ECJ Rules Against Italian Tobacco Excise Duty Policy

Source from:  Tax-News.com  10/11/2014

The European Court of Justice (ECJ) has ruled that Italy's decision to levy a higher minimum excise duty on cheaper-than-average cigarettes contravenes EU law.

In Ministero dell'Economia e delle Finanze v. Yesmoke Tobacco SpA (C-428/13), the ECJ pointed out that the Council Directive 2011/64/EU of June 21, 2011, on the excise duty to be applied to manufactured tobacco, provides that, for all cigarettes (regardless of their characteristics and price), an excise duty should be made up of two elements: an ad valorem excise duty, calculated on the basis of the maximum retail selling price; and a specific excise duty per unit.

The Directive specifies that the rate of the ad valorem excise duty and the amount of the specific excise duty must be consistent for all cigarettes. However, Italy had announced that a greater minimum duty rate of 115 percent of the minimum excise duty rate, should apply to cheaper cigarettes.

The ECJ said that, while member states also have the option of levying a minimum excise duty on cigarettes, this minimum excise duty should represent a minimum tax threshold, below which there may not be a proportional reduction in the tax payable.

In arriving at its decision, the ECJ noted that cigarettes in the most popular price category in Italy, which retail at EUR210 (USD265) per thousand cigarettes, face a minimum excise duty of EUR122.85. However, cigarettes priced lower than EUR210 per thousand are subject to a higher minimum excise duty rate of EUR141.28 per thousand.

Ruling against Italian authorities, the ECJ stated: "The establishment of different minimum tax thresholds according to the characteristics or price of cigarettes, would lead to distortions of competition as between different cigarettes, and would therefore be contrary to the objective of ensuring the proper functioning of the internal market and neutral conditions of competition."

"The Court concludes that the directive precludes a provision of national law, which, rather than establishing an identical minimum excise duty that is applicable to all cigarettes, establishes a minimum excise duty that is applicable only to cigarettes with a retail selling price lower than that of cigarettes in the most popular price category." Enditem