EU court rules against Pálinka tax exemption

Industry body Spirits Europe has welcomed the decision of a European court to prohibit tax exemption rules for homemade Hungarian spirit Pálinka.

The European Court of Justice has ruled that Hungary contravened EU law in its tax exemption laws for Pálinka.

Hungary implemented a law in 2010 which made distillers of homemade fruit brandy Pálinka exempt from paying excise tax for the first 50 litres per year if the spirit was for personal consumption.

However, according to the European Commission, under EU law Hungary is allowed to grant a 50% reduction of the normal excise rate to Pálinka, but not a full exemption.

The Commission therefore launched an infringement procedure with the European Court of Justice (ECJ) in 2010.

Proceedings concluded yesterday with the ECJ ruling that “in exempting the private production of small quantities of spirits from excise duty, Hungary has infringed EU law”.

Hungary must now apply the minimum rate of excise duty required by EU legislation for “spirits manufactured by a distillery from fruit supplied by fruit growers for personal use”.

“This ECJ judgment is important because it underlines that tax exemptions should in no case create discrimination,” said Paul Skehan, director general of Spirits Europe.

“Similar exemptions, which exist here and there across Europe, are not only unfair but also create opportunities for smuggling and illegal alcohol, with potential dangerous outcomes to consumers’ health.

“We look forward to the Commission report, due in 2015, on the impact of these exemptions across Europe.”

In September last year, Spirits Europe warned that a 15% tax hike for spirits in Poland could put terminal strain on spirits producers in the region and lead to lower tax revenues for the government.