THE TREATMENT OF FOODSTUFFS IN THE EXCISE DUTY ON ETHYL ALCOHOL
June 23, 2022
The treatment of food products regarding the excise duty on ethyl alcohol has some peculiarities to other industrial sectors in which alcohol is used. As a general rule, the goal of the levy is to tax the consumption of alcohol contained in alcoholic beverages and, for this reason, everything that is not linked to such use should benefit from an exemption or a refund. However, this is not exactly the case on the UE legal context.
Firstly, Directive 92/83 establishes two kind of tax exemptions related to uses other than those of alcoholic beverages: mandatory and optional ones, the latter may or may not be incorporated into their national legislation by the different Member States.
Secondly, although Directive 92/83 lays down mandatory tax exemptions on the food sector, not all the quantity of the alcohol applied to this purpose is exempt.
Indeed, the exemption established in article 27, first intend, (f) refers to a maximum percentage of alcohol permitted, and it is in this sense that we can affirm that the legal treatment differs significantly from the general rule.
When examining the text of the said article, we find that the exemption is applicable, both in a semi-finished food product and in a finished food product, “provided that in each case the alcoholic content does not exceed 8,5 litres of pure alcohol per 100 kg of the product for chocolates, and 5 litres of pure alcohol per 100 kg of the product for other products.”
If we consider the reason for such a limit, which in principle may be surprising given that it does not exist for the other tax benefits regulated by Directive 92/83, the answer seems clear: non denatured alcohol is considered by the Community authorities as a “high-risk” product, and for this reason, to avoid any fraud of diversion into an irregular spirit drinks market, it was decided to establish a maximum percentage, above which a tax exemption was deemed not to be acceptable.
The above legal condition therefore excludes from tax exemption certain foodstuffs, for the production of which a higher amount of alcohol is required, and whose manufacturers cannot substitute denatured alcohol, (given its harmful nature for human consumption). Since there is no option to apply the exemption for the part of the alcohol that does not exceed the limit set, these manufacturers must pay the excise duty when they purchase the alcohol needed.
This is the case for "Cooking wine" and "cooking cognac", products containing certain ingredients that distinguish them from alcoholic beverages, specifically labelled with indications regarding its culinary use. From the Tariff point of view, they are classified in Chapter 21 of the Combined Nomenclature (“Various food preparations”), and specifically in Code 2103.
The Explanatory Notes to code 2103 highlight the fact that such preparations “generally with spices”, are used “to highlight the flavour of certain foods”, adding that “as examples of products included in this code, we can mention products of Chapter 22 prepared for culinary purposes (for example, wine and cognac) and that for this reason are not suitable for consumption as a drink”.
The fact that such products are expressly classified in a CN chapter (21) instead of CN chapter (22) related to beverages and that their characteristics are easily confused with those of similar alcoholic beverages, raised controversy regarding the subjection or not to the excise duty. This question was addressed by the Court of Justice of the European Union in the judgments, of June 12, 2008 (case C-458/06) and “Repertoire Culinaire”, of December 9, 2010 (Case C 163/09).
“Gourmet Classic” related to a dispute concerning the denial of a refund of the excise duty requested by a British company to the United Kingdom tax authority. In this instance, product was identified on arrival in the UK and seized as liable to forfeiture. The goods consisted of cooking alcoholic beverages containing “specific ingredients”. The Court of Justice ruled that “cooking wine and cooking port which, as edible preparations, fall within chapter 21 of the Combined Nomenclature… contain ethyl alcohol falling within heading 2208 of that Nomenclature, and that since that alcohol has an alcoholic strength exceeding 1.2% by volume, it falls within the scope of the first indent of Article 20 of Directive 92/83”.
The Court added, furthermore: “since the first indent of Article 20 of Directive 92/83 applies even when the products covered by that provision form part of a product which falls within another chapter of the Combined Nomenclature, the fact that cooking wine and cooking port are, as such, regarded as edible preparations falling within chapter 21 of that nomenclature does not affect the fact that Article 20 of Directive 92/83 is applicable to the ethyl alcohol contained in them. The same is true of the fact that the cooking wine and cooking port are unsuitable for consumption as beverages”, thus confirming the subjection of these products to the excise duty on alcohol.
“Repertoire Culinaire” concerned “nutritional supplements” - traditionally a part of the food industrial sector, that, in the form of beverages containing alcohol, could be included in three different NC codes:
Code 1302, relating to "vegetable juices and extracts"; code 2106, which includes “food preparations not expressed elsewhere”, and finally code 2208, regarding “alcohol, liqueurs and other spirits”.
Chapter 13, Note 1 d), expressly excludes, however, "vegetable juices and extracts that constitute alcoholic beverages", referring them to Chapter 22. On the other hand, although "nutritional supplements" are expressly included in Chapter 21 (code 2106), the Explanatory Notes condition their classification to the fact that the product is not included in a more specific code. Finally, Chapter 22 is that of beverages, and only pharmaceutical products are excluded from it (Chapter Note 1 e), being, therefore, the most specific of them all.
In addition, and in accordance with section 16) of the Explanatory Notes to code 2208, this includes “Spirit drinks, sometimes designated by the name of food supplements, used to keep the body in good health. They can be, for example, based on plant extracts, fruit or other fruit concentrates, lecithins, chemicals, etc., and may contain added vitamins or iron compounds”.
Taking into account the mentioned interpretation, Commission Regulation 1114/2006 of July 20, 2006, concerning the classification of certain goods in the Combined Nomenclature, included in CN code 2208 90 various products to improve health in the form of beverages, with a high alcoholic strength and to be consumed in doses.
In short, concerning the products intended to improve health on the form of alcoholic beverages, the excise duty must be paid, because they cannot be considered as medicines, and their correct tariff classification falls within the heading 2208.
It is certain that the new point (f) of article 27 (paragraph 2) of Directive 92/83 amended by Council Directive 2020/1151, extends the exemption concerning the use of alcohol to “the manufacture of food supplements defined by Directive 2002/46/EC of the European Parliament and of the Council containing ethyl alcohol, if the unit packet of the food supplement released for consumption does not exceed 0,15 litres and food supplements are placed on the market pursuant to Article 10 of that Directive”. However, as this fiscal relief is optional for each Member State, the problem will persist in those EU members choosing not to apply it.