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| March 12, 2024

Are you violating the Excise Tax Act by making cocktails?

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On 28 February 2024, the Coordination Committee of the Chamber of Tax Consultants and the General Directorate of Customs (hereinafter “the DGC”) concluded a contribution concerning the production of alcohol products from the perspective of the Excise Duty Act. This Coordination Committee follows up on contributions published in the past, which led to confusion as to whether situations where an alcoholic mixed drink (cocktail) is prepared in a restaurant or bar for the purpose of sale to individuals for immediate consumption, or the mixing of already taxed alcoholic beverages for their own consumption, are also considered the production of selected products subject to excise duty. There are extensive statutory rules for the manufacturing of selected products and, if there were indeed manufacturing, excise duty would be payable. For this reason, it is important to correctly determine, if the preparation of cocktails is also considered production.

In a previously published contribution of the Coordinating Committee, DGC stated the following: “Similarly, it shall not be considered as production of selected products, if the final consumer makes his own alcoholic mixed drink (cocktail) from different types of taxed spirits for his own consumption, mixes wine/beer with spirits, dilutes alcohol, etc.” Although this statement affects a large group of entrepreneurs and companies, according to the Chamber of Tax Consultants, the DGC has not cited any provision of the law, on which the statement is based. Moreover, it follows from settled case law that the obligation to pay the tax also arises in cases, where products with an alcohol content of more than 1.2 % are made into a product, which is subject to a different tax. So, are businesses preparing mixed drinks merely being favoured over other groups processing alcohol, because they are not penalised despite being liable to pay tax, or is there actually a statutory justification for the statement of DGC? Either way, the interpretation was unclear and there was uncertainty every time a cocktail was mixed.

The Chamber of Tax Consultants thus provided practical examples of the preparation of alcoholic mixed drinks and asked the DGC to comment on whether or not this constitutes the production of selected products under the Excise Duty Act. The aim was to refute the possibility of an unfavourable interpretation of the original opinion of the DGC and also to provide a legal justification, on the basis of which bars, restaurants, but also, for example, sellers of punch at Christmas markets are not obliged to pay excise duty.

In its statement, the DGC said that the feared interpretation of the Chamber of Tax Consultants was too expansive. Based on their information, the preparation of an alcoholic beverage for the direct consumption of the final consumer on premises, where alcoholic beverages are sold for direct personal consumption or for other direct personal use by an individual, is not manufacturing. If the law were to be interpreted literally, according to the DGC, the fermentation of fruit fallen from a tree, which is a natural process, would also be considered production of alcohol. However, again, no reference was made to the relevant provisions of the Act. So, where is the clear statutory threshold for determining, when you should proceed under the Excise Duty Act (file a return, pay excise duty, etc.)? There is probably no risk, when cocktails are prepared for immediate consumption by an individual, even though there is no support in law. But what about in other areas? The authors of this article, or the GT team you have been working with for a long time, will be happy to help you assess specific cases.