On 28 February 2019, the European Court of Justice gave its decision in case C‑567/17 (Bene Factum UAB). The case deals with the question if ‘products not for human consumption’ are still subject to excise duties, in case they are consumed.
Facts (simplified):
- Bene Factum is a company established in Lithuania, which manufactures and markets cosmetic and other personal care products.
- Bene Factum imported mouthwash and cosmetic alcohol under various names for commercial purposes. It bought those products from a company established in Poland which produced exclusively for Bene Factum.
- Bene Factum did not restrict itself to just ordering the contested products from the Polish company, but exercised control over the production process in the sense that it decided on the composition of the products and the appearance of the packaging and the labels, which were branded “BF cosmetics”.
- At the time when the products were released for free circulation in Poland, the ethyl alcohol in those products had been denatured by the addition of isopropyl alcohol in accordance with that country’s legislation.
Note: Denatured alcohol is ethanol that has additives to make it poisonous, bad-tasting, foul-smelling, or nauseating to discourage recreational consumption.
- Bene Factum did not declare the importation of these goods into Lithuania and did not pay any excise duty on the ethyl alcohol contained in those goods which had been denatured.
- The Lithuanian tax authorities found that Bene Factum’s products were sold by various wholesale and retail companies (including companies operating kiosks) as ‘alcoholic beverages’.
- By relying on the principle of substance rather than form, the Lithuanian tax authorities concluded that the products were intended to be consumed by people as alcoholic beverages, so that the ethyl alcohol in those products was subject to excise duty.
- Consequently, Bene Factum was liable to pay the excise duty and was obliged to pay it.
- The Lithuanian court considers that it is clear that Bene Factum knew that its products were consumed as alcoholic beverages by a certain group of people. Although Bene Factum does not sell the products directly to the end consumers, it is possible, inter alia, to use the labeling it has chosen (for example the indication of the alcohol percentage), the addition of flavorings, the fact that the ethyl alcohol in question was not denatured in accordance with Lithuanian legislation and the low selling price are regarded as factors that contributed to these products as alcoholic beverages. were consumed.
- Nevertheless, there is no doubt that the products are (primarily) intended to be used for cosmetic purposes and personal care. Nor is there any doubt that the persons who bought these products were aware that they were actually buying cosmetic and other personal care products.
The Lithuanian Court asks the following questions to the European Court of justice:
- Are excise duties due on any product which, according to its (direct) intended use (consumption), is not intended for human consumption, even if some persons consume cosmetics and personal care products, as an alcoholic beverage to induce a daze?
- Is it important that the person who imported such products knew that the products – containing denatured ethyl alcohol, were manufactured on his behalf and were supplied (sold) by other persons to final consumers in Lithuania, and were consumed by certain persons as alcoholic beverages, and that, taking that fact into account, they have manufactured and labelled those products with the intention of selling as much as possible of them?
In short: Should Bene Factum pay excise duties on its cosmetic products, because these product can (and in fact are) being used by consumers in a way that is not intended, i.e. drinking them?
Judgment:
The ECJ interprets the Excise Directive literally:
“It follows (…) that products presented as cosmetics or mouthwash products which contain ethyl alcohol denatured in accordance with the requirements of a Member State, as products not intended for human consumption, cannot be denied the exemption from excise duty (…) on the ground that certain individuals consume those products as alcoholic beverages.
In the present case, it is common ground that the products at issue, which bear the trade mark BF cosmetics, were sold as cosmetics or mouthwashes, and that the individuals who bought them as alcoholic beverages knew, or should have known, that they were buying cosmetics or mouthwash products.”
Does this mean that as long as it the products contain denatured alcohol, and are sold as cosmetics, that excise duties never apply? No, as the ECJ also notes that in case of tax evasion, the exemption can be set aside. But in this case Bene Factum is fine, “as long as measures taken by the manufacturer of such products in relation to their characteristics do not prevent those products from appearing as products not intended for human consumption, then those measures cannot deprive those products of the exemption from excise duty.”
The European Court of Justice rules as follows:
1. The exemption from excise duties that applies to denatured alcohol, also applies to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwashes which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals.
2. Article 27(1)(b) of Directive 92/83 must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwashes which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals, when the person who imports those products from a Member State in order for them to be supplied to the end consumers in the Member State of destination by other persons, knowing that they are also consumed as alcoholic beverages, has them manufactured and labelled with that in mind in order to increase the sale of those products.
Source: Curia
For the Opinion of the Advocate General in this case, click HERE
