SPANISH ANTI-FRAUD REGULATION ON “TOBACCO LEAVES”

One of the main problems linked to excise duty on tobacco and tackled by the tax authorities in recent times, was a very particular type of fraud consisting of carrying out certain operations with products that did not meet the condition of manufactured tobacco (and therefore, theoretically, were not within the scope of the tobacco excise regulation) but could nevertheless be used as such after a simple procedure.These products were cut tobacco leaves sold to the public as such, and then transformed into fine cut-tobacco by using special machines placed in the shop or bought by the customers.   

 

Article 2 of Directive 2011/64 of the European Union subjects to excise duty cigarettes, cigars, fine-cut tobacco and “other smoking tobacco”, being a characteristic of all of them that that they are ready to be smoked or, in the case of "other smoking tobacco", that this one is capable of being smoked without further industrial processing.

Taking advantage of the legal gap regarding the concepts of "cut tobacco" and "industrial processing", sales companies of "raw tobacco leaves" avoided paying the excise duty, and the matter was not legally solved until the EU Court of Justice made an interpretation on the Tobacco Directive to clarify the irregular nature of these operations. Thus, in judgment of April 6, 2017 (case C 638/15, Eko-Tabak), and with reference to "dried, flat, irregular, partly stripped leaf tobacco intended for sale to the final consumer and that could be smoked after simple processing, for example, by means of crushing or hand-cutting”, the Court declared, in respect to the concept of “cut tobacco”, that “in so far as the products at issue in the main proceedings consist, according to the information provided by the referring court, of tobacco leaves which have been partly stripped, those products must be regarded as tobacco which has been cut or otherwise split, within the meaning of Article 5(1)(a) of Directive 2011/64.”, and as far as the concept of “industrial processing”, that it “commonly refers to the transformation, usually on a large scale and by a standardised process, of raw materials into tangible goods”, without therefore include “simple handling intended to make an unfinished tobacco product capable of being smoked, such as merely inserting a roll of tobacco into a cigarette tube”.

 

Consequently, the Court concluded that “dried, flat, irregular, partly stripped leaf tobacco”, which "are capable of being smoked after simple processing by means of crushing or hand-cutting” also met the requirement of no subsequent industrial processing, and therefore fall within the definition of ‘smoking tobacco’ as defined in Article 5, paragraph 1, letter a), of Directive 2011/64".

 

Although this interpretation of the Court of Justice put an end to the fraud on excise duties, the Spanish government took the decision to prevent any type of future irregularity in relation to the trade of “raw tobacco leaves”. Thus, the Law of July 9, 2021, containing measures to combat tax fraud, laid down a mandatory registration for "raw tobacco operators", so that they "must detail the commercial activity to be carried out and the intended use and destination of the raw tobacco, stating the storage premises where they are going to carry out their activity”.

The law also established a prohibition for the “retail sale of raw tobacco”, defined as, "the activity, carried out for profit, consisting of offering the sale or supply of raw tobacco to its final consumers, using or not any premises and carried out by any means, including both direct sale and distance sale”.