EU Review of Alcohol Excise Duties structure
The EU Commission has put out initial findings concerning its review and possible revision of alcohol excise duty structure (Directive 92/83/EEC).
The external review was conducted primarily by Ramboll Management Consulting. In the executive summary, the review states, inter alia:
“Given that the legislative act in question, Directive 92/83/EEC, has remained unchanged for more than 24 years, questions have been raised as to whether it is still fit for purpose in an EU market and international context whose characteristics have evolved and expanded well beyond those observable at the time of its adoption in 1992. As part of the EU Commission’s continuous effort to ensure that EU legislation remains fit for purpose, the present report seeks to answer these questions by evaluating the
provisions of Directive 92/83/EEC.
This report, thus, assesses whether the Directive’s intended objectives remain relevant today; the extent to which the legislative act meets its original and current needs and whether it does so in an efficient and proportionate manner.”
The review concludes, in summary:
The Directive is instrumental in enabling the collection of excise duty on alcohol and alcoholic beverages in the context of the internal market at a general level, the Directive allows intra-community trade to take place free of significant tax-related trade barriers or major competitive disruptions between economic operators operating in the same sector of activity.
Moreover, our estimates of the overall levels of fraud indicate that the tax losses stemming from the application of the exemptions for denatured alcohol, although they are non-trivial, are minor in the context of the size of the tax gap associated with alcohol fraud overall.
Several weaknesses in the legislative environment partially undermine the above-mentioned conclusions as exemplified by situations where:
The same (or similar) products are treated differently for excise purposes in different Member States
Certain products deemed “difficult to classify” are perceived as abusing favourable excise tax categories, causing competitive distortions and loss of revenue.
Inconsistencies between the Combined Nomenclature (CN) classification and the excise classification create difficulties and a lack of clarity regarding the excise classification of certain products.
Member States are unable to apply reduced rates to small producers for all categories of alcoholic beverages, unnecessarily limiting their ability to correct potential market imbalances where such a policy objective is pursued…
The summary main document states that the next steps will be to publish a Staff Working Document and submit a report to the Council to give the Member States the opportunity to discuss and agree if they feel change is appropriate. This will be accompanied by:
a first description of the problems and possible policy options detailed in an inception impact assessment
a consultation strategy to provide more information to stakeholders on the planned and upcoming consultation activities.
Press release: the British Distillers Alliance – a new craft spirits producers’ trade body
The British Distillers Alliance - the BDA - has been established to promote the interests of the growing number of British distillers and other artisanal spirits producers.
Daniel Szor, founder and CEO of the award-winning Cotswolds Distillery and one of the founding members of the BDA, said: “It’s great news that we’ve set up a distiller’s alliance specifically for craft producers. This is something which is long overdue – our young, dynamic and fast-growing industry desperately needs a voice in Westminster and with HMRC, among others. We are an extremely positive force for employment, exports and tourism, and our story needs to be heard.”
The formation of the British Distillers Alliance has been co-ordinated by Alan Powell, a specialist independent excise duties consultant. Szor says: “We’ve known Alan for several years as one of the leading experts in fiscal and regulatory issues regarding beverage alcohol. His assistance to us, as to many small start-up distillers, has been invaluable”.
Powell explains “I already carry out high-level representative work for excise industries, so it won’t be too difficult to fit time for the BDA into my schedule. Powell adds “I have been delighted with the overwhelmingly positive response and membership commitments from so many craft producers throughout the whole of the UK and the support of the Chairman of the Scottish Craft Distillers Association, who do such a great job for their own membership north of the border.”
BREXIT - taxation and duty matters
HMRC 24 June 2016
On 24 June, HMRC published a very short Customs Information Paper 42/2016: EU referendum
The Notice states: “We are still a member of the EU. Until Article 50 is invoked, we will continue to engage with EU business as normal and be engaged in EU decision-making in the usual way. Once it is invoked, we will remain bound by EU law until the terms of our exit have been determined but we will not be involved in decision-making. The period between invocation of Article 50 and our eventual exit from the EU is expected to last at least two years.”
On 27 June a briefing paper was placed in the House of Commons library dealing with tax after the EU referendum. This commences: “Taxation is very largely a Member State competence. The implications of the UK lying outside the EU are likely to be less significant for taxation compared with other policy areas. The major exception to this generalisation is indirect tax: primarily VAT – for which there is a substantive body of EU law establishing common rules across Member States – and, to a lesser extent, excise duties”.
The paper explains that an exit from the EU would allow the UK to extend existing VAT reliefs, or even abolish VAT altogether. However, the paper also considers this unlikely, given that VAT accounts for around 17% of government tax receipts.
For excise duties, Members States are required to apply minimum rates of duty (no maximum rate) and reduced rates exemptions are allowed in specified circumstances. Government policy of all parties has been to apply massively higher rates than the minimum rates and it is highly unlikely that this would change after BREXIT.
There is currently provision in the EU Alcohol Structures Directive 92/93/EEC for a reduced duty rate to be applied to spirits produced by small businesses but this is of very limited effect, even if it had been (or were to be) implemented by the UK. The reduction is under review but if the UK were to leave the EU, the government would be free to set any reduced spirits duty rates for UK producers. This would nevertheless be dependent upon the structure and terms of any trade deals under access to the Single Market.
Major revisions to HMRC’s Notice 39: Spirits Production
HMRC have drafted a series of revisions to Notice 39 (Spirits Production). The redrafted text can be found here.
The Notice, which is a core HMRC publication for all distillers, rectifiers and compounders, is significantly revised from its previous version and now includes reference to, inter alia:
Licences for rectifiers and compounders (following a total gap when the law was amended in 2012 and the relevant notice withdrawn);
The “fit and proper test” to licensed/approved;
Clarification of the HMRC’s policy on the discretionary licensing of distillers with stills of less than 18 hectolitre capacity;
distillation of third party fermented feedstock;
reference to the “Due Diligence” condition (an alcohol anti-fraud obligation).
The BDA will be making its comments to HMRC by the end of July 2016.
HMRC proposes simplification of alcohol production and registration
On 5 May 2016, Her Majesty’s Revenue & Customs (HMRC) met with alcohol industry trade bodies to announce proposals for current excise alcohol law and procedures to be simplified and rationalized.
HMRC’s stated plan in “pre-consultation” is to transform how businesses transact with HMRC across the alcohol taxes by:
simplifying tax across disparate alcohol regimes
digitising transactions in line with HMRC’s digital ambition for 2020
streamlining processes to support business growth
“Excise law is long overdue an overhaul, so the proposals are very welcome” says Alan Powell, of the British Distiller’s Alliance. “There are currently far too many different bureaucratic and often ancient obligations to trade in excise goods in different regimes, including requirements for licenses, registrations, approvals, authorizations and making entry of premises and plant. Similarly, there are different means to account for duty across the alcohol regimes and differences for financial security for premises and deferment of duty. It is confusing for HMRC as well as the industry.”
“There is now a range of significant proposals by HMRC for streamlining application processes, amendments to approvals and consistency of conditions, which is good stuff.” Alan Powell says. The ultimate aim is a “drinks factory” – a single authorization to produce all alcohol under duty suspension and under one compliance regime. This would be extremely beneficial to the spirits sector, which has an array of requirements and has the only mandatory obligation for a premises guarantee above a certain limit.”
The BDA will be feeding its views to HMRC as the project develops.