Dr Charles Tannock

Member of the European Parliament for London

Tax ruling will save UK drinkers billions

Sunday Telegraph - 12 November 2006

British shoppers will soon be able to buy cut-price alcohol and cigarettes from the Continent without leaving home, as a result of an extraordinary legal test case that threatens to blow a multi-billion pound hole in the Treasury's coffers.

The European Court of Justice is expected to rule next week that goods can be bought in other EU states and delivered to the door while only the duty levied in the country of origin is paid. This is often a fraction of that charged in Britain.

If, as appears likely, the court rubber-stamps a previous adjudication by its advocate general, shoppers will be free to use the internet or mail order companies to find the best bargains around Europe and have them shipped home for their own consumption.

The potential savings are huge: 200 cigarettes purchased in Latvia cost only £7.20, a saving of about £43, while several European countries charge no duty on wine.

Businesses across Europe are gearing up for the changes, but the British Retail Confederation warns that UK businesses will lose unless action is taken to harmonise duty rates across the Continent.

The Treasury earns £15 billion a year from excise duty on alcohol and cigarettes — enough to pay the running costs of the Home Office, the Foreign Office and the Department for Culture, Media and Sport.

Tax experts believe the ruling, due on November 23, will hasten moves towards single rates of tax across the EU and hit ferry companies, which rely heavily on "booze cruises".

Legal advice drawn up by the accountants Ernst & Young says: "The judgment… is likely to allow individuals to purchase alcohol over the internet or by telephone from other EU member states and to have their purchases delivered to them at home, while still paying low duty rates in the country of purchase.

"Retailers and distributors in EU member states with low alcohol duty rates are likely to be able to increase direct sales of alcohol to customers."

The dramatic change in British tax policy hinges on an attempt by a Dutch group to have wine they had bought in France shipped home, without physically accompanying their purchases. The Dutch government levied alcohol duty on the wine, but after a legal challenge the European court's advocate-general, Francis Jacob, found it had been wrong to do so.

A number of European governments, including Britain, have urged the court to reject the adjudication. But in 80 per cent of cases the court upholds the advocate-general's decision, and Charles Meechan, an Ernst & Young director, said: "All the evidence is that the ruling will not go the UK's way."

Britain has one of the highest excise rates in Europe and shoppers are expected to rush to take advantage of the ruling, which cannot be appealed against and would take immediate effect. At present, Britons can bring alcohol and tobacco with them into the country if they can show it is for personal consumption.

Jeremy Beadle, the chief executive of the Wine and Spirits Trade Association, said the case could have a serious impact. "The key disincentive until now has been that you have to travel with the goods."

HM Revenue and Customs refused to comment on the case but the Euro-MP Charles Tannock, the Tory spokesman on the duty-free trade, said: "This is going to be a huge embarrassment to Gordon Brown and his tax-raising attempts. It will also increase pressure on member states to harmonise excise duty. If we are going to have a single market this must be permitted."