EU Discusses Tax Cooperation, Reaches Agreement On Tobacco Tax

by Ulrika Lomas, Tax-News.com, Brussels

12 November 2009

European Union finance ministers have discussed further cooperation in the field of tax administration and reached an agreement on rates of excise duty applied to manufactured tobacco products.

At the latest monthly meeting of the European Council of Finance Ministers (Ecofin) on November 9 and 10, the Swedish presidency of the EU attempted to obtain an agreement for a proposal for a Directive on enhanced cooperation between member states in the area of tax, although it would appear that ministers have deferred a final decision on the proposals to a future Council meeting.

Earlier in the year, the European Commission adopted two proposals for new directives aimed at improving mutual assistance between member states' tax authorities in the assessment and the recovery of taxes.

According to the Commission, one of the key elements of the proposals, adopted on February 2, is that member states would no longer be able to "invoke bank secrecy in order to refuse cross border co-operation."

The new proposal is much wider in scope than existing rules on cooperation between tax authorities as it covers all taxes except those that are dealt with under a specific European Community legislation, i.e. value-added tax and excise duties.

Finance ministers did agree, however, a draft directive aimed at updating EU rules on the structure and rates of excise duties on tobacco products.

According to the Council, the directive is intended to "ensure a higher level of public health protection by raising minimum excise duties on cigarettes, whilst bringing the minimum rates for fine-cut tobacco gradually into line with those for cigarettes."

Under a compromise agreement, the Council has consented to increase, by January 1, 2014, the monetary minimum excise rate to EUR90 per 1,000 cigarettes and the proportional minimum to 60% of the weighted average sales price, from EUR64 per 1,000 and 57% at present.

The compromise allows for transitional arrangements until January 1, 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.

The agreement permits 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. It also allows member states applying those arrangements, once their rates have reached EUR77 per 1,000 cigarettes, to apply quantitative limits with regard to member states whose rates have not yet reached an equal monetary level.

The Council agreed to increase the minimum excise duty requirements for fine-cut tobacco and member states will comply with either a proportional minimum or a monetary minimum as follows:

• 40% of the weighted average sales price and EUR40/kg on January 1, 2011;
• 43% and EUR47/kg on January 1, 2013;
• 46% and EUR54/kg on January 1, 2015;
• 48% and EUR60/kg on January 1, 2018; and
• 50% and EUR60/kg on January 1, 2020.

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