On 28 November 2018, Advocate General M. CAMPOS SÁNCHEZ-BORDONA gave its opinion in case C-567/17 (UAB „Bene Factum”) regarding the question if cosmetic products containing alcohol that are (illegally) being sold as ‘alcoholic beverage’ are subject to excise duties.
Unofficial translation
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?
Opinion
The A-G considers that for the excise exemption to apply, it is necessary that:
- that the alcohol in the product has been denatured in accordance with the rules of a Member State;
- that the (partially denatured) alcohol has been used for the manufacture of a product;
- that the product thus manufactured is not intended for human consumption.
According to the A-G, Bene Factums products meet these conditions.
The A-G is of the opinion that:
Excise duties are not due on cosmetic products which contain denatured ethyl alcohol and, according to its intended (direct) use, are not intended for human consumption, irrespective of the fact that some persons consume these products as alcoholic beverages.
This is not affected by the fact that the person who imports or places them on the market in a Member State other than that in which they are manufactured and whose authorities have granted the exemption knows that certain persons the country of destination as alcoholic beverages, and in that knowledge instructs its manufacture and labelling with the intention of selling as much as possible.
If the Lithuanian authorities consider that fraud, evasion or abuse exists in this context, they may refuse to grant an exemption, or the exemption already granted.
