EU alcohol tax cut ‘discriminates’ against spirits

Trade body Spirits Europe has hit out at an “unacceptable” proposed update to EU excise regulations for alcohol producers, which excludes distillers from reduced tax rates.

The revised EU alcohol tax rule “does not allow the same opportunity to small, independent distillers”

Yesterday (24 June), European Union member states provisionally agreed to update excise duty rules on alcohol within the EU. The new regulations, which are subject to further approval from the European Council, will “improve the business environment and reduce costs for small alcohol producers”. The rule will apply from 1 January 2022.

The alteration to the rule will increase the threshold for lower-strength beer with reduced rates for products from 2.8% ABV to 3.5% ABV. This will encourage brewers to make beers with a lower ABV, the European Commission said. The reduced excise duty rate has also been extended to producers of other fermented beverages such as cider.

Trade association Spirits Europe said the move “means the structural discrimination between different alcoholic beverage categories will further widen – to the detriment of craft distillers, product innovation and consumer choice”.

The trade group’s director general, Ulrich Adam, called the revised rule “unacceptable”. He said: “The council’s decision claims to reduce distortions in the single market – in fact, the opposite will happen. The revised text creates additional tax privileges for small brewers and cider makers but does not allow the same opportunity to small, independent distillers.”

The European Council said the move will allow brewers to be more innovative, however Adam believes distillers should also benefit from this opportunity.

“We agree that reduced tax rates can facilitate product innovation,” said Adam. “It is illogical, however, that this not be applied to all alcoholic beverages, irrespective of the specific category.

“More importantly, in line with the principle of fiscal neutrality, such incentives must not be conveyed unilaterally to selected sectors only.”

‘Discriminatory treatment’ 

Spirits Europe is calling for future tax reforms that will benefit all craft drinks producers. Under the current rules, small brewers are allowed to produce 1,000 times the amount of pure alcohol that start-up distillers can produce before full excise rates apply, Spirits Europe said. This means a craft brewer can produce one million litres of beer before full excise applies, while craft distillers can produce just 1,000 litres before a (much higher) excise rate is charged.

Spirits Europe said this would enable brewers to make around €15m (US$16.8m) revenue annually before paying duty, whereas a distillery can only generate around €30,000 (US$33,600). As a result, brewers receive a 50% tax break while low-alcohol ‘spirits’ producers gain a 0% tax break, the trade body said.

The updated regulation will also clarify the exemption from excise duty rules for denatured alcohol, which is used to make cleaning products such as hand sanitiser.

Adam says Europe’s spirits producers “deserve better than the discriminatory treatment enshrined in yesterday’s decision”.

He said: “They produce high-quality products and generate growth and jobs across Europe, particularly in rural areas. During the Covid-19 crisis, they supported their local communities by switching production to hand sanitisers. Now, they are waking up to a decision which fails to give them the structural support they need and deserve for their post-Covid-19 recovery.”