On October 27, 2016 on the website of the Court of Justice of the European Union (CJEU) the opinion of Advocate General Kokott in Case C‑126/15, European Commission versus Portuguese Republic (ECLI:EU:C:2016:822) was published.

The question raised by the present proceedings for failure to fulfill obligations which have been brought by the European Commission against the Portuguese Republic is, in essence, whether Directive 2008/118/EC concerning the general arrangements for excise duty (‘the Excise Duty Directive’) precludes legislation enacted by a Member State under which the sale of cigarette packets is allowed only within a given period following their release for consumption.

That question has arisen in connection with measures which Portugal has adopted to combat the ’forestalling’ of tobacco products. This term refers to the practice whereby producers, prior to an imminent rise in excise duty on tobacco, release excessive quantities of goods for consumption at the previous tax rate in order to delay the effective commencement of the higher tax. Such practices reduce tax revenues and the Commission does not dispute that it is in principle permissible for the Member States to take countermeasures. In the case of the precautionary measures adopted by Portugal, however, the Commission considers that proportionality has not been maintained.

The significance of the dispute extends beyond Portugal, inasmuch as similar rules exist in other Member States. The Commission has thus brought proceedings for failure to fulfill obligations, on the same grounds, against Estonia, too.

 

Legal context

 

EU law

·   According to Article 1(1) of the Excise Duty Directive, that directive lays down general arrangements in relation to excise duty. Under subparagraph (c) of that provision, manufactured tobacco is subject to excise duty.

 

·   Article 7 of the Excise Duty Directive states in extract:

‘1.  Excise duty shall become chargeable at the time, and in the Member State, of release for consumption.

2.   For the purposes of this Directive, ‘release for consumption’ shall mean any of the following:

(a)  the departure of excise goods, including irregular departure, from a duty suspension arrangement;

...’

 

·   Article 9 of the Excise Duty Directive provides:

‘The chargeability conditions and rate of excise duty to be applied shall be those in force on the date on which duty becomes chargeable in the Member State where release for consumption takes place.

Excise duty shall be levied and collected and, where appropriate, reimbursed or remitted according to the procedure laid down by each Member State. Member States shall apply the same procedures to national goods and to those from other Member States’.

 

·   Article 39 of the Excise Duty Directive provides:

‘1.  Without prejudice to Article 7(1), Member States may require that excise goods carry tax markings or national identification marks used for fiscal purposes at the time when they are released for consumption in their territory ... .

...

3.   Without prejudice to any provisions they may lay down in order to ensure that this Article is implemented properly and to prevent any evasion, avoidance or abuse, Member States shall ensure that tax markings or national identification marks as set out in paragraph 1 do not create obstacles to the free movement of excise goods.

...’

 

Portuguese Law

·   Under Article 110 of the Código dos Impostos Especiais de Consumo, (Portuguese Excise Duty Code, hereinafter ‘CIEC’), retail packets of tobacco products intended for consumption in national territory must have tax markings affixed to them before they are released for consumption.

 

·   Article 27 of Decree (Portaria) No. 1295/2007 of the Ministry of Finance and Public Administration (‘the Decree’) lays down the periods during which manufactured tobacco may be marketed and sold. In the case of cigarette packets, that period closes at the end of the third month of the year following that indicated on the tax marking; in the case of smoking tobacco, it closes at the end of the following year; and, in the case of cigars and cigarillos, it closes at the end of the fifth following year.

 

·   Moreover, in accordance with Article 106 of the CIEC, the release of cigarettes for consumption during the period from 1 September to 31 December of any year is subject to special rules. During that period, traders may not release cigarettes for consumption in excess of certain maximum quantities. The monthly maximum quantity is based on the monthly average volume of cigarettes released for consumption during the immediately preceding twelve months, plus 10%. Derogations from that maximum quantity may be granted on reasoned application.

 

·   Articles 19 and 20 CIEC contain rules governing the reimbursement of excise duty already levied. The grounds for reimbursement include the destruction of goods under the supervision of the customs authorities.

 

·   Under Chapter XII, point 4.2.9, of the Excise Duty Handbook published by the tax and customs authority, products which may no longer be sold because the period laid down in Article 27 of the Decree has expired may be re-released for consumption following the affixing of a new tax marking.

 

·   Under Article 109 of the General Rules on Tax Offences (Regime Geral das Infracções Tributárias), the release of products for consumption in breach of the provisions on the affixing of tax markings or the restrictions on permitted quantities is punishable by a fine of between EUR 250 and EUR 165,000.

 

Pre-litigation procedure and forms of order sought

·   The Commission takes the view that Article 27 of the Decree infringes Article 7, the first paragraph of Article 9 and Article 39(3) of the Excise Duty Directive, since cigarette packets which have already been taxed and released for consumption may no longer be marketed or sold following the expiry of the period laid down in that provision. It therefore brought the present proceedings for failure to fulfil obligations. After issuing a letter of formal notice, on 23 November 2009, and a supplementary letter of formal notice, on 4 June 2010, inviting Portugal to comment on the complaints raised, the Commission, on 22 June 2012, and again — in order to correct certain errors — on 31 May 2013, sent that Member State a reasoned opinion and gave it two months within which to remedy the alleged infringement.

 

·   Since Portugal did not comply with the reasoned opinion, the Commission brought the present action on 12 March 2015.

 

·   The Commission claims that the Court should

–   declare that, by making packets of cigarettes on which duty has already been levied and which have been released for consumption in a particular year subject to a prohibition on marketing and sale to the public once the excessively short period laid down in Article 27 of the Decree has expired, the Portuguese Republic has failed to comply with Article 7, the first paragraph of Article 9 and Article 39(3) of the Excise Duty Directive, and with the principle of proportionality;

–   order the Portuguese Republic to pay the costs.

 

·   The Portuguese Republic contends that the Court should

–   dismiss the action 

–   order the European Commission to pay the costs.

 

·   The Kingdom of Belgium, the Republic of Estonia and the Republic of Poland were granted leave to intervene. They support the forms of order sought by Portugal.

 

·   The case was examined on the basis of the written documents.

 

Conclusion

The Advocate General proposes that the Court should rule as follows:

1)      In so far as cigarette packets released for consumption in a particular financial year may not be marketed or sold to the public after the expiry of the period laid down in Article 27 of Decree No. 1295/2007 even in cases where the rate of excise duty to be applied to cigarettes in respect of the year following the relevant financial year has not been increased, the Portuguese Republic has failed to fulfil its obligations under the first paragraph of Article 9 of Directive 2008/118/EC and infringed the principle of proportionality.

 

2)      The action is dismissed as to the remainder.

 

3)      The Portuguese Republic shall bear half of its own costs. The Commission shall bear half of the costs of the Portuguese Republic and its own costs.

 

4)      The Kingdom of Belgium, the Republic of Estonia and the Republic of Poland shall bear their own costs.

 

Click here to be forwarded to the text of the opinion as published on the website of the CJEU, which will open in a new window.

 

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

 

 

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