ECJ Poised To Deliver Revenue Blow To UK In Booze Tax Case

by Robert Lee, Tax-News.com, London

14 November 2006

A European Court of Justice ruling due next week could be a severe blow to the revenue-raising powers of the UK and other governments, accelerating the possible adoption of a single European Union rate of duty on alcohol and cigarettes.

The case concerns a complaint by a Dutch individual who took the government to court after it charged them full domestic rates of duty on wine bought from France because they had it shipped home and did not physically accompany the goods.

The case hinges on the jurisdiction where excise duty on alcohol and cigarettes should be charged. Generally, it is charged in the destination member state, but EU rules also stipulate that excise duty on products "acquired by private individuals for their own use and transported by them," are charged in the country of purchase.

If the ECJ agrees with an opinion delivered by the court Advocate General Francis Jacobs, who ruled that the Dutch decision was unfair, it could open up way for internet and mail order purchases of wine and cigarettes across national boundaries. The ECJ follows the opinions of advocates general in about 80% of cases.

Perhaps the country that stands to lose the most from such a ruling is the UK, which levies some of the highest rates of tax on alcohol and tobacco in the EU. For example, smokers pay about GBP50 (EUR75) for a carton of 200 cigarettes in the UK, most of which is tax. By comparison, the same purchase in Latvia would cost just GBP7.20. Many countries also do not levy any tax on wine, but in the UK duty is charged at GBP1.30 per 75cl bottle.

The accounting industry has calculated that the loss from reduced alcohol and tobacco revenues would blow a GBP16 billion hole in the Treasury's finances and reduce revenues by about GBP10 billion per year - the equivalent of three pence on the rate of income tax.

However, it would not just be the government that loses if the ECJ upholds the complaint. British retail groups are warning that sellers of beer and wine in the UK will be unable to compete on price with nations such as France, while an evaporating 'booze cruise' market would hit cross-channel ferry operators' income.

While the British and some other governments are supporting the Dutch government and are reportedly confident that they have a sound argument in favour of the status quo, the case is likely to increase calls for harmonisation of duty on alcohol and cigarettes across the EU.

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