An analysis by lawyers at the law firm Sorainen shows that the so-called sugary drinks tax bill runs counter to European Union law.
Consequently, Sorainen filed a complaint with the European Union’s competition directorate on behalf of the Estonian Soft Drinks Association because the bill refers to the provision of unlawful state aid and the government has not applied for a permission to grant state aid.
If the suspicions are confirmed, the unlawful state aid will have to be repaid, and the producers who have suffered damage will also have the right of action.
“Last week, the sugary drinks tax bill, which, in our opinion, is contrary to Articles 107 and 108 of the Treaty on the Functioning of the European Union and constitutes unlawful state aid, passed the first reading in the Riigikogu,” said Allar Joks, attorney-at-law and a partner at Sorainen. “This means that, in the case of the tax on sugary drinks, there is no objective justification for granting an exemption to categories of products which are directly competing with the sugary drinks subject to taxation.”
The sweetened beverage tax proposed by the government would apply to lemonades, flavored waters, syrups, sports drinks, smoothies, and energy drinks containing more than five grams of sugar per 100 milliliters. The bill would also tax sugar-free drinks containing sweeteners. However, the tax would not apply to products such as 100 percent juices, sweetened milk and kefir drinks, and similar.
The objective cited for the introduction of the sweetened beverage tax is to protect public health, as it is assumed that the tax will lead to a reduction in the consumption of sugary drinks and thereby improve people’s health indicators.
“This conclusion is incorrect for several reasons. Namely, the taxable beverages account for only a few percent of the energy consumption of the Estonian population. It is also assumed that people will switch from sweet drinks to water. This is not viable. Nor is it borne out by any research or international experience. Consumers are likely to substitute drinks that become more expensive because of the tax with a cheaper comparable drink or food product,” Joks said.
The Estonian authorities have not submitted an application to the European Commission for permission to grant state aid and the bill has been drafted without taking into account the requirements of the code of good legislative and regulatory practice, Sorainen argues.
It says that, in certain cases, the European Commission has the right to demand the suspension of the provision of unlawful aid or its temporary recovery even before a decision is made about the compatibility of the aid with the internal market. This may lead to a situation where the Commission requires that Estonia take all necessary measures to recover the aid from the beneficiaries. According to the recovery decision, the recoverable aid also includes interest for the period during which the unlawful aid was at the disposal of the beneficiary.
“In practice, this would mean a very large expense for the state instead of filling the state budget, because all the companies that have benefited from the tax must be identified, and required to pay the tax together with interest from the moment the tax came into force. In addition, companies affected by the sugary drinks tax may claim damages. This means that producers of soft drinks subject to the tax will have a right of claim on the Estonian state if they show that they have unfairly lost market share due to the tax.”
Source: BNS
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