CNAPA Meeting – 29th April 2015
Council Directive 92/83/EEC
Evaluation of the "Structures" of alcohol
and alcoholic beverages
Heather Jones
Unit C2 Alcohol & Tobacco
DG TAXUD
19th April 2015
The Study – Council Directive 92/83/EEC
• The subject of the contract is the retrospective evaluation
of Directive 92/83/EEC and it's functioning in the existing
legal framework.
• This is the "structures" Directive, not the "rates" Directive
• The Directive has not been amended since 1992, apart
from derogations involving the accession countries
• The objective is to provide the Commission with the
economic information to adopt a policy and assess the likely
impact of this future policy for revising the Directive.
• In this respect, the evaluation should:
• Assess the extent to which Directive 92/83/EEC meets its
objectives in terms of securing the revenues of tax
administrations and ensuring the proper functioning of the
internal market
• Formulate recommendations on how best to address identified
issues.
Practicalities..
• The study will cover the EU-28 through a consultation of all
Member States administrations, an EU wide online survey
targeted to relevant economic operators in all product
categories and desk research of existing literature and
legislation.
• For the more in-depth understanding of the impacts of
identified issues, a limited number of thematic case studies
will be selected.
Judgement criteria..
It is necessary to re-construct the rationale of the Directive in
order to define the benchmarks against which its success is to
be evaluated.
• Overall, the Directive’s purpose is to balance the need to:
• Protect the financial interests of MS in collecting
excise duties on alcohol while
• Ensuring the proper functioning of the internal
market.
• It is a tax structures Directive, and has no direct
link to health aspects.. however
Important points
• The EU legislation already gives MS the flexibility
to set alcohol tax rates at levels which they
consider appropriate for pursuing national policy
objectives, including those which relate to health
and social concerns.
• As long as the minimum rates in Directive 92/84
are complied with, MS have the discretion to set
their taxation at the levels they consider best fitted
to their national situation
• Directive 92/84 is not part of this study
However…
The study on structures will evaluate the
functioning of all major areas of intervention of the
Directive. These include:
• The classification of alcohol and alcoholic
beverages for excise purposes – this concentrates
on the alcohol content of the various products
• The rules relating to the application of reduced
rates, private production and own consumption
• The rules governing the granting of exemptions
from the scope of their application
Timeline
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Kick Off meeting
Inception period and report
Steering Group (1)
Steering Group (2)
Fiscalis Seminar (Latvia) MS only
FPG (9th June)
Progress report
FPG (mid October)
Draft final report
Steering Group (3)
Final report
Follow up
– possible impact assessment / proposal
Jan 2015
Mar 2015
Mar 2015
Apr 2015
May 2015
June 2015
Aug 2015
Oct 2015
Oct 2015
Oct 2015
Dec 2015
2016-2017
Areas of ambiguity / problems?
• Reduced rates exist for small producers of spirit and beer,
but not the other categories.
• A reduced rate exists for low strength beer
• Exemptions for denatured alcohol are ambiguous and lead
to opportunities for fraud and risks to health – this is a priority
in the study
• Classification problems across alcohol products – alcopops,
beer with spirit added, wine with spirit added, other mixed
drinks
• There are derogations for accession countries (fruit
growers) for reduced rates for private production / own
consumption
SECTION VII – Exemptions for denatured
alcohol?
• Definitions concerning denatured alcohol e.g. / "finished
product" / "used in the manufacture" are too loose
• There is a need to tighten up the mutual recognition
principles
• Article 27 (5) which addresses fraud, evasion and
avoidance for cleaned up denatured alcohol is rarely used –
why?
• Reduce further the number of weak national denaturing
formulations – still > 100 registered
• The more denaturing formulations, the greater the risk!
2 main types of denatured alcohol
• Completely denatured alcohol (CDA)
• Burning alcohol for heating, cooking and industrial
cleaning alcohol
• Partially denatured alcohol (PDA) – for many
sectors, including:
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Cosmetics, perfumes and personal hygiene
Screen wash, anti-freeze and de-icer
Bio-fuels
Paints, inks and solvents
Denatured alcohol – Article 27 of
Council Directive 92/83/EEC
• Excise duty exemption applies to alcohol
denatured and used in the manufacture of a
product not for human consumption
• The denaturants are supposed to make the
product unfit for human consumption
• There are 3 elements to an effective and efficient
denaturant:
• A smelling agent – e.g. methyl ethyl ketone
• A tasting agent – e.g. denatonium benzoate
• A chemical analytical marker – e.g. isopropyl
alcohol
Why is this a problem for health reasons?
• Easy to clean up / remove and turn back into potable alcohol due
to the number of weak denaturing formulations which exist in the
EU28
• The end products in the frauds are now very difficult to tell from
the genuine spirit – bottle tops, labels, duty stamps.
• Attractive flavourings (as well as cheap price) also mislead the
consumer, a particular risk to younger drinkers
• Methanol also still registered and used as a denaturant in 9 MS,
other chemical agents are also dangerous when ingested, bleach is
also one of the common cleaning agents!
• Some approved denaturants are simply fruit / mint flavours,
aromas and essential oils making the potential for fraud even easier
– no cleaning up necessary
• E.g rose oil, citrus, orange, cucumber, menthol
Some statistics (WHO)
• 13% of global alcohol is "unrecorded"
• 30% of that 13% is deemed to be sourced form
so-called "surrogate" / i.e. denatured alcohol
• Often the formulation contains methanol
• Main products abused are:
• Screen wash, anti-freeze, de-icer
• Cheap perfume, aftershaves, any strong alcohol
mouthwashes
• Even nail varnish remover
• Burning alcohol
How easy / cheap is it to clean up
denatured alcohol?
• It is very easy / inexpensive with a weak
denaturing formulation
• Cheap supermarket charcoal and bleach
• The "Euro" CDA formulation implemented in July
2013 is very robust but is deemed too costly by
industry so take up has been disappointing
• The removability tests show that all the national
formulations which do not have a chemical marker
are very easy to clean up
EIAK
Ethylene
glycol
MIPK
MEK
IPA
EtOH
Screenwash – GC-FID analysis before /
after activated carbon treatment
What are you drinking?
Aftershave / nail varnish remover / mouth wash /
screen wash, anti-freeze
Products often don’t need "cleaning up" consumed as they are - <1€ for 250ml,
contains 64% ABV alcohol with just lemon
or cucumber as the "denaturant"
Some more examples…
Is this a problem only in certain Member
States?
Recent fraud case involving anti-freeze
(UK)
Brand - German labelling?
• Bar codes?
• Concentrate or
diluted?
• Who's denaturing
formulation?
Lost revenues, health risks, legitimate brands
abused, consumers mis-led
Recent case from the UK
(Leicester, Dec 2014)
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25 x pallets of 1,080 well known
branded vodka bottles = 27,000
243 x empty 5l bottles of anti-freeze
(German labelling) = 1,215 litres prior
to extraction/watering down
Large quantity of cardboard branded
vodka boxes
Large quantity of branded bottle tops
2 x Reverse Osmosis units to remove
the colour and fragrance from the
product
1 x water softener unit as assist in the
dilution
What is being done?
• DG TAXUD and DG Joint Research Centre (JRC)
working together on the denaturant project
• Now phase 3 – screen wash / anti-freeze
• Need to continue to work legitimate spirits
industry to collect more data on fraud
• Promote more widely the possibilities under
Article 27 (5) to report cases of fraud , avoidance
and abuse
• The study on the "structures" Directive – Article
27 will be a priority – please contact me if you wish
to contribute to the study?
Directive 92/84/EEC "Rates"
• Scoped out of this study
• 486/2006 proposal is now withdrawn by the
Council
• No plans to resurrect given the chance of success
remaining bleak
Thank you & Questions?