITIES IN CIGARETTE TAXATION AT 1.4.1987
Specific excise duty            :     between 0.61 ECU and 77.49 ECU per 1000
                                      cigarettes
Ad valorem excise duty          :     between 13.61% and 60.70% of the retail
                                      selling price
VAT                             :     between 5.66% and 26.47% of the retail
                                      selling price
Specific excise duty            :     between 4.42% and 55% of the total tax
                                      burden
Overall tax incidence           :     between 54% and 87% of the retail selling
                                      price of the most popular cigarette
Overall tax burden in ECUs      :     between 13.69 ECU and 140.89 ECU per 1000
                                      cigarettes in the most popular price
                                      category
Retail selling price of               between 21.65 ECU and 161.54 ECU per
the most popular cigarettes     :     1000 cigarettes
Non-tax portion                       between 7.97 ECU and 31.86 ECU per 1000
( manufacturer's delivery             cigarettes in the most popular price
price + trade margin )          :     category
 ---pagebreak---                                                                                                            Annex 4
                              R.S.P. & TAXES' AFTER RATE APPROXIMATION
                                                 1000 PÛRJIÆ CIGARETTES
            170
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              NOTES
              1.       The? rates used are those resulting from the arithmetic mean :
                       - 19.55 ECU / 1000 cigarettes with no indexation after 1.4.87
                       - ad-valorem       ( excise + VftTV       - 53 7. of the retail price .
              2.       The graph demonstrates the theoretical effect of rate
                       approximation on the popular cigarette in each Member State .
                       Compared with the existing situation ( see Annex 2 > the
                       variations in retail price between Member States are
                       much smaller .
              3.       The effect will be broadly similar in other price categories . . -
                       With identical tax rates , each individual brand should retail in
                       all Member States at approximately the same price . Price
                       differentials between different brands will of course remain .
                       both within individual Member States and within the Community
 ---pagebreak---                                Proposal for a
                              Council Directive
                           on the approximation
                           of taxes on cigarettes
   THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
  Having regard to the Treaty establishing the European Economic Community ,
  and in particular Article 99 thereof ,
 Having regard to the proposal from the Commission,
 Having regard to the opinion of the European Parliament ( 1 ),
 Having regard to the opinion of the Economic Social Committee ( 2 ),
  Whereas Council Directive 72 /464 / EEC ,     as last amended by Directive
  86/246/EEC (4)# lays down general provisions relating to excise duties on manufactured
  tobacco and special provisions relating to the structure of excise duties applicable to
  cigarettes,
  Whereas Council Directive 79/32 /EEC ( 5) lays down the
  definitions of the different types of manufactured tobacco ;
  Whereas , in the case of cigarettes , harmonization , as provided for in
  Directive 72 /464 / EEC, of the ratio between the specific excise duty and
  the sum of the proportional excise duty and VAT does not make it possible
  to harmonize the rates of taxation ;
  Whereas , for the purpose of establishing an internal market without frontiers ,
  it is necessary to bring more closely together the rates of taxes on
  consumption;
  Whereas , in the case of cigarettes , those taxes are made up of a mixed
  excise duty and VAT; whereas they display special characteristics , notably
  as regards their cumulative and multiplier effects ; whereas therefore ,
  all the components of those taxes should be harmonized ,
 -                                                                            ./.
 (3)   OJ No L 303 , 31.12.1972 , p. 1
 ( 4 ) OJ No L 164, 20.6.1986, p. 26
( 5 ) OJ No L 10, 16.1.1979, p. 8
 ---pagebreak---                                      - ff-
HAS ADOPTEO THIS DIRECTIVE :
                                   Article 1
Not later than 31 December 1992, Member States shall apply to
cigarettes approximated taxes on consumption subject to the conditions
and within the limits laid down in this Directive .
      This provision shall apply to the taxes which , pursuant to Directive
72 / 464/ EEC , are levied on cigarettes and which comprise :
      ( a ) a specific excise duty per unit of the product ;
       ( b ) a proportional excise duty calculated on the basis of the
             maximum retail selling price ;
      ( c ) a VAT proportional to the retail selling price .
                                   Article 2
Not later than 31 December 1992, each Member State shall apply
   ( a)       a specific excise duty , the basic amount of which is fixed
              at 19.5 ECU per 1 000 cigarettes and which is to be adjusted
              in line with the general consumer price index in the Community ,
              taking 1987 as the reference year ;
   ( b)       a proportional excise duty the rate of which is to be fixed in
              such a way that the combined incidence of this rate and the
              VAT rate lies between 52% and 54% of the retail selling price
              inclusive of all taxes .
                                   Article 3
The provisions governing the periodic adjustment of the rate of the
specific excise duty and the provisions governing the arrangements for
collecting tax and the time allowed for payment of tax shall be laid
down before 1 January 1989 in Directives adopted by the Council acting on
proposals from the Commission .
 ---pagebreak---                                      Artide 4
Article 1 , Article 4(3) and ( 4), and Titles II and Ila of Directive 72/464/EEC shall
cease to apply once Member States have brought into force the national provi¬
sions necessary to comply with this Directive.
                                     Article 5
 Member States shall bring into force the laws , regulations and administrative
 provisions necessary to comply with this Directive not later than 31 December
 1992 . They shall forthwith inform the Commission of any provisions of
 national law which they adopt in the field governed by this Directive .
                                     Article 6
 This Directive is addressed to the Member States .
 Done at Brussels ,                                                   For the Council
                                                                      The president
 ---pagebreak---                                         Λ
                          FICHE D' IMPACT P.M.E.
           RAPPROCHEMENT DES TAXES FRAPPANT LES CIGARETTES
          Le rapprochement des taxes indirectes ( accises et TVA ) est nécessaire
 dans le cadre de la suppression des frontières fiscales . Le problème parti ¬
 culier des taxes sur les cigarettes s' intégre dans l' ensemble des mesures pour
 l' achèvement du marché intérieur .
 Caractéristiques    des entreprises concernées :
          Il existe dans la Communauté une trentaine de fabricants de cigarettes .
Ceux-ci ne sont pas en général des P.M.E. Ce sont soit d' importantes sociétés
m.ultinationales ( Phi lip Morris , Rothmans , B. A. T. , etc. ) ou des sociétés natio ¬
nales d' une certaine dimension , souvent liées à des multinationales , ou encore
des entreprises d' Etat à caractère de monopole ( F, IT, ESP , P ).
          Les P.M.E. se situent surtout dans le secteur de la distribution et
de la vente ( grossistes , certains importateurs et surtout détaillants ).
          Il n' existe pas de statistiques précises concernant le nombre de per ¬
sonnes occupées dans ces secteurs . On peut toutefois estimer que dans la Com ¬
munauté plus de 6.000 grossistes s' occupent de la distribution des produits
de tebac .
          Les détaillants spécialisés dans la vente de ces produits sont estimés
à plus de 175.000 ( dont plus de 150.000 établis en France , Italie , Royaume -
Uni et Espagne ). Ces chiffres sont donnés sous toute réserve . En effet ,
                                                                      ./.
 ---pagebreak---                                               - 2 -
       les produits de tabac sont également vendus dans les supermarchés ( sauf en France ),
       chez les marchands de journaux , dans des kiosques , les restaurants , les bars , etc.
       en combinaison avec une vaste gamme d' autres articles . Dans certains pays ( p.ex .
       Allemagne ) une part importante des ventes se fait également via des machines
       automatiques .
                     On peut estimer que dans La Communauté plus de 500.000 personnes sont
       occupées à temps plein ou partiel dans la distribution et la vente des tabacs
      manufacturés .
    I. Contraintes administratives découlant de l' application de la législation
                     Les obligations imposées aux entreprises sont principalement de carac ¬
      tère fiscal : licence de fabrication ou d' exploitation , paiements des taxes et
       respect de mesures tendant à assurer la juste perception de l' impôt et à éviter
      des fraudes . Ces mesures s' appliquent surtout aux fabricants ( voir ci-dessus II )
      bien que certaines de ces mesures s' étendent parfois au secteur de la distribution
      et des ventes ( documents de transport , factures spéciales , contrôles des ventes ,
      etc. ).
                    La proposition de directive ne change rien à ces mesures de carac ¬
      tère national .
 II . Quelles sont les obligations susceptibles d' être imposées indirectement aux entre ¬
      prises via les autorités locales ?
                    Dans certains pays les autorités locales exigent des licences d' exploita ¬
      tion avec ou sans perception de taxes locales .
III . y a -t - il des mesures spéciales pour les PME ?
                    Il n' existe pas de mesures spéciales pour les P.M.E.
 IV. Quel est l' effet prévisible ?
                    La proposition de directive devrait , par le rapprochement des taxes ,
      avoir pour effet de renforcer la concurrence entre fabricants . Ce sont d' ailleurs
      les fabricants qui fixent les prix maximum de vente au détail de leurs produits .
      Cette situation est unique . Les grossistes et détaillants ne disposent que d' une
      marge de manoeuvre très limitée en matière prix ( grossistes : 1 à 2 % ; détail ¬
      lants 7 à 9 % ). Dans certains pays , il existe d' ailleurs des prix pratiquement
      fixes .
 ---pagebreak---                                      - 3 -
            Il n' est pas possible de déterminer l' effet qu' une hausse de taxes
   et donc de prix des cigarettes pourrait avoir sur l' emploi dans le secteur
   concerné .
V. Les partenaires sociaux n' ont pas été consultés .