According to the judgment of the Court of Justice of the European Union (CJEU), if denatured alcohol is considered by the consumer to be a beverage and subsequently consumed, it cannot still be considered a food product.
The Lithuanian Supreme Administrative Court (Lietuvos vyriausiasis administracinis teismas) sought to determine whether certain imported cosmetics and oral hygiene products containing denatured alcohol were exempt from the harmonised excise duty provided for in Council Directive No92/83/EWG of 19 October 1992 on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages. The imported products were intended to be consumed as alcoholic beverages.
The case dealt with by the CJEU concerned a Lithuanian company which imported cosmetics and oral hygiene products from Poland. The imported products contained alcohol in their composition which was not intended for consumption. The alcohol was contaminated according to Polish regulations.
According to the CJEU, it does not matter whether the company added aromas to its products and whether it indicated how much alcohol they contained as consumers knew that the product contained denatured alcohol they should not drink
In the course of the audit of the company's accounts, the tax authorities found that its imported products were sold by wholesale and retail distributors as intended for direct consumption. The consumption was to be encouraged, among other things, by a specified percentage of alcohol, added aromas to products and their very low price.
Both in Poland and Lithuania, the exemption of denatured alcohol from excise duty is based on Article 27 Directive 92/83. In both countries, there is a major problem with the sale of dedenatured alcohol, as dishonest traders first import denatured alcohol from the EU country, using excise exemption, and then it is decontaminated and illegally offered in the grey area. Theoretically, such alcohol is to be used as a component for cosmetics, solvents, etc.
Such situations in Poland are to be prevented 27 May 2017 Amendment of the Excise Tax Act (Journal of Laws of 2017, item 937). According to the current rules, only the denaturate is to be covered by a method approved in each European Union country or in the Polish Finance Minister's Regulation. Traders are additionally required to keep lists of counterparties who would acquire fully denatured alcohol from them or certain products with its content above 50%.
The Lithuanian tax authorities considered that the company was selling food and should pay excise duty on the alcohol contained in it as it did not prevent products containing denatured alcohol being offered as such for direct consumption. The Lithuanian administrative court, however, had doubts as to whether the company should actually pay excise duties on alcohol contained in products offered by the Lithuanian company.
The Court of Justice of the European Union had no doubt that Lithuanian officials had gone too far. He recalled his sentence from 7 December 2000 (reference no. C-482/98), which indicated that denatured alcohol may be exempt from excise duty, even if some people deliberately choose to consume it.
According to the CJEU, it does not matter whether the company added aromas to its products or whether it indicated how much alcohol they contained as consumers knew at the time of the purchase that the product contained denatured alcohol that they should not drink.
Consumers, although having information about denatured alcohol, voluntarily chose to consume it.
Therefore, the CJEU considered that imported cosmetics and oral hygiene products containing denatured alcohol would be exempted from the harmonised excise duty and the Lithuanian company did not have to pay excise duty on the alcohol contained therein, regardless of whether the products would be consumed.
Judgment of the Court of Justice of 28 February 2019 reference no. C-567/17
Author: Paweł Boś, Law student at Leon Kozminski Academy in Warsaw, employee Russell Bedford