CELEX: 51974PC0342
Language: en
Date: 1974-03-22
Title: PROPOSAL FOR A SECOND COUNCIL DIRECTIVE ON TAXES OTHER THAN TURNOVER TAXES WHICH AFFECT THE CONSUMPTION OF MANUFACTURED TOBACCO (submitted to the Council by the Commission)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (74) 342
Vol. 1974/0061
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 ---pagebreak--- COMMISSION OF THE EURQEBAN COMMUNITIES
                                                    COM(74)342 Final
                                                    Brussels . 22 March 1974
                PROPOSAL FOR A SECOND COUNCIL DIRECTIVE ON TAXES
                   OTHER THAN TURNOVER TAXES WHICH AFFECT THE
                      CONSUMPTION OP MANUFACTURED TOBACCO ,
                  ( submitted to the Council "by the Commission)
   0011(74 ) 342 Pinr.l
 ---pagebreak---                            Explanatory Memorandum
I.   General remarks
1 . On 19 December 1972 the Council adopted a first Directive for
harmonizing excise duties on manufactured tobacco . The goal of the
harmonization was to establish , from the point of view of consumer taxes
on manufactured tobacco , the conditions necessary for attainment of free
movement of manufactured tobacco products within the Community . If the
markets of the Member Stc.tes in manufactured tobacco are at present
particularly segregated , this is largely because of differences between
the structures of excise duties applied by the Member State . Since
taxation generally accounts for a large proportion of the retail selling
price for manufactured tobacco products , the differences between the
conditions of competition on the markets of the Member States are largely
conditioned by differences in the structures . of excise duties .
Harmonization of the structures of excise duties will thus make it
possible to bring these conditions of competition into line with each
other and thus to assist the int erpenet rat i on of markets .
2 . Ey laying down the principles for harmonized taxation of cigarettes ,
the Directive of 19 December 1972 took a first step in this direction .
However , if the objective of the harmonization is to be fully attained ,
the structures of excise duties on manufactured tobacco other than in
cigarette fora must also be fixed at Community level . However , before
this is begun , the products to which the harmonized structures are to
apply must first be determined . In other xjords , the various taxable
items must first be harmonized , which means establishing and defining
the various groups of manufactured tobacco at Community level .
  OJ Ho L 303 . 31 December 1972 .
                                                                  • • •/ o t «
 ---pagebreak---  3 » Manufactured tobacco must be divided into several groups , since
manufactured tobacco products do not all have the sane characteristics ,
nor are they all used for the same purposes . For example , there is no
doubt that cigars and smoking tobacco are so different that they should
be considered as separate categories of product . Likewise cigars and
cigarettes are usually aimed at different types of consumer . Consequently
there is no need to subject all manufactured tobacco products to one and
the same excise duty .  On the contrary , it would seem more appropriate to
adapt tax schemes to the particular characteristics of each type of
manufactured tobacco .  Similarly , tax rates should reflect the amount of
tax which each of these types of manufactured tobacco can be expected to
yield .  By dividing manufactured tobacco into several product groups , it
is possible to vary the tax burden in line with these various
considerations .
4.   Most Member States already classify manufactured tobacco in different
groups and generally apply to each of these groups tax structures and
rates differing from those applied to other groups .   However , there are
differences , sometimes considerable , between the number and nature of the
groups in use in the Member States . Thus certain Member States distinguish
either between cigars and cigarillos or between cigars with a wrapper of
natural tobacco and cigars with a wrapper of reconstituted tobacco , while
other Member States do not apply such distinctions , imposing the same rate
of excise duty on all cigars , regardless of weight or wrapper . Likewise ,
although in 7 Member States all smoking tobacco is taxed at the same rate ,
Denmark and the Federal Republic of Germany apply different taxes to
fine-cut and coarse-cut tobaccos .   In addition to these differences ,
there are others which all have the effect of changing the competitive
position of the various tobacco products from Member State to Member
State .  It is accordingly necessary to harmonize the various groups of
manufactured tobacco in order to eliminate these differences in conditions
of competition .
 ---pagebreak--- 5 » If it is -to have its full effect , this harmonization must consist not
only of determining the groups of manufactured tobacco hut also of
adopting Community definitions for these groups .
6 . It should not "be forgotten that the need for harmonization of this
kind was explicitly recognized by the Directive of 19 December 1972 ,
Article 3(2 ) of which reads : " The Council shall , on a proposal from the
Commission , adopt the provisions necessary to determine the way in which
manufactured tobacco should be defined and classified in groups".
7 . The purposes of this proposal for a Directive are t therefore , to
classify manufactured tobacco within different groups and to lay down
harmonized definitions of these groups of manufactured tobacco .
II . Establishment of the groups of manufactured tobacco
8 . As has been said , each group of manufactured tobacco will constitute
a separate taxable article . Consequently , all products falling within
the same groups will have to be taxed in the same way . Thus , in
determining the groups of manufactured tobacco , certain considerations
have to be taken into account at Community level .
9 . First , it is necessary to avoid classifying in different groups
products to which the consumer reacts in the same way and which he
therefore regards as being similar . For if products were so classified ,
directly competing products would be subject to different excise duty
structures and rates and this would distort the conditions of competition .
10 . Secondly , it should be ensured that products with highly different
potential tax yields are not classified in the same group , for this would
tend to reduce the revenue to be derived from the excise duty .
 ---pagebreak---                                    - 4 -
 11 . Finally , to avoid difficulties in future progress in harmonization
and its implementation "by the Member States , the number of groups of
manufactured tobacco must be restricted as far as possible . However ,
this desire to simplify matters should not stand in the way of
diversification where thi3 is necessary either for economic reasons or
in order to ensure adequate tax revenue as mentioned above .
12 . Hence it seems reasonable to provide for the following groups of
manufactured tobacco in the Community/ s
(a)  . cigars ,
(b )   cigarettes ,
(c)    smoking tobacco ,
( d)   snuff ,
( e ) chewing tobacco .
13 . The cigar group comprises a large nunber of products , of varying
weight , method of production , price , quality , etc . However it cannot
be denied that these products , however different , bear certain
resemblances in so far as generally they are all aimed indiscriminately
at the same type of consumer and are designed to satisfy the same need .
For this reason it seems appropriate to classify all cigars in one and
the same group . For revenue reasons , however , it seems as yet too early
to exclude the possibility of distinguishing between cigars on a weight
basis . If small cigarillos benefit from a price advantage as against
cigarettes owing to reduced tax burdens , they can come into direct
competition with cigarettes and thus provoke a drop in excise revenue .
Consequently cigarillos must be subject to a rate of tax comparable to
that levied on cigarettes . Yet if the cigar group , which includes
cigarillos , was heavily taxed , the effect , in view of certain excise
structures ( e.g. excise duty purely proportional to the retail selling
price ), could be a serious deterioration in the market situation for
the larger , and therefore more expensive , products falling within this
                                                                   • • •/ • • •
 ---pagebreak--- group .   Accordingly , until such . -time as harmonized tax structures are
decided on , it does not seen appropriate to exclude the possibility of
distinguishing on a weight baiis . This is why Article 2 of the proposed
Directive enables the Member States to divide cigars into the two
following groups :
( a ) cigars of a unit weight not exceeding 2,3 g
(b ) cigars of a unit weight exceeding 2*3 g .
For the same reason it is proposed that the Council decision either to
abolish this distinction or to formalize it at Community level be
deferred until 1 January 1930 at the latest .
14 .  As in the case of cigars , cigarettes often differ substantially from
each other .   Nevertheless , there is no doubt that the consumer regards
then* as similar, iaxTritw of their characteristics .    Again , they are all
subject to a relatively high level of taxation .       They should therefore
be classified in a single group .
15 .  The classification of smoking tobacco within a single group is-
warranted by the fact that all these products are capable of being smoked
in pipes . However , certain smoking tobacco , namely fine-cut tobacco , can
also be used in hand-rolled cigarettes . This1 situation' could affect the
amounts of tax to be imposed on fine-cut tobacco and on coarse-cut
tobacco .   In practice , coarse-cut tobacco , which is snoked exclusively
in pipes , should be taxed at a relatively low ts&te in order not to
jeopardize its market situation .       On the other hand , to avoid an
excessive difference between the tax burden on fine-cut tobacco and that
on cigarettes , it may be necessary to tax fine-cut tobacco at a higher
rate although this type of tobacco can sometimes be used in place of
coarse-cut tobacco .    Such a difference might favour the consumption of
hand-rolled cigarettes , thus bringing about a drop in tax revenue .
However , the consumption of hand-rolled cigarettes appears to be steadily
declining .   If this trend were confirmed , any distinction between
 ---pagebreak---                                       - 6 -
coarse–cut and fine–cut tobacco would cease to have any purpose , given
that , even if fine–cut tobacco were taxed, at a relatively low rate , this
would have no notable repercussions on tax revenues .      Thus it seems
appropriate to defer to a later date a decision concerning a possible
distinction between coarse-cut and fine-cut tobacco . This is why , as for
cigars , the proposed Directive temporarily authorizes Member States to
divide smoking tobacco into two groups , namely :
( a) fine–eut smoking tobacco ,
(b )    coarse-cut smoking tobacco .
The final decision either to abolish this optional distinction or to
formalize it at Community level , will also have to be taken by the Council
not later than 1 January 19C0 .
16 .    Snuff and chewing tobacco meet such distinct needs that without doubt
they should be classified in two separate groups .
III .    Definitions of the groups of manufactured tobacco
17 .    The main problem arising in drawing up definitions for the various
groups of manufactured tobacco consists in establishing the dividing line
between cigars and cigarettes .      Since cigarettes are taxed considerably
more heavily than cigars , it is necessary to avoid classifying in the
cigar group , products which the consumer would consider as cigarettes .
Consequently , the criteria for defining cigars must be very strict and
must correspond to the typical characteristics of these products which
the consumer regards as important .
18 .    The definition of a cigar given in Article 4 of the proposal for a
Directive takes account of these considerations .      The following comments
should be made on the definition :
                    •                                   *,
( a ) - rolls of tobacco with an outer wrapper of natural tobacco always
        come in the cigar group .  The special manufacturing processes
        required in' order to fit a leaf of natural tobacco involves such
        production costs that there is no economic possibility of
        manufacturing products resembling cigarettes but wrapped in natural
  ■  •  tobacco .
                                                                      • ••/• • •
 ---pagebreak---                                          - 7 -
( b ) where the outer wrapper is made of a substance other than natural
        tobacco , a distinction between cigars and cigarettes based only on
        the nature of the wrapper would seem inadequate and other criteria
        which in the eye of the consumer decide what is a cigar will also
        be used .  This is why points 2 and 3 in Article 4 of the proposed
        Directive also take into account , in addition to the nature of the
        wrapper , (which must be of reconstituted tobacco ):
        (i)    the colour of the product ;     in contrast to cigarettes , cigars
               are never white ;
        ( ii ) the size of the tobacco particles inside the product ;       in
               contrast to cigarettes , the inside of a cigar is never made
               of fine-cut tobacco .
To make more precise the distinction between cigarettes and cigars wrapped
in something other than natural tobacco , it is further provided that :
     ' (i)     cigars weighing less than 2.3 g which , by form and weight might
               thus resemble cigarettes , must have two wrappers of
               reconstituted tobacco and the outer wrapper must' be fitted in
      r        spiral form .    In practice , cigarettes have never more than one
               wrapper , ' generally made of paper , and it is fitted
               longitudinally ;                  '
        ( ii ) cigars weighing at least 2.3 g with only one wrapper must have
               a circumference , over at least one-third of their length , of
               at least 34 mm , so that they are distinguished from cigarettes
               not only by weight ( cigarettes approx . 1 g ) but also by their
               shape ( circumference of cigarettes lies between 25 and 30 mm ).
19 .    Cigarettes are defined by contrasting them with cigars , which means
that all rolls of tobacco which do not comply with the definition of
cigars are automatically considered as cigarettes .
                                                                          # ••/• • •
 ---pagebreak--- 20. It should also be noted that a provision specifying the length of
a cigarette is necessary . The way in which cigarettes are taxed ,
consisting of an ad valorem excise duty combined with a specific duty
calculated per unit of product , could encourage the manufacture of extra-
long cigarettes , in order to reduce the incidence of this specific duty *
For this reason , Article 5(2 ) provides that cigarettes which ( excluding
any filter or mouthpiece ) are longer than 9 cm but not longer than 18 cm
are to be considered for tax purposes as two cigarettes . Similarly ,
cigarettes which are longer than 18 an but not longer than 27 cm are to
be considered as three cigarettes , and so on ,
21 . The definitions given for products other than cigars and cigarettes
do not appear to give rise to any major problems .
22 . Finally , it should be pointed out that the proposal provides that
products complying with the definition of cigars , cigarettes and smoking
tobaccos are to be treated as manufactured tobacco even if they consist
in whole or in part of substances other than tobacco .     Likewise , products
which correspond to the definitions of snuff or chewing tobacco are
treated as those types of manufactured tobacco even if they are composed
in part of substances other than .tobacco .   For -excise duty purposes ,
however , products containing no tobacco are not treated as manufactured
tobacco where they are exclusively for medical use , (e.g. eucalyptus
cigarettes ).
IV . Transitional measures and special provisions concerning certain
     Member States
23 . We have already seen that manufactured tobacco falling within the
same product group oust be subject not only to the same excise structure
but also to the same rate ( Art . 3 )«  The fact that a Community
classification of manufactured tobacco is adopted means that the Member
States will be obliged to make changes , sometimes substantial , to their
national laws at present in force .    Likewise , the application of
 ---pagebreak---                                    - 9 -
Community definitions of groups of manufactured tobacco is likely to have
serious repercussions for national tax laws .   To prevent these changes
from bringing about , in certain Member States , excessively sudden
alterations to market structures , which could in certain cases have
unacceptable economic and social effects , Article 9 of "the proposed
Directive gives those Member States a period of three years from the date
of application to align their provisions with the Community groups of
products and definitions .
24 . It has also been considered useful , as a means of avoiding unnecessary
complications , not to extend the harmonization to certain smoking
tobaccos which are distributed only locally or regionally ( Art . 12(1 )).
However , to ensure that this measure does not give rise to any
distortions of competition , provision is made for the Council to abolish
it if necessary .
 ---pagebreak---                   PROPOSAL FOR A SECOND COUNCIL DIRECTIVE ON TAXES
                      OTHER THAN' TURNOVER TAXES WHICH AFFECT THE
                         CONSUMPTION OF MANUFACTURED TOBACCO
     THE COUNCIL OF THE EUROPEAN COMMUNITIES .
                                                                         i
     Having regard to the Treaty establishing the European Economic Community ,
     and in particular Articles 99 and 100 thereof ;
     Having regard to the Council Directive of 19 December 1972^" on taxes other
     than turnover taxes which affect the consumption of manufactured tobacco ;
     Having regard to the proposal from the Commission ;
   , Haying regard to the Opinion of the European Parliament ;
     Having regard to the Opinion of the Economic and Social Committee ;
     Whereas there are several types of manufactured tobacco , distinguished by
     their characteristics and by the way in which they are used ;
     Whereas the structures and rates of excise duties on manufactured tobaccos
      should reflect the special characteristics of each of the types of
     tobacco and whereas , to this end , they should be classified in several
     tax groups ;
     Whereas there are , at present , differences between the revenue laws of the
     Member States as to the number and nature of these groups ;
     Whereas these groups are subject to different excise duty schemes ;
     Whereas these differences lead to disparities between the competitive
     positions of manufactured tobacco in the various Member States and thus
                                                                    *
- . . impede their free movement within the Community ;
          No L 303 , 31.12.1972 , p. 1
 ---pagebreak--- Whereas , "before further progress is made in harmonizing these excise
duty schemes ,. the groups of manufactured tobacco should he harmonized ,
and this involves determining their number and defining their nature ;
Whereas the time is not yet ripe for fixing the final number of groups
of manufactured tobacco as regards cigars and smoking tobacco ;
Whereas for economic reasons temporary derogations should be provided
for certain Member States ;
Whereas the uniform application of this Directive should "be ensured and
whereas , to this end , it is necessary to lay down an effective procedure
whereby any necessary measures of application may be adopted ;
Whereas such measures could be adopted simply and quickly by the Committee
on Excise Duties procedure ;                              '
HAS ADOPTED THIS DIRECTIVE :
 ---pagebreak---                                       - 3 -
                                   Art i oie 1
Subject to Article 2 , the following shall "be considered to be groups of
manufactured tobacco :
(a)    cigars ,
(b )   cigarettes ,
(c)    smoking tobacco ,
( d)   snuff .
(e)    chewing tobacco .
                                   Article 2
1 . By way of derogation from Article 1 , Member States may classify
cigars in the following two groups of manufactured tobacco :
     - cigars of a unit weight not exceeding 2.3 gj
     -   cigars of a unit weight exceeding 2.3 g «
2 . By way of derogation from Article 1 , Member States may classify smoking
tobacco in the following two groups of manufactured tobacco :
     -   fme-cut smoking tobacco ;
     –   coarse–eut smoking tobacco .
3 « The Council , acting on a proposal from the Commission , shall not
later than 1 January 1980 take the necessary measures for abolishing or
changing , at Community level , the provisions of paragraph 1 and 2 above .
                                   Article 3
All products falling within the same group of manufactured tobacco shall
be taxed under the same scheme and at the same rate .
                                               "V
                                   Article 4
The following shall be considered to be cigars where they are capable of
being smoked as they are :
                                                                   •••/• • •
 ---pagebreak---                                   - 4 -
     ( 1 ) rolls of tobacco with an outer wrapper of natural tobacco ;
     ( 2 ) rolls of tobacco of the colour of a cigar with an outer wrapper
           and sub-wrapper of reconstituted tobacco ( CCT 24.02 E ), where
           at least Sofa by weight of the tobacco particles are both wider
           and longer than 1.75      and the wrapper is fitted in spiral
           form with an acute angle of at least 30° to the longitudinal
           axis of the cigar ;
     ( 3 ) rolls of tobacco of the colour of a cigar with an outer wrapper
           of reconstituted tobacco ( CCT 24-02 E ), where the unit weight ,
           not including filter or mouthpiece , is not less than 2.3 g , at
           least 6ofo by weight of the tobacco particles are both wider
           and longer than 1.75      and the circumference over at least
           one-third of the length is not less than 34 mnt .
                                 Article 5
1.  Rolls of tobacco capable of being smoked as they are and which are
not cigars as defined in Article 4 shall be considered to be cigarettes .
2.  A roll of tobacco within the meaning of paragraph 1 above shall , for
excise duty purposes , be considered as two cigarettes where it is longer
than 9 cm but not longer than 18 cm , as three cigarettes where it is
longer than 18 cm but not longer than       cm , and so on by analogy .
                                 Article 6
The following shall be considered to be smoking tobacco :
     ( 1 ) tobacco which has been , cut beaten , twisted or pressed into
           blocks and is capable of being smoked without further industrial
           processing ;
     ( 2 ) cigar parings no longer than 20 son .       •.
 ---pagebreak---                                   Article 7
Tobacco in the form of rolls , sticks , strips , cubes or "blocks , which is
impregnated with liquid to such an extent that it can be chewed but not
smoked , shall be considered to be chewing tobacco .
                                  Article 8
Tobacco in powder or grain form which is capable of being snuffed but not
smoked shall be considered to be snuff .
                                  Article 9
1.   Products consisting in whole or in part of substances other than
tobacco but ' otherwise conforming to the definitions in Articles 4 to 6
of this Directive shall be treated as cigars , cigarettes and smoking
tobacco , as the case may be .  However , in order to be treated as cigars
as defined in points 1 , 2 , and 3 "of Article 4 » these products must in all
cases have one of the following , as appropriate :
                                                      i
     -  a wrapper of natural tobacco ;
     -  a wrapper and sub–wrapper of reconstituted tobacco ;
     -  a wrapper of reconstituted tobacco .
2,   Products consisting in part of substances other than tobacco but
otherwise confgfrming to the definitions in Articles 7 and 8 of this
Directive shall be treated as cheiving tobacco and snuff as the case may
be .
                                  Article 10
By way of derogation from Article 9(l )» products containing no tobacco
and used exclusively for medical purposes shall not be treated as
manufactured tobacco .
 ---pagebreak---                                    - 6 -
                                  Article 11
1.   In derogation from Article 3 , Belgium , Italy , Luxembourg and the
Netherlands are authorised to apply different rates of duty to cigars
having an outer wrapper of natural tobacco and to cigars having an outer
wrapper of reconstituted tobacco .   Similarly , the Federal Republic of
Germany is authorised to apply' a lower rate of duty to smoking tobacco
containing at least }>Ofo tobacco leaf midribs than to other smoking tobacco .
2.  By way of derogation from Article 4 » the Federal Republic of Germany
is authorised to treat in the same way as cigars both rolls of tobacco
of which the outer wrapper is fitted in spiral form at an angle of less
than 30$ to the longitudinal axis, but which otherwise meet the
requirements of Article 4(2 ), and rolls of tobacco which do not satisfy
the requirement that the circumference is equal to or greater than 34 nim
over at least one-third of their length but which otherwise meet the
requirements of Article 4(3 ).
3.  The Member States specified in paragraphs 1 and 2 shall , not later
than three years after the date of entry into operation of this
Directive , revoke the derogating provisions provided for in the said
paragrapns .
                                 Article 12
1.  The Directive of 19 December 1972 on taxes other than turnover taxes
which affect the consumption of manufactured tobacco and this Directive
shall not apply to excise duties charged , on the one hand, by Ireland
on manufactured tobacco known as hard pressed tobacco and , on the other
hand , by the Federal Republic of Germany on manufactured tobaccos known
as Rippentabak , Strangtabak and Kau-Feinschnitt .
2,  The Council , acting on a proposal from the Commission , shall if
necessary decide to revoke the provisions of paragraph 1 abovea
                                                                    • • •/ • • •
 ---pagebreak---                                    - 7 -
                                 Artide 13
Any necessary Community measures for applying Articles 1 to 12 inclusive
shall be adopted by the procedure laid down in Council Decision No .
setting up a Committee on Excise Duties .
                                 Article 14
1«   The Member States shall , not later than 1 July 1975 » bring into force
the laws , regulations or administrative provisions necessary to comply
with this Directive and shall forthwith inform the Commission thereof .
The United Kingdom and Ireland may postpone entry into operation of those
provisions until not later than 31 December 1977 •
2.   The Member States shall communicate to the Commission the texts of
the main provisions of national law which they adopt in the field covered
by this Directive .
                                 Article 15
This Directive is addressed to the Member States