Since 2016, the European Commission has been working on a revision to the Tobacco Excise Directive, the ‘TED’, the legal framework ensuring excise duties are applied in the same way, and to the same products, throughout the Single Market, writes Donato Raponi, honorary professor of European Tax Law, former head of excise duties unit, consultant in tax law.
Member states, through the Council of the EU, recently asked for a range of new products to be contained within the TED. It includes e-cigarettes which contain no tobacco but do contain nicotine. However, there are also e-cigarettes with no nicotine in them and their fate is unclear.
But why should a directive that has, until now, been only for tobacco be extended to include products which contain neither tobacco nor nicotine? Isn’t this a step too far?
The EU’s constitution, enshrined in the Treaties of the European Union, is very clear that before proposing any legislative initiative, some key questions must be addressed.
The EU rules1 explain very clearly that products should be included in the TED only to ensure the proper functioning of the internal market and to avoid distortions of competition.
It is by no means clear that a harmonized excise treatment of nicotine-free products, such as nicotine-free e-liquids, across Europe will help to alleviate any such distortions.
There is very limited evidence on the extent to which consumers view e-liquids without nicotine as a viable substitute for e-liquids with nicotine in them. The European Commission’s recently published Eurobarometer study on the attitudes of Europeans towards tobacco and electronic cigarettes has nothing to say on this question. And the evidence from the available market research experts is limited at best.
It is, consequently, virtually impossible to know how many consumers – if, indeed, any at all – would switch to e-liquids without nicotine if only nicotine containing e-liquids were subject to an EU level excise duty.
What we do know, however, is that almost everybody who consumes tobacco products already covered by the TED does not view nicotine-free e-cigarettes as viable substitutes for them. And that is why most cigarette smokers who switch to alternative products look for other products containing nicotine.
There may be parallels between this and the excise treatment of alcohol-free beer, the latter not being, covered by the EU Alcohol Directive. Although it is designed to be an alternative product, this does not mean that alcohol-free beer is viewed as a strong substitute by most of the people who drink alcoholic beer. Member states have not applied a harmonised excise on alcohol-free beer and so far, the effective functioning of the Single Market has not been damaged.
Even if the absence of a harmonized excise on nicotine-free e-cigarettes were to distort competition, it must be material enough to justify any EU level intervention. Case law from the CJEU confirms how distortions of competition must be ‘appreciable’ to justify any changes to EU legislation.
Simply put, if there is only limited impact, there is no rationale for EU intervention.
The market for e-cigarettes without nicotine is currently very small. Euromonitor data shows that nicotine-free e-liquids for open systems represented only 0.15% of all EU tobacco and nicotine product sales in 2019. Eurobarometer reveals that while nearly half of Europe’s e-cigarette consumers use e-cigarettes with nicotine every day, only 10% of them use e-cigarettes without nicotine daily.
With no clear evidence of any material competition between nicotine-free e-cigarettes and the products already covered in the TED, together with the low sales of nicotine-free products, the test of there being an ‘appreciable’ distortion of competition is not – at least at the moment – obviously being met.
Even if there is no case for new EU-level legislative measures for nicotine free e-cigarettes, this does not stop individual member states from levying a national excise on such products. This has already been the practice across member states so far.
Germany does not, for instance, need an EU Directive to levy its domestic excise on coffee, while France, Hungary, Ireland and Portugal levy a tax on sugary drinks without any EU Soda Excise Directive in place.
The case of non-nicotine e-liquids is no different.
There is nothing to stop any member state from taxing non-nicotine e-liquids at its own pace without the unnecessary intervention of the EU.
1 Article 113 of the Treaty on the Functioning of the European Union
