Excise proposal fails to clear up confusion over end of duty free

Date: 08/10/1998

By Chris Johnstone

EUROPE's duty free lobby has accused the European Commission of jumping the gun in spelling out how value added tax and excise duties should be levied after duty-free sales are abolished next year.

Following a meeting of national tax experts, the Commission said excise duties on goods sold on aircraft and ferries should be set at the national rate applying in the country where the goods were loaded and VAT at the rate set by the member state where the journey began.

Companies which rely heavily on duty-free sales have long been calling for the Commission to clarify the future rules, but say that last week's announcement is “misleading” and has merely added to the confusion.

The International Duty Free Confederation claims that some EU governments have refused to commit themselves to supporting the Commission's approach, including France, the UK, Ireland, Austria and Greece.

“The proposals introduce new recommendations which will have to be reviewed by all member states. No agreement has therefore been reached,” said an IDFC spokesman.

The organisation argues that legal question marks remain over the Commission's right to dictate what duties companies should charge once they are in international waters or airspace.

However, the Commission claims that only the UK and Ireland are still sitting on the fence and insists that no national government has questioned the Commission's legal right to act.

Officials say London and Dublin cannot stop other countries implementing the Commission's suggested regime. They also point out that while the two governments could apply their own levies, this would leave transport companies facing the worst of all worlds, with excise duties imposed twice - at departure and at arrival.

“They would have to go through the procedures of reclaiming one set of duties,” said one. “They would have to answer to transport companies for the confusion that caused.”

On the face of it, the Commission's proposal offers some crumbs of comfort for airlines and ferries bracing themselves for the loss of millions of ecu in revenue from duty-free sales.

The suggested system would cushion the blow for companies by allowing them to load up with beer, spirits or cigarettes in the country with the lowest duties, for sale to passengers on both outward and return trips.

British brewers, which are among the companies hit hardest by duty-free sales because of the high excise rates levied on their products in the UK, are still unsure how they would be affected by the Commission's suggested regime.

The low-price return trips across the English Channel currently offered by ferry companies and subsidised by duty-free sales, designed to encourage large numbers of British shoppers to make the trip simply to stock up on goods, will disappear, according to Kent brewer Shephard Neame.

But many people are likely to continue to travel to France to buy the cheaper beer and wine available in ordinary shops, and may purchase even more in future to make up for the loss of their duty-free allowance.

Shepherd Neame is still waiting for the UK court of appeal to rule early next year on whether the British government has broken the law by widening the excise duty gap between itself and other EU countries.

A spokesman said that abolishing the difference would remove any remaining incentive to run so-called 'booze cruises'.