European Court of Justice validates new German tax on heated tobacco

The Court of Justice of the European Union (CJEU) has confirmed the legality of the German additional tax on heated tobacco. The decision of March 14, 2024[1] validates the conformity of this tax with European law and marks a step in the tax framework for heated tobacco products.

Tobacco and e-cigarette tax reform in Germany

In 2021, the German government adopted a reform of the taxation of tobacco products, which came into force in January 2022. This reform introduced adjustments to take into account new consumption habits, particularly with the emergence of products such as heated tobacco and e-cigarettes. Before this reform, heated tobacco products were taxed as pipe tobacco, making them significantly cheaper than traditional cigarettes.

With the entry into force of this legislation, an additional tax was applied to heated tobacco, in addition to the initial tax. This tax aims to align the taxation of heated tobacco with that of traditional cigarettes, in order to reduce the price gap between these two products. As a result, heated tobacco is now subject to a tax equivalent to 80 % of the tax applied to traditional cigarettes, less the tax applicable to pipe tobacco. This measure aims to bring the tax rate of heated tobacco products closer to that of cigarettes, in order to align the taxation on these two types of products.[2].

The background to the complaint filed by f6, a subsidiary of Philip Morris

Philip Morris subsidiary f6 challenged the reform in German courts, arguing that the new tax violated EU excise regulations, in particular Directive 2008/118/EC. According to f6, heated tobacco, which does not involve the combustion of tobacco, should be taxed differently from cigarettes because of its perceived lower risks.

The German courts have referred the matter to the CJEU to obtain clarification regarding the application of the European directive to heated tobacco products, and to determine whether this tax complies with EU law.

The conclusions of the CJEU

On 14 March 2024, the CJEU ruled that the additional tax on heated tobacco, set at 80 % of the amount of the tax applicable to cigarettes, after deduction of the tax on heated tobacco, was in line with European law. The Court stressed that this tax pursues a "special objective", namely the reduction of the consumption of tobacco products, and that it is in line with the public health objectives of the Member States.

The Court also confirmed that the distinction between heated tobacco and cigarettes did not justify a difference in tax treatment.[3]Although manufacturers have highlighted the difference in process (heating instead of combustion), the CJEU considered that heated tobacco, despite this, being still harmful to health, remains subject to the same tax requirements as other tobacco products.[4].

The tobacco industry and frequent legal recourse

Legal challenges brought by tobacco companies against anti-smoking legislation, particularly tax legislation, are recurrent. They aim to challenge new measures likely to reduce consumption of their products. This decision by the CJEU underlines that despite a European framework, taxation remains a fundamental prerogative of the Member States. The latter are all Parties to the WHO international treaty, the Framework Convention on Tobacco Control, which advocates strong and harmonised tax policies between products.

©Generation Without Tobacco

RK

[1] https://curia.europa.eu/juris/liste.jsf?language=fr&td=ALL&num=C-336/22 (accessed 09/11/2024)

[2] https://www.bundesfinanzministerium.de/Monatsberichte/2021/07/Inhalte/Kapitel-3-Analysen/3-1-modernisierung-tabaksteuerrecht.html (accessed 09/11/2024)

[3] https://www.lto.de/recht/nachrichten/n/eugh-c33622-erhitzter-tabak-steuer-zusatzsteuer-iqos (accessed 09/11/2024)

[4] CJEU, 14 March 2024, C-336/22, § 40 et seq.)