The Cyprus Presidency of the Council of the European Union will consult Member States, on Wednesday 3 June, regarding its latest suggestions aimed at bridging national positions on the revision of the directives governing tobacco taxation in the EU (see EUROPE 13832/19).
Eager to hear Member States’ reactions, the Cypriot authorities believe that the compromise texts on the table are likely to lead to a balanced position. Their confidence in reaching a unanimous political agreement at the EU Council, in mid-June at the Ecofin Council, will depend on the positions expressed on Wednesday.
By gradually softening the initial legislative proposal, the various compromise proposals attempted to accommodate the reservations expressed by some countries on issues such as indexing excise duty rates to inflation.
On this point, the Cyprus Presidency had proposed a revision clause for tax levels every three years, with a maximum ceiling of 6% to prevent disproportionate increases. Furthermore, in the event of a duly justified request to the European Commission, certain countries could have activated an ‘emergency brake’ to avoid applying the indexation to certain tobacco products.
According to a document summarising the discussions, this approach is “not acceptable to all delegations”. The Cyprus Presidency amended its proposal, making the gradual adjustment of excise duty rates optional. Any decision to modify the rates would fall to the EU Council based on a proposal from the Commission, with the first expected in early 2034 for application in early 2035 and subsequent adjustments occurring every three years.
Another stumbling block remains: the recurring (every three years) and voluntary adjustment of minimum tobacco tax rates based on national purchasing power. This is a significant budgetary issue for Luxembourg where, despite high local purchasing power, tobacco prices are low and attract cross-border customers.
According to a previous Cypriot compromise proposal, two thirds of the excise duty increase would come from higher tax rates and one third from the purchasing power parity (PPP) approach. This suggestion remains on the table. However, “an additional option” is now being suggested, whereby an EU country could choose to apply a 3% price increase to the various categories of tobacco products.
According to the EU Council note, the minimum excise duty rates proposed by the Commission have been revised downwards, and the transition periods have been extended for all tobacco products. A targeted derogation, providing for even longer transition periods (2036) for cigarettes, has been introduced.
A list of countries has been drawn up on this point. According to Tax Notes International, these countries are: Bulgaria, Croatia, Cyprus, Greece, Italy, Luxembourg, Poland, Portugal, Romania, Slovenia and Spain.
Another issue to be addressed concerns snuff, legal only in Sweden, but which also circulates in neighbouring countries, such as Finland, for personal consumption purposes.
See the note by the Council Secretariat: https://aeur.eu/f/m59 (Original version in French by Mathieu Bion)