Committee Reports > List of Committees > Joint > 1998 > Committee on Public Enterprise and Transport > Report - Report of the Joint Committee on Public Enterprise and Transport on Meeting with the Minister for Public Enterprise, Mary O’Rourke, T.D. on Duty Free

Appendix 1

5. The Directive on Movement of Products subject to Excise-Duty

The Directive, 92/12/EEC, which was formally adopted by the Council of 25 February, 1992 sets out the definitive regime for the holding, movement and monitoring of products subject to excise duty. It took effect from 1 January 1993, with the exception of the duty-free concession which was to remain until 30 June 1999.

One of the recitals in the preamble states that ‘Whereas, in order to ensure the establishment and functioning of the internal market, chargeability of excise duties should be identical in all the Member States.’

However, Article 1 states that provisions relating to the structures and rates of duty shall be set out in specific directives, i.e. not in this one.

Article 3 states that the Directive applies to mineral oils, alcoholic beverages and tobacco.

Articles 5,6 and 7 deal with where articles become chargeable for duty.

Articles 8, 9 and 10 deal with distinguishing between amounts held for private use or for commercial purpose.

Articles 11 to 14 deal with production, process and holding of goods.

Movement of goods is dealt with in Articles 15 to 21.

Article 26 allows Denmark some special restrictions on amounts that can be brought in by private travellers.

Article 27 provides for a re-examination of the provisions of Articles 7, 8, 9, and 10 by 1/1/1997.

Articles 28 provides for an exemption for duty free shops for intra-Community flight or sea crossing until 30/6/1999.

Article 29 exempts small wine growers from some monitoring and movement provisions.

4. ECOFIN Procedures in relation to obtaining or reversing decisions

The Minister for Finance set out the procedural position in relation to overturning the duty-free Decision during his speech in the Dáil adjournment debate of 10/11 February last.

He said, ‘The EU plans to abolish duty-free have been enacted in law. Changing the law will be extremely difficult. First we must convince the EU Commission that such a change is necessary because the EU procedures only allow the Council of Ministers to adopt measures on the basis of a proposal put to them by the Commission.

Preparing and placing draft directives before the Council is the sole prerogative of the Commission under the terms of the EU treaties. Before I and my colleagues in ECOFIN can even begin to consider the possibility of reversing the present decision, or extending the time period for duty free to remain available, we will first need a proposal from the Commission. Without it we will have nothing to adopt.

European Finance Ministers have plenty of issues on their agenda and they are reluctant to hold a discussion when there is no proposal before them. But getting a proposal from the Commission is only the first hurdle. All Member-States must then vote in favour of the proposal. As a taxation matter, any change in an adopted directive will require the unanimous agreement of all Member-States. Even one Member-State in opposition would cause any such proposal to fall.’

Note: The Following Articles of the Treaty of Rome, as amended, are of interest;

148.3Absentations by members present in person or represented shall not prevent the adoption by the Council of acts which require unanimity.

152The Council may request the Commission to undertake any studies the Council considers desirable for the attainment of the common objectives, and to submit to it any appropriate proposals.

3. The Commission’s promise or a Study to European Parliament

In parallel with the Council’s consideration of the two tax proposals the European Parliament’s Transport and Tourism Committee was also examining the dossiers during 1990 and 1991. Madam Scrivener, the Commissioner for Taxation, attended the European Parliament to hear the reports of the rapporteurs and comment on their recommendations.

Pat Cox MEP had tabled an amendment to one report at the end of 1990 asking that a study be undertaken by the Commission. The Parliament, in plenary session, passed the amendment.

On 20 November 1991 the VAT rapporteur presented his report. He asked that any Commission study should include the effect on workers in the duty-free sector. Madam Scrivener replied that ‘a study will be undertaken into the effect on all sectors of work affected by the opening of frontiers. That is precisely what we must do, even if it is difficult and takes time, this is what the Commission has committed itself to.’

That position was confirmed in a reply to a PQ put by Paddy Cooney MEP in March 1990. Scrivener said, ‘the Commission does not envisage a specific study on duty-free shops, but it does confirm that as part of a global study on the implications of the effects of the removal of fiscal borders on all sectors, the problem of duty-free trading will be examined.’

Finally, on 11 June, 1991, shortly before the report on the Excise Duty Directive was considered, Commissioner Scrivener announced that, ‘the Commission has launched a study on the effects of the abolition of fiscal frontiers on all sectors, including duty-free.’

No report was forthcoming from the Commission either before or after the Council adopted the proposals in November 1990 and February 1991.

Postscript: Pat Cox MEP asked Commissioner Monti in July 1996 whatever became of the study. Monti replied on 30 October that, ‘even though Mrs. Scrivener had agreed that such a report was necessary, she did so against the background of the Commission’s proposal as it stood at that time’ (i.e. a 31/12/1992 abolition). Following the extension ‘on a temporary basis to 30/6/1999…there was not anymore a need for a Commission report on the economic and social implications…’

2. The Development of the Commission’s proposals on Duty-Free

In 1985 the Commission’s White Paper ‘Completing the Internal Market’ issued. The Member States agreed a set of conclusions based on the White Paper in December 1985 which led to the Single European Act. Over 300 directives were envisaged to bring a true Single Market into being by the end of 1992.

In August 1987 the Commission’s draft directive COM(87)322 on the ‘Removal of Fiscal Barriers’ included the abolition of duty-free by 31/12/92 as one of the Single Market objectives.

This first draft made little progress in the Council. It was amended by new proposals made by the Commissioner, Madam Scrivener, in mid-1989. ECOFIN rejected these proposals on their first reading on 7/11/89.

The Commission succeeded at its third attempt. In 1990 it proposed two draft directives, one for a Common System of VAT, COM(90)182, and the second for the Movement of Products subject to Excise Duty, COM(90)431. But not without a considerable compromise on duty-free.

The Commission had sought a 31/12/92 abolition date in both these Directives. In the face of opposition in the Council, in Parliament and from the industry, the Commission was prepared to offer 31/12/96. In the end, in order to get the proposal through, the Commission accepted 30/6/99 as the deadline, among other modifications to the Directives.

The ECOFIN Council adopted a much watered down VAT Directive in November 1991, as (91/680/EEC), and reached political agreement on an Excise Duty Directive which only dealt with the movement of dutiable goods. This was adopted in the Internal Market Council of February 1992, as (92/12/EEC). Both Directives contained a clause allowing the continuation of duty-free sales until 30/June/1999

The Commission did not give any undertaking to the Council in relation to studies on the impact of the abolition. Their view was that as a period of 7 years had been provided for an orderly running down of the business there was no need for a study.

1. ECOFIN Council Discussions on Duty-Free

Directive 92/12/EEC on the ‘Movement of Goods Liable to Excise Duty’ was formally adopted on 25 February 1992 at an Internal Market Council. Political agreement was reached on the topic in the ECOFIN Council of 9 November 1991 and a related VAT directive adopted, 91/680/EEC.

Reports from the 1990 period, when duty-free first became a serious issue, all place the measure ‘in the context of fiscal harmonisation within the Community post-1992.’ A press report of 1/3/1990 quotes the then Minister for Finance, Albert Reynolds, telling MEP’s in a meeting at Dublin Castle that proposals for the abolition of duty-free should not be implemented until tax harmonisation had been achieved.

The picture of what was intended to form part of the harmonisation package was fairly vague. Besides VAT and Excise Duty harmonisation, and ending duty-free, the imposition of VAT on passenger transport in the Community was considered possible.

The package concept unravelled early on. The Council could only agree some tentative steps towards fiscal harmonisation, but these were fairly limited. In relation to the harmonisation of VAT rates, a transition regime was agreed which allowed a variety of VAT rates and considerable variation between different Member States.

The decision on Excise Duty was that Member-States would continue with their own rates with some attempts by the Commission to review increases with a view to achieving agreed minimum rates, but the original plan for harmonisation around certain bands was rejected. The Council did agree on the abolition of duty-free, but with a 7 year winding-down/adjustment period. No proposal to apply VAT to passenger transport emerged from the Commission.

Following analysis of the revenue implications, Ireland’s position on harmonisation of excise duty was that it would result in a substantial loss of revenue for the Exchequer. That remains the position today. In other words, Ireland does not favour the adoption of the ‘tax harmonisation package’ as originally proposed in the Single Market Initiative.