EEC on the harmonization of the structures of excise duties on alcohol and alcoholic beverages - Main contents

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dossier	COM(2018)334 - Amendment of Directive 92/83/EEC on the harmonization of the structures of excise duties on alcohol and alcoholic beverages.
source	COM(2018)334
date	25-05-2018

1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

Several legal acts define the EU system for harmonised excise duties. Council Directive 2008/118/EC sets out the general arrangements for goods subject to excise duty, with particular emphasis on the production, storage and movement of excise goods between Member States. Energy products and electricity are covered by Directive 2003/96/EC and manufactured tobacco is covered by Directive 2011/64/EU.

Directive 92/83/EEC on the structures of excise duty on alcohol and alcoholic beverages sets out the common rules on the structures of excise duty applied to alcohol and alcoholic beverages. Directive 92/83/EEC defines and classifies the different types of alcohol and alcoholic beverages, according to their characteristics, and provides a legal framework for reduced rates, exemptions and derogations in some sectors.

Since the adoption of the Directive in 1992, the first and only evaluation was commenced in 2014. Therefore, the Directive was identified by the Commission for an evaluation under the Commission’s Regulatory Fitness and Performance Programme (REFIT) ¹ . A REFIT initiative regarding this directive and Directive 2008/118/EC was announced in Annex ii of the Commission Work Programme for 2017 ² . A proposal to amend Directive 2008/118/EC will also be presented to the Council along with this proposal.

The Directive has not kept pace with the challenges and opportunities offered by new technologies and developments within the alcohol industry. Some problems have been identified and inefficiencies persist causing possible distortions of the internal market. The large variation in duty levels between Member States ³ , which provides a strong incentive for tax evasion, and other weaknesses in the design of the tax necessitate the use of burdensome administrative procedures for both tax administrations and economic operators. These disproportionate administrative and compliance costs for economic operators restrict the participation of small and medium-sized enterprises in intra-EU trade in alcohol and alcoholic beverages.

The recommendations and findings of the evaluation ⁴ were taken into account in the Commission’s report submitted to the Council in October 2016 ⁵ . In December 2016, Member States unanimously supported the call to review the Directive and the Council subsequently adopted Council Conclusions of 6 December 2016 ⁶ , asking the Commission to carry out the necessary studies and consultation to submit a proposal for revision.

1. The study and the impact assessment focussed on the same main areas mentioned in the Commission report and the Council conclusions, which are::

·Dysfunctions in the application of exemptions for denatured alcohol. The proposal is a clarification of the relevant articles of the Directive to increase legal certainty.

·Dysfunctions in the classification of certain alcoholic beverages. It is proposed to split the existing other fermented beverages category into two subcategories. The first subcategory will maintain the current treatment, while the second will define and treat traditional other fermented beverages separately.

·Dysfunctional application of reduced rates for small producers and low strength alcoholic beverages. A proposal for the extension of reduced rates for small cider makers and an increase in the threshold to which reduced rates are applicable to beer are included. It is also proposed to develop a uniform certificate for small independent breweries and cider makers across the EU.

·Unclear provisions to measure degrees Plato ⁷ of sweetened or flavoured beer. The proposal is a clarification of the relevant articles to increase legal certainty.

The 2017 study took a broad approach to the possible problems, identified through various sources, with the functioning of Directive 92/83/EEC. Follow-up analysis of both studies resulted in a conclusion that not all of the aspects of the problematic areas merited EU action. Therefore the following areas identified in the Council conclusions are not addressed in this proposal:

·the extension of excise duty exemption for private production of fermented beverages (i.e. beer, wine and other fermented beverages) for home consumption to other beverages (i.e. ethyl alcohol). This was not taken further due to the associated health and fraud risks and the lack of support from Member States.

·the extension of reduced rates for small wine and fortified wines producers. It was decided not to address this issue as its introduction would bring no benefits to these small producers.

·the reduction of excise duty rates for low strength wine, ethyl alcohol and intermediate products. This was not progressed as compliance with the EU definitions of these products effectively means that no benefits would be achieved.

The objective of this initiative is to amend Council Directive 92/83/EEC to improve the regulatory framework to bring benefits to businesses, Member States and citizens.

• Consistency with existing policy provisions in the policy area

The proposal preserves the objectives of Directive 92/83/EEC, which were fully in line with existing policies and objectives relevant to the structures of excise duty applied to alcohol and alcoholic beverages.

• Consistency with other Union policies

The proposal is consistent with the 2015 Single Market Strategy ⁸ , where the Commission sets out to remove the differences at national level to ensure and to improve the functioning of the Single Market.

The proposed measure on denatured alcohol is consistent with the requirements of Article 168 of TFEU, where the Commission ensures the protection of human health. This measure aims to reduce fiscal fraud and the negative health impacts of denatured alcohol which can be used to produce illicit alcohol.

The health impacts of reduced rates for small cider makers and low strength beer cannot at present be conclusively determined but are not expected to be substantial.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

The legal basis is Article 113 of TFEU. This provision enables the Council, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the harmonisation of Member States’ legislation in the area of indirect taxation.

• Subsidiarity (for non-exclusive competence)

In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the Treaty on European Union ⁹ , the objectives of the proposal cannot be sufficiently achieved by Member States and can therefore be better achieved at Union level. The proposal does not go beyond what is necessary to achieve those objectives.

The source of the current complications for the excise duty exemption for denatured alcohol, classification of certain alcoholic beverages, status of independent small brewers and measurement of degree Plato lays precisely in the absence of clear rules at EU level. Decisions taken unilaterally by Member States create additional complexity and legal uncertainty. The extension of the reduced excise duty rates to small independent cider makers is not possible as the Directive effectively prevents Member States from correcting this imbalance as Member States may apply reduced excise duty rates to independent small producers of beer and ethyl alcohol but not to small independent cider makers. This is also the case in relation to the threshold for low strength alcohol.

The majority of Member State administrations have pointed out the need for improving the common definitions and rules of alcohol and alcoholic beverages for excise purposes at EU level. This is reflected in the Council Conclusions adopted on 6 December 2016, where the Council requested the Commission to carry out the necessary studies to prepare a possible legislative proposal for the revision of Directive 92/83/EEC.

• Proportionality

This proposal complies with the principles of proportionality as set out in Article 5 i of the Treaty on European Union. The proposed amendments do not go beyond what is necessary to address the issues at stake and, in that way, to achieve the Treaty objectives of ensuring that the internal market functions properly and effectively. In particular the proposed extension of the reduced rates for small independent cider makers would enhance the competitiveness of these producers with limited adverse effects in terms of foregone revenues and administrative burdens and put them on an equal footing with small beer and ethyl alcohol producers.

• Choice of the instrument

A Directive is proposed in order to amend Directive 92/83/EEC. No alternative national, bilateral or other international initiative would provide the same level of effectiveness in terms of the functioning of the internal market and the monitoring and control of excisable alcohol, and significant added value consequently accrues from establishing common definitions and rules of alcohol and alcoholic beverages for excise purposes at EU level.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex-post evaluations/fitness checks of existing legislation

In preparing this proposal, the existing rules on the structures of excise duty applied to alcohol and alcoholic beverages have been evaluated. An external (evaluation) study was carried out in 2014/2016 by a consultant ¹⁰ . The recommendations and findings of the external (evaluation) study were taken into account in the Commission’s evaluation report (SWD) submitted to the Council in October 2016 ¹¹ . In December 2016, Member States unanimously supported the call to review the Directive and the Council subsequently adopted Council Conclusions of 6 December 2016 ¹² , asking the Commission to carry out the necessary studies and consultation to submit a proposal for revision. An external study on the structures of excise duty on alcohol and alcoholic beverages was undertaken by another consultant ¹³ in 2017.

• Stakeholder consultations

The consultation strategy sought to gather feedback from stakeholders on the application of the current rules on the structures of excise duty applied to alcohol and alcoholic beverages and to get their views on possible changes to such provisions.

The strategy consisted of (i) an in-depth consultation of consultation of 161 stakeholders in several Member States and at EU level and (ii) an internet based open public consultation held over 12 weeks from 18 April 2017 to 11 July 2017, with 166 contributions received. The synopsis report of the stakeholder consultation is available in Annex 2 of the impact assessment accompanying this proposal.

An external consultant assisted the Commission in conducting an Open Public Consultation to collect stakeholders’ comments and feedback on the issues identified and the possible options for a revision of the Directive.

• Collection and use of expertise

This proposal is based on the analysis of the evaluation study carried out in 2014/2016, the Commission’s report submitted to the Council in October 2016 and the study in 2017. The 2017 study gathered and analysed the evidence on the existing costs and benefits arising from the Directive to determine the scale of the problems identified in the evaluation study. This study developed options for amending the current rules and assessed the economic and social impacts of such options.

• Impact assessment

The impact assessment for the proposal was considered by the Regulatory Scrutiny Board on 24 January 2018. The Board issued a positive opinion with reservations on the proposal together with recommendations, which have been taken into account. In particular reservations were expressed regarding the assessment of the overall effects of the proposed REFIT measures in terms of simplification and reduction of administrative burdens. The opinion of the Board, the recommendations and an explanation of how they were taken into account are included in Annex 1 of the Staff Working Document accompanying this proposal.

• Regulatory fitness and simplification

The revision of the Directive is part of the Commission's REFIT programme. Evidence collected in the evaluation and feedback gathered from the day-to-day application of the Directive's provisions led to the conclusion that there was a perceivable – albeit hardly quantifiable – lack of legal certainty over the treatment of specific products, leading in turn to potential additional costs to economic operators. Most of the problems identified were specific to certain markets or certain products. In terms of REFIT objectives, these focus particularly on those areas where economic operators see excessive regulatory costs and burdens. Rather these costs and burdens, the proposal focuses on unnecessary regulatory costs and burdens, which could be avoided if the Directive functioned better. In particular the proposal focuses on the hassle costs from the lack of legal uncertainty over the treatment of specific products. Clarification of the exemption for indirect uses of partially denatured alcohol will ensure a fairer treatment across the EU and reduce the costs for users in the minority of Member States that currently do not consider that partially denatured alcohol used for such indirect uses qualify for this exemption.

The annual administrative burden as a result of the proposed extension of the reduced rate scheme to small cider makers is estimated to be €178 per cider maker or an aggregated total of €200 000 annually. These burdens are similar to those incurred by small breweries availing of this scheme. For more information, see section 8 of the impact assessment accompanying this proposal in relation to the costs and burdens of this Directive.

• Fundamental rights

The proposal has no consequences for the protection of fundamental rights.

4. BUDGETARY IMPLICATIONS

The proposal does not have any implications for the Union budget.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The Committee on Excise Duty, an advisory committee on excise issues in which representatives of all Member States participate, chaired by the Commission will monitor the implementation of the proposed amendments of the Directive and discuss and clarify possible interpretation issues between Member States regarding the new legislation.

The Committee on Excise Duty will report on any problems with the implementation and the evolution of problems with the functioning of the Directive and discuss and clarify possible interpretation issues between Member States regarding the new legislation. Member States and the Commission will evaluate the functioning of the evolutions provided for in the new legislation at least 5 years after its entry into force, allowing the markets to adjust and the results and impacts to materialise.

• Explanatory documents (for directives)

Explanatory documents are not required as the proposal aims to simplify and clarify the existing regime.

• Detailed explanation of the specific provisions of the proposal

Point 1 of Article 1 modifies Article 3, to clarify the provisions relating to the degrees Plato measurement of beer.

Point 2 of Article 1 modifies Article 4 to provide for a uniform certificate for small independent breweries across the EU. This will improve the cross border functionality of the existing relief for small breweries.

Point 3 of Article 1 amends Article 5 to increase the threshold to which reduced rates may be applied to low strength beer.

Point 4 of Article 1 modifies Article 12 to introduce a definition of cider. This will also facilitate the application of reduced rates for independent small cider makers, which will be introduced in point 6.

Point 5 of Article 1 amends Article 13 to take account of the optional reduced rates for independent small cider makers introduced in point 6.

Point 6 of Article 1 inserts Article 13a to introduce optional reduced rates for independent small cider makers.

Point 7 of Article 1 modifies Article 27 to clarify the provisions relating to exemptions for denatured alcohol and to increase the legal certainty for economic operators and Member State authorities.

Point 8 of Article 1 deletes Article 28, which currently allows the UK to provide exemptions for certain products which are no longer exempted in the UK.

Point 9 of Article 1 inserts Articles 28a which provides implementing powers to the Commission.