COUNCIL DIRECTIVE on the structure and rates of excise duty applied to manufactured tobacco (Codification)

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COUNCIL OF Brussels, 16 June 2011

(OR. en) THE EUROPEAN UNION

10865/11

Interinstitutional File: 2007/0206 (CNS)

CODIF 32 FISC 77

LEGISLATIVE ACTS AND OTHER INSTRUMENTS

Subject: COUNCIL DIRECTIVE on the structure and rates of excise duty applied to manufactured tobacco (Codification)

COUNCIL DIRECTIVE 2011/.../EU

of ...

on the structure and rates of excise duty

applied to manufactured tobacco

(Codification)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 113

thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Parliament,

Having regard to the opinion of the European Economic and Social Committee,

Acting in accordance with a special legislative procedure,

Whereas:

(1) Council Directives 92/79/EEC of 19 October 1992 on the approximation of taxes on

cigarettes, 92/80/EEC of 19 October 1992 on the approximation of taxes on manufactured

tobacco other than cigarettes and 95/59/EC of 27 November 1995 on taxes other than

turnover taxes which affect the consumption of manufactured tobacco have been

substantially amended several times. In the interests of clarity and rationality the said

Directives should be codified by assembling them in a single act.

(2) The Union's fiscal legislation on tobacco products needs to ensure the proper functioning

of the internal market and, at the same time, a high level of health protection, as required

by Article 168 of the Treaty on the Functioning of the European Union, bearing in mind

that tobacco products can cause serious harm to health and that the Union is Party to the

World Health Organization's Framework Convention on Tobacco Control (FCTC).

Account should be taken of the situation prevailing for each of the various types of

manufactured tobacco.

(3) One of the objectives of the Treaty on the European Union is to maintain an economic

union, whose characteristics are similar to those of a domestic market, within which there

is healthy competition. As regards manufactured tobacco, achievement of this aim

presupposes that the application in the Member States of taxes affecting the consumption

of products in this sector does not distort conditions of competition and does not impede

their free movement within the Union.

(4) The various types of manufactured tobacco, distinguished by their characteristics and by

the way in which they are used, should be defined.

(5) A distinction needs to be made between fine-cut tobacco for the rolling of cigarettes and

other smoking tobacco.

(6) Rolls of tobacco capable of being smoked as they are after simple handling should also be

deemed to be cigarettes for the purposes of uniform taxation of these products.

(7) A manufacturer needs to be defined as a natural or legal person who actually prepares

tobacco products and sets the maximum retail selling price for each of the Member States

for which the products in question are to be released for consumption.

(8) In the interests of uniform and fair taxation, a definition of cigarettes, cigars and cigarillos

and of other smoking tobacco should be laid down so that, respectively, rolls of tobacco

which according to their length can be considered as two cigarettes or more are treated as

two cigarettes or more for excise purposes, a type of cigar which is similar in many

respects to a cigarette is treated as a cigarette for excise purposes, smoking tobacco which

is similar in many respects to fine-cut tobacco intended for the rolling of cigarettes is

treated as fine-cut tobacco for excise purposes, and tobacco refuse is clearly defined. In

view of the economic difficulties that immediate implementation could cause for the

German and Hungarian operators concerned, Germany and Hungary should be authorised

to postpone the application of the definition of cigars and cigarillos until 1 January 2015.

(9) As far as excise duties are concerned, harmonisation of structures must, in particular, result

in competition in the different categories of manufactured tobacco belonging to the same

group not being distorted by the effects of the charging of the tax and, consequently, in the

opening of the national markets of the Member States.

(10) The imperative needs of competition imply a system of freely formed prices for all groups

of manufactured tobacco.

(11) The structure of the excise duty on cigarettes must include, in addition to a specific

component calculated per unit of the product, a proportional component based on the retail

selling price, inclusive of all taxes. The turnover tax on cigarettes has the same effect as an

ad valorem excise duty and this fact should be taken into account when the ratio between

the specific component of the excise duty and the total tax burden is being established.

(12) Without prejudice to the mixed tax structure and the maximum percentage of the specific

component of the total tax burden, Member States should be given effective means to levy

specific or minimum excise duty on cigarettes, so as to ensure that at least a certain

minimum amount of taxation applies throughout the Union.

(13) For the proper functioning of the internal market, it is necessary to establish minimum

excise duties for all categories of manufactured tobacco.

(14) As regards cigarettes, neutral conditions of competition for manufacturers should be

assured, the partitioning of the tobacco markets should be reduced and health objectives

should be underscored. Thus, a price related minimum requirement should refer to the

weighted average retail selling price, whereas a monetary minimum should be applicable

to all cigarettes. For the same reasons, the weighted average retail selling price should also

serve as a reference for measuring the importance of specific excise duty within the total

tax burden.

(15) As regards prices and excise levels , in particular for cigarettes

-- by far the most important

category of tobacco products

-- as well as for fine cut-tobacco intended for the rolling of

cigarettes, there are still considerable differences between Member States which may

disturb the operation of the internal market. A certain degree of convergence between the

tax levels applied in the Member States would help to reduce fraud and smuggling within

the Union.

(16) Such convergence would also help to ensure a high level of protection for human health.

The level of taxation is a major factor in the price of tobacco products, which in turn

influences consumers' smoking habits. Fraud and smuggling undermine tax induced price

levels, in particular of cigarettes and fine-cut tobacco intended for the rolling of cigarettes,

and thus jeopardise the achievement of tobacco control and health protection objectives.

(17) As regards products other than cigarettes, a harmonised incidence of tax should be

established for all products belonging to the same group of manufactured tobacco. The

setting of an overall minimum excise duty expressed as a percentage, as an amount per

kilogram or for a given number of items is the most appropriate for the functioning of the

internal market.

(18) As regards fine-cut tobacco intended for the rolling of cigarettes, a Union price related

minimum requirement should be expressed in such a way as to obtain effects similar to

those in the field of cigarettes and should take the weighted average retail selling price as

the point of reference.

(19) It is necessary to bring the minimum levels for fine-cut tobacco intended for the rolling of

cigarettes closer to the minimum levels applicable to cigarettes, so as to better take account

of the degree of competition existing between the two products, reflected in consumption

patterns observed, as well as their equally harmful character.

(20) Portugal should be granted the possibility of applying a reduced rate for cigarettes made by

small-scale producers and consumed in the most remote regions of the Azores

and Madeira.

(21) Transitional periods should allow Member States to adapt smoothly to the levels of the

overall excise duty, thus limiting possible side effects.

(22) In order to prevent damage to Corsica's economic and social equilibrium, it is both

essential and justifiable to provide for a derogation, until 31 December 2015, by which

France may apply a rate of excise duty that is lower than the national rate to cigarettes and

other manufactured tobaccos released for consumption in Corsica. By that date, the tax

rules for manufactured tobaccos released for consumption there should be brought fully

into line with the rules for mainland France. Nevertheless, too abrupt a change should be

avoided and there should therefore be a stepwise increase in the excise duty currently

levied on cigarettes and fine-cut tobacco intended for the rolling of cigarettes in Corsica.

(23) A majority of Member States grant exemptions from excise duty or make refunds of excise

duty in respect of certain types of manufactured tobacco depending on the use which is

made of them, and the exemptions or refunds for particular uses need to be specified in

this Directive.

(24) A procedure should be provided for to enable the rates or amounts laid down in this

Directive to be reviewed periodically on the basis of a Commission report taking account

of all the appropriate factors.

(25) This Directive should be without prejudice to the obligations of the Member States relating

to the time-limits for transposition into national law and application of the Directives set

out in Annex I, Part B,

HAS ADOPTED THIS DIRECTIVE:

Chapter 1

Subject matter

Article 1

This Directive lays down general principles for the harmonisation of the structure and rates of the

excise duty to which the Member States subject manufactured tobacco.

Chapter 2

Definitions

Article 2

1.

For the purposes of this Directive manufactured tobacco shall mean:

(a) cigarettes;

(b) cigars and cigarillos;

(i) fine-cut tobacco for the rolling of cigarettes,

(ii) other smoking tobacco.

2.

Products consisting in whole or in part of substances other than tobacco but otherwise

conforming to the criteria set out in Article 3 or Article 5(1) shall be treated as cigarettes

and smoking tobacco.

Notwithstanding the first subparagraph, products containing no tobacco and used

exclusively for medical purposes shall not be treated as manufactured tobacco.

3.

Notwithstanding existing Union provisions, the definitions referred to in paragraph 2 of

this Article and Articles 3, 4 and 5 shall be without prejudice to the choice of system or the

level of taxation which shall apply to the different groups of products referred to in

these Articles.

Article 3

1.

For the purposes of this Directive cigarettes shall mean:

(a) rolls of tobacco capable of being smoked as they are and which are not cigars or

cigarillos within the meaning of Article 4(1);

(b) rolls of tobacco which, by simple non-industrial handling, are inserted into

cigarette-paper tubes;

cigarette paper.

2.

A roll of tobacco referred to in paragraph 1 shall, for excise duty purposes, be considered

as two cigarettes where, excluding filter or mouthpiece, it is longer than 8 cm but not

longer than 11 cm, as three cigarettes where, excluding filter or mouthpiece, it is longer

than 11 cm but not longer than 14 cm, and so on.

Article 4

1.

For the purposes of this Directive the following shall be deemed to be cigars or cigarillos if

they can be and, given their properties and normal consumer expectations, are exclusively

intended to be smoked as they are:

(a) rolls of tobacco with an outer wrapper of natural tobacco;

(b) rolls of tobacco with a threshed blend filler and with an outer wrapper of the normal

colour of a cigar, of reconstituted tobacco, covering the product in full, including,

where appropriate, the filter but not, in the case of tipped cigars, the tip, where the

unit weight, not including filter or mouthpiece, is not less than 2,3 g and not more

than 10 g, and the circumference over at least one third of the length is not less

than 34 mm.

2.

By way of derogation from paragraph 1, the following subparagraph may continue to be

applied by Germany and Hungary until 31 December 2014.

The following shall be deemed to be cigars or cigarillos if they can be smoked as they are:

(a) rolls of tobacco made entirely of natural tobacco;

(b) rolls of tobacco with an outer wrapper of natural tobacco;

colour of a cigar covering the product in full, including, where appropriate, the filter

but not, in the case of tipped cigars, the tip, and a binder, both being of reconstituted

tobacco, where the unit weight, not including filter or mouthpiece, is not less

than 1,2 g and where the wrapper is fitted in spiral form with an acute angle of at

least 30º to the longitudinal axis of the cigar;

(d) rolls of tobacco with a threshed blend filler and with an outer wrapper of the normal

colour of a cigar, of reconstituted tobacco, covering the product in full, including

where appropriate the filter but not, in the case of tipped cigars, the tip, where the

unit weight, not including filter or mouth-piece, is not less than 2,3 g and the

circumference over at least one third of the length is not less than 34 mm.

3.

Products which consist in part of substances other than tobacco but otherwise fulfil the

criteria set out in paragraph 1 shall be treated as cigars and cigarillos.

Article 5

1.

For the purposes of this Directive smoking tobacco shall mean:

(a) tobacco which has been cut or otherwise split, twisted or pressed into blocks and is

capable of being smoked without further industrial processing;

(b) tobacco refuse put up for retail sale which does not fall under Article 3 and

Article 4(1) and which can be smoked. For the purpose of this Article, tobacco refuse

shall be deemed to be remnants of tobacco leaves and by-products obtained from

tobacco processing or the manufacture of tobacco products.

2.

Smoking tobacco in which more than 25 % by weight of the tobacco particles have a cut

width of less than 1,5 millimetre shall be deemed to be fine-cut tobacco for the rolling

of cigarettes.

Member States may also deem smoking tobacco in which more than 25 % by weight of the

tobacco particles have a cut width of 1,5 millimetre or more and which was sold or

intended to be sold for the rolling of cigarettes to be fine-cut tobacco for the rolling

of cigarettes.

Article 6

A natural or legal person established in the Union who converts tobacco into manufactured products

prepared for retail sale shall be deemed to be a manufacturer.

Chapter 3

Provisions applicable to cigarettes

Article 7

1.

Cigarettes manufactured in the Union and those imported from third countries shall be

subject to an ad valorem excise duty calculated on the maximum retail selling price,

including customs duties, and also to a specific excise duty calculated per unit of

the product.

Notwithstanding the first subparagraph, Member States may exclude customs duties from

the basis for calculating the ad valorem excise duty on cigarettes.

2.

The rate of the ad valorem excise duty and the amount of the specific excise duty must be

the same for all cigarettes.

3.

At the final stage of harmonisation of structures, the same ratio shall be established for

cigarettes in all Member States between the specific excise duty and the sum of the ad

valorem excise duty and the turnover tax, in such a way that the range of retail selling

prices reflects fairly the difference in the manufacturers' delivery prices.

4.

Where necessary, the excise duty on cigarettes may include a minimum tax component,

provided that the mixed structure of taxation and the band of the specific component of the

excise duty as laid down in Article 8 is strictly respected.

Article 8

1.

The percentage of the specific component of excise duty in the amount of the total tax

burden on cigarettes shall be established by reference to the weighted average retail

selling price.

2.

The weighted average retail selling price shall be calculated by reference to the total value

of all cigarettes released for consumption, based on the retail selling price including all

taxes, divided by the total quantity of cigarettes released for consumption. It shall be

determined by 1 March at the latest of each year on the basis of data relating to all such

releases for consumption made in the preceding calendar year.

3.

Until 31 December 2013, the specific component of the excise duty shall not be less

than 5 % and shall not be more than 76,5 % of the amount of the total tax burden resulting

from the aggregation of the following:

(a) specific excise duty;

(b) the ad valorem excise duty and the value added tax (VAT) levied on the weighted

average retail selling price.

4.

From 1 January 2014, the specific component of the excise duty on cigarettes shall not be

less than 7,5 % and shall not be more than 76,5 % of the amount of the total tax burden

resulting from the aggregation of the following:

(a) specific excise duty;

(b) the ad valorem excise duty and the VAT levied on the weighted average retail

selling price.

5.

By way of derogation from paragraphs 3 and 4, where a change in the weighted average

retail selling price of cigarettes occurs in a Member State, thereby bringing the specific

component of the excise duty, expressed as a percentage of the total tax burden, below the

percentage of 5 % or 7,5 %, whichever is applicable, or above the percentage of 76,5 % of

the total tax burden, the Member State concerned may refrain from adjusting the amount of

the specific excise duty until 1 January of the second year following that in which the

change occurs.

6.

Subject to paragraphs 3, 4 and 5 of this Article and the second subparagraph of

Article 7(1), Member States may levy a minimum excise duty on cigarettes.

Article 9

1.

Member States shall apply to cigarettes minimum consumption taxes in accordance with

the rules provided for in this Chapter.

2.

Paragraph 1 shall apply to the taxes which, pursuant to this Chapter, are levied on

cigarettes and which comprise:

(a) a specific excise duty per unit of the product;

(b) an ad valorem excise duty calculated on the basis of the maximum retail

selling price;

Article 10

1.

The overall excise duty (specific duty and ad valorem duty excluding VAT) on cigarettes

shall represent at least 57 % of the weighted average retail selling price of cigarettes

released for consumption. That excise duty shall not be less than EUR 64

per 1 000 cigarettes irrespective of the weighted average retail selling price.

However, Member States which levy an excise duty of at least EUR 101

per 1 000 cigarettes on the basis of the weighted average retail selling price need not to

comply with the 57% requirement set out in the first subparagraph.

2.

From 1 January 2014, the overall excise duty on cigarettes shall represent at least 60 % of

the weighted average retail selling price of cigarettes released for consumption. That excise

duty shall not be less than EUR 90 per 1 000 cigarettes irrespective of the weighted

average retail selling price.

However, Member States which levy an excise duty of at least EUR 115

per 1 000 cigarettes on the basis of the weighted average retail selling price need not to

comply with the 60 % requirement set out in the first subparagraph.

Bulgaria, Estonia, Greece, Latvia, Lithuania, Hungary, Poland and Romania shall be

allowed a transitional period until 31 December 2017 in order to reach the requirements

laid down in the first and second subparagraphs.

3.

Member States shall gradually increase excise duties in order to reach the requirements

referred to in paragraph 2 on the dates set therein.

Article 11

1.

Where a change in the weighted average retail selling price of cigarettes occurs in a

Member State, thereby bringing the overall excise duty below the levels specified in the

first sentence of paragraph 1 and in the first sentence of paragraph 2 of Article 10

respectively, the Member State concerned may refrain from adjusting that duty

until 1 January of the second year following that in which the change occurs.

2.

Where a Member State increases the rate of VAT on cigarettes, it may reduce the overall

excise duty up to an amount which, expressed as a percentage of the weighted average

retail selling price, is equal to the increase in the rate of VAT, also expressed as a

percentage of the weighted average retail selling price, even if such an adjustment has the

effect of reducing the overall excise duty to below the levels, expressed as a percentage of

the weighted average retail selling price, laid down in the first sentence of paragraph 1 and

in the first sentence of paragraph 2 of Article 10 respectively.

However, the Member State shall raise that duty again so as to reach at least those levels

by 1 January of the second year after that in which the reduction took place.

Article 12

1.

Portugal may apply a reduced rate of up to 50 % less than that laid down in Article 10 to

cigarettes consumed in the most remote regions of the Azores and Madeira, made by

small-scale manufacturers each of whose annual production does not exceed 500 tonnes.

2.

By way of derogation from Article 10, France may continue to apply for the period

from 1 January 2010 to 31 December 2015 a reduced rate of excise duty to cigarettes

released for consumption in the departments of Corsica up to an annual quota

of 1 200 tonnes. The reduced rate shall be:

(a) until 31 December 2012, at least 44 % of the price for cigarettes in the price category

most in demand in those departments;

(b) from 1 January 2013, at least 50 % of the weighted average retail selling price of

cigarettes released for consumption; the excise duty shall not be less than EUR 88

per 1 000 cigarettes irrespective of the weighted average retail selling price;

cigarettes released for consumption; the excise duty shall not be less than EUR 90

per 1 000 cigarettes irrespective of the weighted average retail selling price.

Chapter 4

Provisions applicable to manufactured tobacco

other than cigarettes

Article 13

The following groups of manufactured tobacco produced in the Union and imported from third

countries shall be subject, in each Member State, to a minimum excise duty as laid down in

Article 14:

(a) cigars and cigarillos;

(b) fine-cut tobacco intended for the rolling of cigarettes;

Article 14

1.

Member States shall apply an excise duty which may be:

(a) either an ad valorem duty calculated on the basis of the maximum retail selling price

of each product, freely determined by manufacturers established in the Union and by

importers from third countries in accordance with Article 15; or

(b) a specific duty expressed as an amount per kilogram, or in the case of cigars and

cigarillos, alternatively for a given number of items; or

In cases where excise duty is either ad valorem or mixed, Member States may establish a

minimum amount of excise duty.

2.

The overall excise duty (specific duty and/or ad valorem duty excluding VAT), expressed

as a percentage, as an amount per kilogram or for a given number of items, shall be at least

equivalent to the rates or minimum amounts laid down for:

(a) cigars or cigarillos: 5 % of the retail selling price inclusive of all taxes or EUR 12

per 1 000 items or per kilogram;

(b) fine-cut smoking tobacco intended for the rolling of cigarettes: 40 % of the weighted

average retail selling price of fine-cut smoking tobacco intended for the rolling of

cigarettes released for consumption, or EUR 40 per kilogram;

EUR 22 per kilogram.

From 1 January 2013, the overall excise duty on fine-cut smoking tobacco intended for the

rolling of cigarettes shall represent at least 43 % of the weighted average retail selling price