Ireland Urged To Increase Taxes On Cigarettes, Not Fix Prices

by Jason Gorringe, Tax-News.com, London

21 December 2006

The European Commission announced this week that it has sent Ireland a reasoned opinion regarding the fixing of minimum and maximum retail prices for cigarettes.

The Commission takes the view, based on well established case law of the Court of Justice of the European Communities, that such prices infringe Community law, distort competition and only benefit manufacturers, by safeguarding their profit margins.

In a statement, the EC announced that:

"The Commission recognizes that price and tax measures are effective means for reducing tobacco consumption. However, tax and price measures must be in line with other Treaty obligations."

"In this respect, the European Court of Justice has already stated that:

• Imposing a minimum price is incompatible with the current legal framework (Directive 95/59/EC), since the setting of a minimum price by public authorities inevitably has the effect of limiting the freedom of producers and importers to determine their selling price (see also case C-302/00, Commission/France);
• Minimum prices are not necessary, since the health objectives may be attained by increased taxation of tobacco products. (Case C-216/98, Commission/Greece).

The Commission fully supports Member States in designing measures on tobacco control in order to ensure a high level of public health protection. Among the measures that could be used, the European Commission advocates minimum taxes to tackle cigarettes’ consumption. This would have the same impact on the prices and would not hamper price competition to the sole benefit of manufacturers."

Unless Ireland brings its legislation into compliance in this area within two months of receipt of the reasoned opinion, the Commission may decide to refer the case to the European Court of Justice (ECJ).

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