In a recent judgment, the Court of Justice ruled that rolls of tobacco part of whose outer wrapper of natural tobacco is covered, at the filter, by an additional paper layer should be considered as cigars or cigarillos, and not as cigarettes. The classification of manufactured tobacco as cigars or cigarillos instead of cigarettes is of particular importance because of the differences in the applicable excise duty rates.
In the case Skonis ir kvapas[i], the Court of Justice ruled on the question whether rolls of fine-cut tobacco with a filter and an outer wrapper of natural tobacco, that were also covered, at the filter, by an additional paper layer, must be regarded for excise purposes as cigars or cigarillos rather than as cigarettes.
According to Article 4(1)(a) of the Directive 2011/64, rolls of tobacco with an outer wrapper of natural tobacco shall be deemed to be cigars or cigarillos as long as they can be and, given their properties and normal consumer expectations, are exclusively intended to be smoked as they are. In accordance with Article 3(1) of the same Directive, rolls of tobacco capable of being smoked as they are and which are not cigars or cigarillos, shall considered being cigarettes.
The Lithuanian customs authorities were of the opinion that the products at issue should be classified as cigarettes since the additional paper layer has the effect of making the products visually similar to ordinary cigarettes with a filter. However, the Court of Justice rejected this view.
According to the Court of Justice, the material from which the outer wrapper is made, constitutes the fundamental criterion to distinguish cigars or cigarillos from cigarettes. The Court ruled that it follows from the abovementioned Article 4(1)(a) of the Directive 2011/64 that rolls of tobacco with an outer wrapper of natural tobacco are in principle to be regarded as cigars or cigarillos and not as cigarettes.
Only if the presence of the additional paper layer means that the rolls of tobacco, given their properties and normal consumer expectations, are not exclusively intended to be smoked as cigars or cigarillos, they are excluded from this classification and consequently to be regarded as cigarettes.
However, according to the Court, this exception is not applicable to the products at issue. After all, for consumers, the outer wrapper of natural tobacco gives the rolls of tobacco having such a wrapper, a visual aspect as well as a burning rate and a taste upon the smoking that distinguish them from cigarettes. The additional paper layer only covering the filter and not extending to the part of the products, which is consumed, does not lead to another conclusion.
On the basis of the wording of Article 4 (1)(a) of the Directive 2011/64 and the scheme as well as the aims of this Directive, the Court concludes that rolls of fine-cut tobacco with a filter and an outer wrapper of natural tobacco part of whose outer wrapper is covered, at the filter, by an additional paper layer, liable to make the product visually similar to cigarettes, fall for excise purposes within the category of cigars or cigarillos and not within the category of cigarettes.
The classification as cigars or cigarillos instead of cigarettes is important. In most EU Member States, the excise duty rates for cigars or cigarillos are considerably lower than the excise duty rates for cigarettes.[ii]
In Belgium, cigars and cigarillos are at present subject to a total ad valorem excise duty of 10 percent of the retail selling price. Cigarettes, on the other hand, are subject to a total ad valorem excise duty of 40,04 percent of the retail selling price, in addition to a total specific excise duty of 66,4691 EUR per 1.000 pieces.
Manufacturers and traders of tobacco products should review the classification of their products taking into account this judgement. Companies, which have paid excise duties, that were not legally owed, are entitled to the reimbursement of these excise duties as well as to the payment of the corresponding interest, which runs from the date of payment of the excise duties.
For further information, please contact the authors of this article: Ward Lietaert (Associate, ward.lietaert@tiberghien.com) and/or Jurgen Gevers (Counsel, jurgen.gevers@tiberghien.com)
[i] CJEU 11 April 2019, case C-638/17, Skonis ir kvapas, ECLI:EU:C:2019:316.
[ii]https://bit.ly/2STPbAb(overview on 1 July 2018).