ROADMAP

This combined roadmap aims to inform citizens and stakeholders about the Commission's work in order to allow them to provide feedback on the intended initiative and to participate effectively in future consultation activities. Citizens and stakeholders are, in particular, invited to provide views on the Commission's understanding of the current situation, problem and possible solutions and to make available any relevant information that they may have, including on possible impacts of the different options.

Title of the initiative

Authorisation for Portugal to apply a reduced rate or excise duty for rum and liqueurs produced in Portuguese outermost regions (period post 2020)

Lead DG – responsible unit – AP Number

DG TAXUD Unit C2

PLAN/2019/5285

Likely Type of initiative

Proposal for a Council authorising Portugal to apply a reduced rate or excise duty for rum and liqueurs produced in Portuguese outermost regions (period post 2020).

Indicative Planning

Q2 2020

Additional Information

-

This roadmap is provided for information purposes only. It does not prejudge the final decision of the Commission on whether this initiative will be pursued or on its final content. All elements of the initiative described by this document, including its timing, are subject to change.

A. Context, Evaluation, Problem definition and Subsidiarity Check

Context

Portugal has part of its territory located in areas that are remote from Europe. The two autonomous regions are Madeira and the Azores. These regions, known as outermost regions, have to deal with a number of difficulties related to their geographical characteristics, in particular: remoteness, insularity, small size, difficult topography and climate and economic dependence on a few products. Article 349 of the Treaty on the Functioning of the EU (TFEU) notes the necessity of adopting specific measures in these regions, to take account of the structural social and economic situation.

The existing Council Decision 376/2014/EU, which authorises Portugal to apply a reduced rate of excise duties on some locally produced traditional alcoholic products (rum, liqueurs and ‘eaux-de-vie’) in these two regions. Excise duties are indirect taxes on the sale or use of specific products and are usually applied as an amount per quantity of the product. All revenue from excise duties goes entirely to the Member States, and in the EU, Member States must apply excise duties to alcohol, tobacco, and energy. This Decision will expire on 31.12.2020. The objectives of the existing Council Decision is to promote the socioeconomic development of the outermost regions. The Decision takes account of the higher production costs of specific products in these regions and allows Portugal apply a reduced rate of excise duty taxes to offset the competitive disadvantages faced by the producers in these regions, without undermining the integrity and coherence of the Union legal order, including the internal market and common policies.

Portugal has asked the Commission to renew the decision in order to avoid disruptions to the local economies. To that end, the Commission will first evaluate the existing rules and propose measures accordingly.

Evaluation

The impacts of the Council Decision during the period 2014 – 2018 is the main focus of the evaluation. In particular, the evaluation includes a full description of the fiscal, environmental, social, economic, and trade impacts on all stakeholders, including small and medium enterprises. The evaluation analyses the extent the current regime of reduced rates is fit for purpose and if it delivered the desired results efficiently. In line with Better Regulation guidelines, the Decision is evaluated and assessed against the five evaluation criteria of relevance, effectiveness, efficiency, coherence and EU added value. The Commission has contracted an external independent evaluator to assist it in the process. The external study identifies and assesses all problems, including any future issues, of the regimes; the scope for simplifying them; the possibility of reducing the associated regulatory burdens; the possibility for synergies with other policy tools or potential incoherence with other policies, regulatory benefits and savings, etc. The study takes into account all relevant information sources from all stakeholders including national authorities.

Problem the initiative aims to tackle

The two outermost regions face several different issues, which greatly affects the structural, social and economic situation of these regions. These include: (i) constrained economic growth due to their remoteness and/or insularity, small size, difficult topography and climate; (ii) economic dependence on a few products, which are often agricultural products or natural resources.

Basis for EU intervention (legal basis and subsidiarity check)  

According to Article 349 of the Treaty on the Functioning of the European Union (TFEU) the initiative falls under the exclusive competence of the EU. Therefore, the subsidiarity principle does not apply.

B. Objectives and Policy options

The Commission will assess whether the reasons justifying the current regime still exist and, if so, whether it should be amended and how. The Commission will also review the existing monitoring system with the aim of simplifying it. An assessment will be carried out on the possible revision or replacement of Council Decision 376/2014/EU. The policy options considered include measures which achieve the objectives as provided for in Article 349 TFEU and which are consistent with the integrity and the coherence of the Union’s legal order. Furthermore, these options aim to reduce the complexity and the burden (both legal and administrative) of the current regime. This initiative aims at: ensuring optimal/sufficient support to the local production; ensuring coherence, proportionality, simplification and flexibility of the support instrument as to preserve the integrity and the coherence of the Union’s legal order; safeguarding undistorted competition in the internal market and international trade; generating a positive social and economic effect for the outermost regions.

The analysis takes into consideration the following possible policy options: the prorogation of the regime for with no change in the substance of the regime (baseline scenario) or the prorogation with amendments to extend the regime to rum made in the Azores and for sale of the products in the mainland with or without quota. Another option is to take no further action at EU level (in this case, the regime will expire on 31.12.2020) and the last option is to identify alternative non-fiscal measures to the current system.

C. Preliminary Assessment of Expected Impacts

The costs and benefits of each option will be the subject of further analysis in the analytical document that is being prepared by the European Commission. A possible extension of the Decision would continue to support the development of these regions in line with article 349 of TFEU, while having a minimal impact on the internal market or common policies as the tax advantage does not go beyond what is necessary to offset the additional costs faced by the local stakeholders. Furthermore, as the volumes at stake are modest and the tax advantage is limited to consumption in the regions concerned, the measure would appear to remain coherent with EU policy on state aid. The extension of the Decision would also assist with the development of the regions and assist in diversifying their economies. Developing a flexible mechanism for amending the products, which may benefit from the measures, would reduce the administrative burdens associated with the existing regime. This would also be in line with the objective of autonomous development of the regions. Depending on the proposed option, there may be an increase or decrease in indirect taxes revenue in the two regions.

Likely economic impacts

The economic dimension of the special regime at EU level and for Portugal is rather small (spending on these regime accounts for less than 1% of government revenue), but for the outermost regions in question, it is important for their economic development, the competitiveness of local activities and the market diversification.

Likely social impacts

From the current perspective, the production that benefit from these measures appears too small for generating measurable social impacts at EU or national level. However, the maintaining of a competitive local market in the outermost regions concerned is of high social importance for those regions. Local producers, who are often small, medium enterprises, are particularly vulnerable to policy changes.    

Likely environmental impacts

None.

Likely impacts on fundamental rights

None.

Likely impacts on simplification and/or administrative burden

From the current perspective, the policy options considered have potential for simplification and for decreasing the administrative burden for all stakeholders. These stakeholders are the outermost regions producers, the Portuguese tax authorities as well as EU institutions involved in the monitoring and legislative procedures.

D. Evidence base, Data collection and Better Regulation Instruments

Assessment

This initiative is prepared as a back-to-back exercise: an ex-post evaluation of the current regime closely followed by a forward-looking assessment. Such an assessment, of the potential impacts of continuing and possibly changing the existing regime, would be laid down in an analytical document, including an evaluation annex.

The analytical document would be finalised in the 2nd quarter of 2020. An independent study was carried out by a consortium led by PwC Pricewaterhousecoopers LLP in support of the evaluation and the analytical document.

Evidence base and data collection

The ex-post evaluation and the analytical document would use a large evidence base, including the mid-term report submitted by Portugal, data collected for the specific purpose of the exercise as well as other existing data and information. There may be a need for further collection of data, including local production data on the outermost regions in question. Additional evidence will be determined by the inter service group and collected by the contractor of the external studies, through stakeholder consultation and desk research. 

Consultation strategy

Targeted consultations of the relevant stakeholders were organised in the framework of the study. The consultation activities allows for the collection of views from the main stakeholders and to gather data for both the evaluation and impact assessment parts of the study. A public consultation will not be organised due to proportionality reasons (the initiative only affects the local stakeholders in those territories, as it only concerns locally produced and consumed products) and limited territorial scope of the initiative.

The consultation instruments used include questionnaires as well as interviews. The initiative directly affects some stakeholders (e.g. tax or customs administrations, local producers, retailers and wholesalers of alcohol, consumers). It includes SMEs associations, as the majority of the local producers are SMEs.

Will an Implementation plan be established?

Due to the limited scope of this regime, no implementation plan is necessary.