Under secrecy and behind closed doors, the Cypriot presidency of the Council of the Union does not give up on its efforts to achieve consensus among the Twenty-Seven to give the green light to the tobacco tax directive before the summer. After sending a new document for negotiations “that took into account the concerns of all States,” Demócrata has learned that a new working meeting was held last Friday in which the capitals began to show their hands.
The key to the negotiations appears to be in Article 32 of the horizontal directive, as various diplomatic sources acknowledge. This point refers to the personal use of products such as tobacco subject to excise duties when they are transported across the borders of the member states by individuals. Spain wants to go further on this issue and would have requested an adjustment to this clause from its counterparts at the negotiating table.
In this way, the article stipulates that when an individual acquires tobacco for their own use and transports it to another member state, the excise duty is paid in the country where the goods were purchased and not in the country where they are consumed. In order to determine whether the goods are for personal use or for commercial purposes, the states have the capacity to establish indicative levels:
• 800 cigarettes.
• 400 cigarillos (defined as cigars weighing a maximum of 3 g each).
• 200 cigars.
• 1 kg of smoking tobacco
Spain's Strategic Move
However, currently only purchases of traditional products are regulated when more and more sources point out that cross-border flows of heated tobacco and e-cigarette liquids are increasingly relevant. Spain, having generally lower prices, is an important source of these purchases, so an adjustment would allow for legal regulation of what quantity of these new products is considered “personal use”.
Now, the European Commission is aware of the difficulty in controlling the abstract concept of “personal use”. Thus, the proposal of the community executive reflects that the lack of price unity between countries, added to the ease of transport, incentivizes cross-border trade. This can undermine national public health policies by allowing access to cheaper products in neighboring countries.
In data
The Democrat told it...
As this outlet advanced, Cyprus would have sent a draft of consensus or compromise text with the objective of trying to bring the capitals' positions closer. From the presidency, it is assured to the Democrat of the will to “maintain an open, transparent, inclusive and constructive dialogue with all member States.
The text “would take into account the different positions and concerns of all member States. The presidency trusts that the drafts reflect the position of a considerable number of countries, “as expressed during our consultations”.
As it is a fiscal matter, unanimity is required in the room for the agreement to move forward.
What is at stake?
Spain is one of the countries that registers "considerable extra income" due to cross-border purchases by non-residents. The adjustment proposed by the Spanish negotiating team could seek more precise tools for authorities to distinguish between a tourist buying for themselves and covert commercial activities that undermine the health policies of neighboring countries.
In addition, the Government has already adopted national measures to monitor raw tobacco in a context where the lack of a harmonized European framework for these movements could be facilitating illicit production. Some states, which could include Spain, are showing interest in adjusting the principles of cross-border movement control to close loopholes that allow raw material diversion to clandestine factories.
Caution regarding the new types
The other great battle of the country in the discussions is being the minimum rates. According to what Demócrata has been able to confirm, the country is one of the States that are asking for moderation given that a drastic increase would end up eliminating the price differential with neighboring countries such as France, which could negatively impact Spanish tax collection. This would also affect what is known as "rolling tobacco", in technical jargon "picadura".
The Community Executive then proposed to increase the minimum tax rates to reduce the disparity of taxes applied by the Member States. "The minimum EU rate would be adjusted based on the economic situation of each individual Member State, based on general price levels," they explain in Brussels.
Until now, Spain's actual tax field for rolling tobacco is around 100 euros per Kg. The European Commission's "large increase" proposal would raise the minimum to 215 euros, which would force Madrid to more than double its tax on this product. Sources consulted explain that an increase of such magnitude is considered a risk to the stability of domestic prices and could cause market disruptions.
The truth is that in countries in the south of the continent, traditional tobacco products are perceived as "affordable" while the consumption of rolling tobacco has increased since the pandemic due to factors related to income. Spain has expressed its concern to the executive that affordability indicators based on average income may be biased by urban/rural disparities, which would justify a more moderate application of increases so as not to disproportionately penalize price-sensitive consumers.
In the European Council, there is a generalized concern that unprecedented increases in minimum rates, especially on historically cheap products such as rolling tobacco or cigarettes, could encourage illicit trade, especially in countries with external borders or important ports such as Spain.
The pulse of the negotiations
Demócrata has been able to confirm how the Twenty-Seven view with favor the efforts being carried out by the Cypriot presidency to reach a balanced agreement in June. In this regard, some of them would have already expressed their general support for the political direction the directive is taking with Chirpe's impetus. Reluctance remains for the moment regarding the tax rates proposed for new products. Throughout the meetings, several capitals expressed their concern about achieving balanced harmonization, as well as their willingness to reach a compromise that takes national sensitivities into account. This balance will be key to avoiding blockages like those recorded in previous phases of the debate.
Although, the sources consulted suggest that technical work is still required to address some pending issues, beyond the consensus being generated around the general framework. For this reason, after four high-level meetings, the negotiating teams have scheduled a new meeting for May 13.
Currently, tobacco taxes generate revenue of more than 6.5 billion euros, a figure that rises to 10 billion if the entire value chain is taken into account. Sources to which this media outlet has had access state that an "updated and coherent" European fiscal framework, "like the one proposed by Cyprus," would represent an additional guarantee for the collection of state coffers in Spain.
However, one of the major concerns for Spanish negotiators is that the country loses nearly 900 million euros annually due to the illicit trade of tobacco. For this reason, some experts warn that a delay in negotiations could cause a resurgence of the black market in a country where the production and distribution of these products have a significant weight in GDP.