Excise Duties

Excise Duty Rates

Excise duties on alcohol, tobacco and mineral oils are treated as Member States' "own resources" and unlike VAT, where a percentage of tax income funds the EU budget, all revenue collected from excise duties goes directly to national treasuries.

Within the EU, to comply with the principle of harmonising or approximating the rules applicable when the "Single Market" was established on 1st January 1993, minimum levels of duty are levied on products subject to excise duty. However, Member States are free to apply higher rates as part of their indirect tax policy, if they so wish.

For the duty paid travel retail trade, excise duties are collected on alcohol beverage products and tobacco and it is the difference between the levels of excise duty that are applied by national fiscal authorities that has promoted the travel retail trade in these products.

For further detailed information on the excise duty rates applicable across the EU, visit the Commission's website.

Tobacco Products

Following conclusion of a consultation process, on 16 July 2008, the Commission published its report and proposal for a directive to amend the current excise duty legislation on tobacco, foreseeing a gradual increase in the EU minimum taxation levels on cigarettes and fine cut tobacco up to 2014. The Commission Memo announcing the report and proposals is available here, as is the draft directive.

On 10 November 2009, the EU Council of Ministers reached a political agreement on the draft Directive. The Council agreed to increase, by 1 January 2014, the monetary minimum excise rate to 90 euros per 1000 cigarettes and the proportional minimum to 60% of the weighted average sales price, from 64 euros per 1000 and 57% at present. The full Council press statement can be found here.

The Council also agreed a transitional period for cigarettes. The compromise allows for transitional arrangements until 1 January 2018 for member states that have not yet achieved, or only recently achieved the current minimum rates, namely Bulgaria, Greece, Estonia, Latvia, Lithuania, Hungary, Poland and Romania.

During this transition period, the compromise allows member states not benefiting from the transition to impose a quantitative limit of at least 300 cigarettes on the number of cigarettes that may be brought into their territory from member states applying transitional arrangements. As from 2014, this restriction will apply to all travellers arriving in countries that have imposed quantitative limits, regardless of mode of travel.

Alcohol and Alcohol Beverages

On 8th September 2006, the Commission issued a proposal for a Council Directive on the approximation of the rates of excise duty on alcohol and alcoholic beverages. This follows a 2005 call from the Council of Finance Ministers to bring forward a proposal to adjust the minimum rates of excise duties to avoid a fall in the real value of the minimum rates. The Commission proposed revalorising the minimum rates on alcohol, intermediate products and beer in line with inflation from 1993 to 2005, which is in the order of 31%, to take effect from 1 January 2008. The minimum rate for wine is set at zero and consequently a revalorisation of that rate is not applicable.

At the EcoFin meeting on 28 November 2006, the Council failed to reach agreement on the Finnish Presidency's compromise proposals for a 4.5% increase in the minimum excise rates of certain alcohol products (excluding wine) and invited the Commission to carry out a comprehensive study of taxation on alcohol beverages, with a view to facilitate further discussion in Council at a later date. This study was finally published in May 2010 and the Executive Summary can be found here.

Excise Duty Systems

The rules governing how excise duties are applied, and on how goods subject to excise duties are moved around the EU, were laid down in "Council Directive 92/12/EEC, on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products", more commonly referred to as the "systems directive".

In February 2008, the EU Commission published a proposal for a Council Directive concerning general arrangements for excise duties (COM(2008/78), updating and codifying Directive 92/12/EEC, and implementing the necessary changes from the Excise Movement Control System (EMCS) Computerisation Project.

The draft directive included a new Article 13 that exempts from excise duties supplies to tax free shops selling to travellers taking a flight or sea crossing to a third country. This article also exempts supplies to ships and aircraft selling to travellers on a flight or sea crossing to a third country. However, there were no provisions to exempt supplies to border duty free shops.

The ETRC was also seriously concerned that the definition in Article 13 of what constitutes a traveller to a third territory or a third country defined such a traveller as a passenger holding a transport document for air or sea travel stating that the immediate destination is a port or airport situated in a third country. This would have eliminated sales made to EU transfer passengers at their originating airport and seriously impact on commercial revenues of regional airports.

However, lobbying of Member State governments by ETRC member organisations and the regional airports led to an agreement being reached in Council that changed the definition of a third country traveller to being one whose final destination was a third country.

The ETRC also made representation to members of the European Parliament, particularly those on the ECON Committee that prepared the lead opinion on the proposals. On 18 November 2008, at the Plenary vote on the Astrid Lulling report for the ECON Committee, MEPs adopted two amendments to Article 13 that called for the continuation of duty free border shops without restrictions. An amendment confirming the definition of a traveller to a third country as being one with a final destination outside the EU, rather than immediate, was also adopted (the regional airports issue). Please see the European Parliament's own press release.

The result of this vote means that the ETRC had realised everything it had set out to achieve in the Parliament's opinion.

However, the EP's opinion is non-binding on the Council and following final agreement in early December 2008 at Coreper working group level, the directive was adopted as an A point at the Employment, Social Policy, Health & Consumer Affairs Council on 16 December 2008. The text of the directive adopted includes the final destination definition of a traveller and provides for the continuation of duty free border shops, but only until 01 January 2017 in Member States where they were in existence on 01 July 2008, i.e. in Romania and Greece. The directive came into force on 01 April 2010. The final text was published in the Official Journal on 14 January 2009 and is available here.