Cigarette case to test single market

Date: 20/03/1997

By Leyla Linton

AN ADVOCATE-general at the European Court of Justice will deliver his opinion next month on a battle between a British firm and the UK authorities which raises fundamental questions about the free movement of goods in the single market.

The case hinges on whether individuals can exercise their right to buy virtually unlimited quantities of duty-paid goods in other member states - so long as they are intended for personal consumption - without going to collect them in person.

Victory for the firm involved in the case would hit government revenues from duty-paid sales hard and, say critics, cause a massive distortion in trade.

The case centres on the activities of the British-based Enlightened Tobacco Company, which imported cigarettes from Luxembourg and paid duty on them only in the Grand Duchy - where cigarettes are 40&percent; cheaper than in the UK.

Its clients placed orders with a subsidiary in England called The Man In Black Ltd, trading as Tobacco Direct, which transmitted them to EMU Tabac SARL, another subsidiary in Luxembourg.

UK customs and excise authorities seized the consignments of cigarettes, claiming that customs duty should have been paid in the UK.

The Enlightened Tobacco Company took its case to the British high court in 1995 and lost. It then pursued it to the court of appeal, which referred the case to the ECJ.

The case hinges on the interpretation of a 1992 directive on the movement and monitoring of products subject to excise duty. The firm argues that the directive allows it to act as an 'agent' and transport goods such as tobacco for private individuals, paying duty only in the country of origin.

Company director BJ Cunningham described the scheme as “an extension of a beer and wine shopping trip to Calais”.

But UK customs and excise claim the system set up by the Enlightened Tobacco Company is “totally illegal”, insisting that only those taking goods home in person can claim duty-paid allowances.

The Court will now have to decide whether the company was, in fact, carrying out a private or a commercial operation. If it was commercial, say European Commission sources, customs duty should be paid in the country of destination.

The majority of member states argue that the firm abused

the system, as it was acting commercially and not in a private capacity, although France believes it is not necessary for duty-paid goods to be transported in person to avoid payment of additional tariffs when they reach their destination.

Cunningham acknowledges that the case goes to the very heart of the current debate within the EU over the harmonisation of taxes and the effect which big variations in the rates of duty levied can have on trade.

But he freely admits that his company aimed to take advantage of differences in the tax regimes between member states. “It does not matter that it was a commercial scheme. We used the system as a price incentive to change consumer purchasing habits. If the UK government is going to hand us a profit on a plate, fantastic,” he said.

“We were acting within the spirit and letter of the law. If we are right, then the UK government is going to lose billions of pounds of income.”

Paul Sadler, general manager of external affairs for Imperial Tobacco, which is supporting the UK's arguments, agrees that the outcome of the case is crucial.

He says that if the Enlightened Tobacco Company's activities were declared legal, it would clear the way for other companies to start up similar businesses.

“It would mean a massive distortion of trade and destroy national revenues and retail networks. It would lead to a loss of 14 billion ecu for the UK govern-ment,” he claimed. Sadler added that he was confident the ECJ would rule in favour of the UK.

An advocate-general will deliver his opinion on 17 April, but a final ruling from the full Court is not expected before September.