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Excise duty refund on diesel for road transport: publication of new refund rates


All excise duties have their peculiarities, but perhaps those related to "tobacco products" are the most peculiar; due, on the one hand, to the inclusion in the tax of products to be smoked that do not consist of tobacco, and on the other, to the exclusion of certain types of tobacco because they are not intended to be smoked, or well, owing to a specific prohibition.

Regarding tobacco products not intended to be smoked, their exclusion from the tax is a consequence of the provisions of Article 2 of Directive 2011/64 on the structure and types of excise duty applied to manufactured tobacco, according to which "manufactured tobacco" means cigarettes, cigars, cigarillos, fine-cut tobacco for the rolling of cigarettes and "other smoking tobacco”.

In this respect, two reasons may have led the European legislator to make only smoking tobacco taxable: first, the fact that the smoke from the combustion contains carbon monoxide, nitrogen oxide, polycyclic aromatic hydrocarbons and volatile aldehydes that produce more harmful effects for the human organism and the environment, and secondly, the reduced market of tobacco products not intended to be smoked.

As the fiscal Directive does not define the term "smoking", which is essential for the application of the tax, we have to find an appropriate interpretation in the technical Directive 2014/40 on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products.

Considering its content, and in particular articles 2 and 7, it can be concluded that the concept of ‘smoking’ is linked to two inseparable circumstances: combustion and inhalation of the smoke produced by it, so that tobacco products that do not require combustion or smoke inhalation are outside the scope of the excise tax.

In this regard, article 2 of Directive 2014/40 allows us to go even further, by specifying that ‘smokeless tobacco product’ means ‘a tobacco product not involving a combustion process, including chewing tobacco, nasal tobacco and tobacco for oral use’.

Of these products not intended to be smoked, the meaning of ‘chewing tobacco’ and ‘nasal tobacco’ (also known as "snuff"), do not need, in our opinion, further explanation. However, the concept of "tobacco for oral use" requires some clarification, and to get it we can turn to the case law of the European Court of Justice, which has dealt with this issue in its judgments of December 14, 2004, Arnold André (Case C-434/02); July 16, 2015, European Commission-Denmark, (Case C 468/14), and October 17, 2018, Günter Hartmann (Case C 425/17), identifying said product with sucking tobacco of the ‘snus’ type, a finely ground or cut traditional Swedish tobacco sold loose or in small sachet portions and intended to be consumed by placing between the gum and the lip.

In fact, these sentences do not concern tax matters, but rather the prohibition of placing this type of tobacco on the market due to its harmful characteristics. In this sense, technical Directive 2014/40 justifies in article 1 the prohibition on the placing on the market of tobacco for oral use ‘in order to facilitate the smooth functioning of the internal market for tobacco and related products, taking as a base a high level of protection of human health, especially for young people, and to meet the obligations of the Union under the WHO Framework Convention for Tobacco Control’.

This is not the only existing prohibition on certain types of tobacco, since Article 7 of Directive 2014/40 also ban the placing on the market of tobacco products containing certain  additives (‘vitamins or other additives that create the impression that a tobacco product has a health benefit or presents reduced health risks; caffeine or taurine or other additives and stimulant compounds that are associated with energy and vitality; additives having colouring properties for emissions; additives that facilitate inhalation or nicotine uptake’) or tobacco products containing flavourings ‘in any of their components such as filters, papers, packages, capsules or any technical features allowing modification of the smell or taste’.

The Court of Justice of the EU, in its judgment of May 4, 2016, Republic of Poland v the European Parliament and Council, (Case C 358/14), confirmed the prohibition in the case of menthol tobacco (a product that arise some doubts about its legal status due to its “traditional” character) by declaring that ‘flavour masks or reduces the tobacco smoke’s harshness’, adding that ‘menthol, by its pleasant flavour, makes tobacco products more attractive to consumers and that reducing the attractiveness of those products may contribute to reducing the prevalence of tobacco use and dependence among new and continuing users’

Another product which inclusion within the tax was doubtful is so-called ‘water pipe tobacco’, due to its composition and the specific utensil used by the consumer.

In order to properly consume it, the preparation of this special tobacco is heated by means of charcoal, and the smoke produced is cooled by passing through a container with water, so that it can be inhaled under suitable conditions. Therefore, as the Court of Justice of the European Union stated in its judgment of September 16, 2020, Skonis ir kvapas UAB, (Case C 674/19), the two conditions are met, combustion and inhalation, linked to the concept of “somoking”. In addition, as said body also indicated, technical Directive 2014/40, in its article 2.13, leaves no room for doubt regarding the consideration of this type of tobacco as "tobacco for smoking".

On the other hand, ingredients of waterpipe tobacco may content tobacco or a mixture of herbs with addition of sugars, glycerol and other products, and in this regard the Court of Justice of the EU made it clear, in the aforementioned sentence, that the whole product was subject to the tax and not only the percentage of tobacco that it could contain, since article 2.2 of Directive 2011/64 ‘does not exclude any substance that can be mixed with tobacco, in the same way that it does not require that tobacco be mixed with certain substances’.

Finally, one last peculiarity is that, according to the mentioned article 2, a product made up of herbs other than tobacco, intended to be smoked and rolled in a similar way to cigarettes, or cut so that it can be smoked without any other industrial transformation, is subject to the tax, even if it does not contain any amount of tobacco. In this regard, Directive 2011/64 lays down an exemption for those products, made up entirely of herbs other than tobacco, that have an exclusively medicinal function.

As for the meaning of "medicinal function", the Court of Justice of the EU, interpreted this concept in its judgment of March 30, 2006, A.C. Smits-Koolhoven, Case C 495/04, regarding cigarettes made with herbs, marketed without a prescription through pharmacies and herbalists, the packets of which bore a label on the outside with the mention 'herbal medicinal cigarettes' and on the inside a leaflet in which they were presented as support for people who wanted to quit smoking.

In the aforementioned sentence, the Court declared that "the medicinal function of said cigarettes cannot be deduced solely from their presentation, their way of marketing or the perception that the public has of them", given that "in order to determine if a product may have a medicinal function, it must be examined whether it contains substances whose combustion and inhalation produce medicinal effects, of a scientifically recognized curative or preventive nature", and concluded that "The criterion of the composition of a product can be considered relevant and, therefore, apt to prove a function medicinal. Indeed, a product that contains substances whose combustion and inhalation produce medicinal effects on the human body can be objectively distinguished, by said effects, from a product that does not contain such substances.”

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