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| Legal environment can stipulate entrepreneurship in different ways, but, as experience has shown, the changes of the existing tax system and, especially, tax reliefs, may serve as a powerful stimulus to business development. Such benefits are related to the exemption from the payment of taxes or even tax, i.e., in many cases this means reduction of the tax burden refund. So, an effective functioning of a properly regulated system of tax reliefs has many positive effects on business. Another important issue is that Lithuania's membership in the EU has struck the national tax system, and, thus, brought an uncertainty and volatility in the regulation of excise tax reliefs. It has reduced their administrative efficiency and made it possible to use the gaps of legal norms which had a negative impact on the business itself. Therefore, the present paper is devoted to the study of the peculiarities of the legal regulation of excise tax relief both in the Lithuanian law and EU law. This article raises problems which are related to the incompleteness and lack of efficiency of normative acts regulating excise deductions. It is important to note that normative acts on this issue are changed too often as in many cases they are developed on the basis of the experience of other countries and are attempted to hamonize with the EU law regulation. So, as a consequence not all the displaced legal norms adapt to Lithuania’s legal regulation, and they have to be specified within the context of the national legal taxation system. . |
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Key words: Excise duty, tax relief, tax rate. |
It is necessary to create equal conditions in respect of tax for all Member States preventing from setting excise tax reliefs in favor of national subjects in order to maintain the EC internal market based on the principle of fair competition. To achieve this, it is necessary to harmonize the structure of excise duties, tariffs and to solve a variety of other tax issues. Therefore, the regulation of this kind of tax requires a high degree of harmonization because such taxes have a significant effect on the free movement of goods and services, and they also cause significant economic and legal consequences. In other words, a properly regulated mechanism of the excise duty applications and, especially, of its relief, has a significant impact on an economic environment and entrepreneurship in the Member State.
Due to this, the present article will consider only the Lithuanian excise tax relief system, focusing, specifically, on the analysis of the requirements set by the Directive, the direction of the EU policy, and how it is implemented in the Lithuanian legal system.
Thus, the object of the paper is the excise tax relief legal regulation.
The main objective of this paper is to reveal the legal regulation of excise tax reliefs as closely as possible according to the European Union law, and to compare it with the Lithuanian national tax system.
The main methods used are based on a systematic, analytical, logical and critical research.
According to the Law on tax administration of the Republic of Lithuania, tax relief is a specific condition of taxation set for tax payers or to a group of them that are more beneficial than normal conditions. "A nature and level of application of tax relief depends on historical traditions, economic and social direction of state’s fiscal policy" (Marcijonas and Sudavičius 2003).
While harmonising taxes across the EU and setting a tax relief for individual products, assumptions can be made of the directions of EU policies (Terra and Wattel 2001); for example, according to Article 15 of Directive 2003/96/EC, it is obvious that EU stimulates more the production of alternative electrical energy using solar, wind and other renovate sources. From the provisions of Directive 92/83/EEC, which allows the possibility to Member States to apply reduced tax rates for alcohol and alcoholic beverages, EU is seeking to provide more beneficial taxation conditions for weaker alcoholic beverages in order to reduce the use of stronger drinks (for example, Member States may reduce tax rates for beer in which alcoholic concentration volume does not exceed 2.8%, wine and fermented beverages in which it does not exceed 8.5%).
Common excise tax reliefs are regulated by such basic Directives as: Directive 2003/96/EC and Directive 2004/74/EC on energy products and electricity, Directive 92/83/EEC and Directive 92/84/EEC on alcohol and alcoholic beverages, Directive 92/79/EEC and 92 / 80/EB on manufactured tobacco. In addition, norms of Par. 6 of Art. 7 and Par. 4 of Art. 10 of Directive 92/12/EEC which are directly implemented in Law on Excise taxes of the Republic of Lithuania, regulate and determine indirect tax relief mechanism i. e. return of paid Excises once already provided to consumers and transported to another Member State in order to maintain normal economic relations in the internal EU market and to avoid double taxation.
Most of the excise tax relief is set for energy products and electricity. Member States can decide if the chosen tax reliefs can have a binding power in application. Some cases are mentioned in Article 5 of Directive 2003/96/EC, i. e. when a government can differentiate tax rates by means of a fiscal control; for example: when these tax rates are directly related to the quality of the product; when it is concerned with the quantitative consumption of electricity and energy products used for heating; when it is differentiated for public needs, i. e. for local public transport (including taxi services), waste management, armed forces etc. Moreover, differentiated tax rates for certain products depend on the fact whether these products are used for commercial purposes. It should be mentioned, that some ways which can be used by Member State in order to reduce taxes, are indicated in Art. 6 of the same directive, i. e. differentiating the tax rate, returning the entire sum or part of tax etc.
So, there are two types of tax relief regulation (Buškevičiūtė 2005):
Tax reliefs (provided in Directive 2003/96/EC and Directive 2004/74/EC) can be alloted into the following groups:
1) According to a certain purpose or an area of use of energy products (electricity), for example:
2) According to the origin of a certain energy product (or electricity), for example:
3) According to subjects, i. e. usually there are set individual transition periods for Member States to implement norms of certain product taxation. Directive 2004/74/EC provides certain benefits for Lithuania, for example, electricity and natural gas had not been taxed in Lithuania till 1 January 2010, while 1 January 2013 is the end of the last transitional period for Lithuania.
4) Others, such as:
There are many more special, separate provisions for tax relief povided in various other directives that regulate different taxation of certain products. According to Article 14 of Directive 2003/96/EC, the Member States must not impose a tax on energy products and electricity, which are used to produce electricity or they are used to maintain capabilities of electricity production. However, Member States can impose taxes on these products without regard to the minimum tax set out by this Directive due to the reasons of environmental protection policies. Member States must not also set taxes on aircraft fuel used for non-entertainment purposes, but they can apply this exemption only to jet fuel. Although due to uncertain concept of “non-entertainment purposes” in Directive, and Lithuanian law, it is not clear how should aircraft fuel used by the athletes during race or training be taxed. The training, probably, would not be classified as being a commercial activity (the activity which produced benefit), but professional athletes typically receive reward for participation in sports competitions. So, we face an issue whether such an activity should be considered as commercial. Does taking a flight during the training season mean the use of fuel for personal needs? It is assumed that there is no clear regulation, but in the current legal situation, aircraft fuel provided for training should be taxed, but if the athlete's activity when he participates in competitions and receives awards, is considered as a commercial activity, this fuel should be in Excise tax relief.
This kind of tax reliefs is provided in Directive 92/83/EEC. Many of them are set on products that have lower alcohol concentration, for example, Member States may apply reduced tax rates (which may be less than the minimum) for beer, with an actual alcoholic concentration not exceeding 2.8%, wine and other fermented beverages in which alcohol isn’t more than 8,5% and pure ethyl alcohol which do nt have more than 10%.
Member States may apply a reduced tax rate for intermediate products, but they should follow more requirements than for other alcoholic beverages, i.e. application of tax relief depends not only on the actual alcohol concentration (not more then 15%), but also a reduced tax rate cannot be lower than 40% of standard national excise tax rate on still wine and other still fermented beverages. Thus, it concludes that the aim of this kind of tax relief is to facilitate conditions of taxation for weaker alcoholic beverages which are produced in a natural way.
Directive 92/83/EEC provides some Excise tax reliefs for small breweries and distilleries in order to sustain a competitiveness of smaller market makers. Member States may apply reduced tax rates (they may be less than the minimum tax rate, but they should not be lower than 50% of the standard national rate of excise duty) in accordance with the annual production scope and, especially, with the quantity of beer produced by small independent breweries, if a company produces less than 200,000 hl of beer per year. An additional requirement for independence means that the brewery has to carry out its activities under the license. Moreover, a possibility of reducing the Excise tax rate for small distilleries is set in Art. 22 of Directive 92/83/EEC (tax rates may be less than the minimum tax rate, but they should not be lower than 50% of the standard national rate of excise duty) if they cannot make 10 hl of pure alcohol per year and also they match independence criteria and do not operate under license. It should be mentioned that Lithuanian law provides Excise tax relief for small breweries, but it does not apply to small distilleries.
The third group of tax relief includes preferences for individual states and regions to apply reduced tax rates (in Directive 92/83/EEC and Directive 92/84/EEC) such as excise tax reliefs to France for Rome or to Greece for the Anise alcoholic beverages mentioned in Art. 23 of Directive 92/83/EEC. By the way, the European Communities brought a lawsuit due to this kind of tax relief for that Greek government, which did not fulfil its obligations under the Par. 1 of Art. 90 of the Treaty establishing the European Community, i. e. maintained less excise duty than other alcoholic beverages and, thus, it discriminated foreign products. The Court of Justice of the EU argued (case No. C-475/01) that legitimacy of the legal acts of the EU institutions is presumed, and they will cause legal consequences as long as they are eliminated by annulment procedure or resolution of a request for a preliminary judgment that this EU institution’s legal act is null and void. The only exception of this principle is a legislation that is recognized as being void (it can be used only in ultra situations). The ECJ decided that Greece did not violate obligations according to the EU law in application of Par. 2 of Art. 23 of Directive 92/83/EEC and analogous national legal norm.
Directive 92/83/EEC provides different grounds for duty relief from tax on alcohol and alcoholic beverages. Member States may exempt when beer, wine and other fermented beverages are made by a private individual and consumed by himself, his family members or guests, provided that they are not being sold. Excise Law Article 25 also contains a similar provision. The Republic of Lithuania Law on Alcohol Control, Article 10, provides that it is forbidden to produce home-brewed alcoholic beverages except for the personal use of individuals, and produced by natural fermentation of alcoholic beverages whose ethyl alcohol strength by volume does not exceed 18% (of beer - not more than 9.5%) . So, it should be noted that some drinks are exempt from excise tax, but production of stronger drinks may result in administrative, as well as criminal liability.
Directive 92/79/EEC and Directive 92/80/EEC provide few individual tax reliefs on tobacco products in such countries as Portugal, Sweden, France, Italy and Spain. Excise duty reliefs are generally listed in Article 23 of Directive 92/12/EEC which provides that tax relief is set on products supplied to diplomatic or consular offices, international organizations, NATO countries, except armed forces, civilian staff serving to them or to catering facilities of these armed forces. The European Council on the basis of the proposal made by the European commission can allow any Member State to make a contract with a country which is not a Member State, or an international organization which could get this tax relief (paragraph 2 of Article 23 of Directive 92/12/EEC,).
Art. 14 of Directive 92/12/EEC provides Excise duty reliefs on the products which are in suspension mode, i. e. a tax exemption is applied for authorized warehouses, registered/non-registered traders when products are lost due to accidents or force majeure and they are estimated by the authority of Member States, or when products are used in manufacturing process, storage or transport.
Member States can exempt manufactured tobacco only in these few cases which are provided by Art. 11 of Directive 95/59/EC: denatured manufactured tobacco which is used for industrial or horticultural purposes, manufactured tobacco which is destroyed under administrative supervision, manufactured tobacco which is used only for research purposes and purposes related to product quality researches, manufactured tobacco which is produced by manufacturers. Lithuania has chosen almost all of these tax relief forms that are set in Art. 31 of Law on excise duties of the Republic of Lithuania.
Article 27 of Directive 92/83/EEC provides few cases when Member States should set Excise duty reliefs according to Directive’s requirements that are not literally transposed into Lithuanian law, but they are basically in line with Directive. The grounds of tax relief are mainly related to the purpose of the usage of alcohol and alcoholic beverages (for example research, medical purposes and so on).
On the other hand, not all the norms which were incorporated in the Lithuania law from Directive 92/83/EEC are accurate and clear.
Lithuanian Supreme Administrative Court had a case by initiated by the applicant - company "Profisa". This company imported chocolate to Lithuania which consisted of alcohol. A question was raised whether excise duty reliefs could be set on these products under Par. 5 of Art. 25. of the Republic of Lithuania Law on Excise Duties provisions which provide Excise duty reliefs on ethyl alcohol and alcoholic beverages used to manufacture chocolate products, if the quantity of pure ethyl alcohol used to produce 100 kg (net) of chocolate products does not exceed the limit of 8.5 liters. The defendants argued that these tax reliefs should be set not on imported manufactured products containing ethyl alcohol, but on ethyl alcohol that would be used to manufacture in Lithuania. JSC “Profisa” disagreed with that and said that in this case more important is an appliance of ethyl alcohol (manufacture of chocolate products) according to sense of both legal acts i. e. Par. 1 of Art. 27 of Directive 92/83/EEC and the Republic of Lithuania Law on Excise Duty.
A major problem arises when different language versions of the same provisions of Art. 27 of Directive 92/83/EEC are compared. The Lithuanian version of this directive states, that Excise duty reliefs are set on ethyl alcohol and alcoholic beverages when they are used as a component of semi-manufactured food products that can be filled or in some other way need alcohol in manufacturing, but if the alcoholic content is less than 8,5 litters in 100 kilograms of chocolate, and 5 litters of pure alcohol in 100 kilograms of other products in each of the cases. Meanwhile, this provision of Excise duty relief is different (to a certain extent) in the English version of the same directive. In addition, there are other versions of the same Directive in German and French that could be interpreted as imposing an obligation to set tax reliefs on those products (that are mentioned in Art. 20 of Directive 92/83/EEC) which are used for direct consumption as an ingredient in food products.
The ECJ repeatedly emphasized in its practice that different linguistic formulations are equally binding. Interpretation of Community law means a comparison of different languages texts and uncertainty provision must be interpreted according to the system and purpose of legal act (ECJ Case C-482/98 Commission v. Italy).
Lithuanian Supreme Administrative Court asked the ECJ for a preliminary judgment in this matter: should provisions of Par. 1 of Art. 27 of Directive 92/83/EEC be interpreted as imposing an obligation on Member States to set excise duty relief on imported (from outside territory of the European Communities) ethyl alcohol that are in chocolate products used for direct consumption if alcohol content is less than 8.5 litres in 100 kilograms of chocolate products?
In 12 April 2006 European law department submitted written comments in the Court of Justice of the EUcase C-63/06 “Profisa” v. Customs Department under the Ministry of Finance of the Republic of Lithuania. European Law Department noted that the ECJ has repeatedly stated that “all different versions of the EU provision must be essentially equivalent. Non of them shouldn’t be got preference, but they must be estimated as a system, and their contents should be determined by comparison of all language versions. Lithuanian version of Par.1 of Art. 27 of Directive 92/83/EEC is clearly inaccurate comparing it with other languages, because Lithuanian version doesn’t provide a direct consumption due to lack of a few words. Therefore, Law Department believes that the Lithuanian version of the Directive cannot be trusted and it must take into account the text of provision in a variety of languages.
The European Law Department argued that the basic and essential goal of Directive 92/83/EEC - the establishment of common alcohol and alcoholic beverages taxation principles. In this way, Article 27 is intended to provide an exception of charge to products that are not intended for consumption as alcoholic beverages. So, according to ELD products (such as wine vinegar, denatured alcohol and other alcohol beverages), which are used in manufacture process or for other proposes (except a direct consumption), as well as food products containing alcohol should not be taxed.
Obviously, chocolate which contains ethyl alcohol, is included in accordance with the above mentioned logic: as it is not intended for direct use as an alcohol or alcoholic beverage. The European Law Department argued that in this case there should have been an exemption from excise duty.
Suggestions for further study
Special literature
Marcijonas A., Sudavičius B. Mokesčių teisė. Vilnius: TIC, 2003, pp. 51.
Terra B. J.M; Wattel P. J. European Tax Law. 2nd Edition. Fed, 2001, pp. 131.
Buškevičiūtė E. Mokesčių sistema. Kaunas: Technologija, 2005 pp. 86.
Acts of Lithuanian law
Law on Tax administration of the Republic of Lithuania. Valstybės žinios, 2004, No. 63-2243.
Law on excise duties of the Republic of Lithuania. Valstybės žinios, 2001, No. 98-3482
Law on alcohol control of the Republic of Lithuania.Valstybės žinios, 1995, No. 44-1073
Law on Tobacco control of the Republic of Lithuania. Lietuvos Respublikos tabako kontrolės įstatymas.Valstybės žinios, 1996, No.11-281.
The Republic of Lithuania Law on Electricity, Valstybės žinios, 2000, Nr. 66-1984.
Acts of EU law
Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products The Council of The European Communities.
Council Directive 92/79/EEC of 19 October 1992 on the approximation of taxes on cigarettes (OL, 1992 L 316, p. 8).
Council Directive 92/80/EEC of 19 October 1992 on the approximation oftaxesonmanufactured tobacco other than cigarettes (OL, 1992 L 316, p. 10).
Council Directive 92/83/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages (OL, 1992 L 316, p. 21).
Council Directive 92/84/EEC of 19 October 1992 on approximation of the rates of excise duty on alcohol and alcoholic beverages (OL, 1992 L 316, p. 29).
Council Directive 95/59/EC o f27 November 1995 on taxes other than turnover taxes which affect the consumption of manufactured tobacco (OL, 1995 L 291, p.40).
Council Directive 2003/96/EC o f27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (OL, 2003 L 283, p. 51).
Council Directive 2004/74/EC of 29 April 2004 amending Directive 2003/96/EC as regards the possibility for certain Member States to apply, in respect of energy products and electricity, temporary exemptions or reductions in the levels of taxation Directive2004/74/EC.
Jurisprudence
Judgment of the ECJ of 5 October 2004 in case C-475/01 Commission of the European Communities vs Hellenic Republic, ECR I-08923.
Judgment fo Lithuanian Supreme Administrative Court of 20 December 2005 in the case No. A15 - 1292 / 2005 Profisa v. Customs Department under the Ministry of Finance, kat. 9.4; 23.1.
Other sources
12 April 2006 European law department submitted written comments in the case C-63/06 UAB ’’Profisa’’ v. Customs Department. European Law Department. Information about written comments submitted by the Law Department to the ECI in Case C-63/06, 2006. Retrieved from http://www.etd.lt/index.php?-1479542806.