On December 21, 2024, the Spanish government published Law 7/2024, which establishes a new tax on liquids for electronic cigarettes and other products related to tobacco (the "new Tax"). This law is part of a broader package of measures that also includes a Complementary Tax to comply with the EU's Pillar Two directive on minimum corporate taxation and a Tax on the interest and commission margin of certain financial entities.
Implementation Delayed to Allow Adaptation
While Law 7/2024 initially set the new Tax to take effect from January 1, 2025, the government subsequently passed Royal Decree-law 9/2024 on December 23, which postponed the entry into force until April 1, 2025. This delay aims to provide businesses and consumers with more time to understand and prepare for the new obligations imposed by the regulation.
To understand why this delay is important, let's consider an analogy. Imagine you're a runner preparing for a marathon. You've been training for months, but suddenly the organizers announce that the race route has changed and now includes a steep hill section. While you might be able to adjust your training to tackle this new challenge, having some extra time to prepare would certainly help you feel more confident and ready on race day.
Similarly, businesses and consumers affected by the new e-cigarette tax need time to adapt to the changes. Manufacturers may need to adjust their pricing and labeling, retailers might need to update their inventory systems, and consumers will want to understand how the tax will impact the cost of their preferred products.
Responding to the Evolving Nicotine Product Landscape
The approval of this new Tax is a response to the rapidly evolving nature of the nicotine product sector. In recent years, many new products have emerged that are not directly covered by the existing EU Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco.
This has led to legal uncertainty and inconsistency, with both the Court of Justice of the European Union (CJEU) and individual Member States having to resort to purposive interpretations to try to equalize the taxation of these new products with traditional tobacco products.
Think of it like a game of whack-a-mole. As new nicotine products pop up in the market, regulators are scrambling to find ways to tax them in a manner consistent with cigarettes and other tobacco products. But because these new products don't always fit neatly into existing tax categories, it's been a challenge to create a level playing field.
Spain's new e-cigarette tax is an attempt to address this issue head-on by creating a dedicated tax category for these products. Rather than trying to force them into existing tobacco tax frameworks, the new law recognizes their unique characteristics and aims to tax them accordingly.
Scope of the New Tax
The new Tax covers two main categories of products:
- Liquids that, with or without nicotine, can be used in electronic cigarettes or similar vaporizing devices, or to refill them. This includes disposable or rechargeable e-cigarettes and their components like cartridges and tanks.
- Oral nicotine products that do not contain tobacco, such as nicotine pouches or any other nicotine product without tobacco.
Importantly, the new Tax applies to products that are not already covered by Spain's existing Tax on Tobacco Products (ILT), which is regulated by Law 38/1992 on Special Taxes (LIIEE) and transposes the EU Directive 2011/64/EU.
To visualize this, imagine a Venn diagram with two circles. One circle represents products covered by the existing tobacco tax (ILT), while the other represents products covered by the new e-cigarette tax. The new tax is designed to capture those products that fall outside the ILT circle but still contain nicotine or are used for vaping.
Taxable Event and Transitional Regime
The taxable event under the new Tax is the manufacture, importation, and introduction of subject products into Spain's internal territory. The tax is typically triggered when the product leaves the factory or fiscal warehouse where it was stored after entering the country.
However, the law also establishes a transitional regime for products that are already in Spain's internal territory, have not yet been sold to consumers, and would have been subject to the tax if it had been in force at the time they were manufactured or imported.
This transitional regime is designed to ensure that the new Tax takes effect in a timely manner, rather than being delayed until existing product inventories are exhausted. It does this by taxing the possession of stored products intended for commercial purposes, with holders of such products being required to declare their inventories as of April 1, 2025 and pay the corresponding tax.
Implications for Businesses and Consumers
The new regulation requires manufacturers and distributors of tobacco-related products or products containing nicotine to reexamine whether their products are subject to the existing tobacco tax (ILT) or the new Tax, and to adapt their systems to comply with the management obligations derived from these taxes.
This means that businesses will need to carefully review their product lines and determine how the new Tax applies to each item. They'll also need to update their accounting and reporting systems to ensure they're correctly calculating and remitting the tax to the authorities.
For consumers, the most noticeable impact will likely be on the price of affected products. As businesses adjust to the new Tax, some of the additional cost may be passed on to consumers in the form of higher retail prices. The exact impact will depend on factors like the specific product, the manufacturer's pricing strategy, and market competition.
Conclusion
Spain's new e-cigarette tax represents a significant development for the vaping industry and consumers. By taxing e-cigarette liquids, nicotine pouches, and other related products, the government aims to bring the taxation of these products more in line with traditional tobacco taxes and regulate their consumption.
Businesses will need to carefully review the new law and ensure they comply with registration and reporting requirements. For consumers, the Tax may lead to an increase in the cost of vaping, although the exact impact remains to be seen.
Looking ahead, it's likely that we'll see further regulatory and tax changes in Spain and across the EU as policymakers grapple with the evolving landscape of nicotine products. The challenge will be to find a balance that protects public health, ensures fair taxation, and provides clarity and certainty for businesses and consumers alike.
The introduction of this new Tax in Spain can be seen as an important step in this ongoing process. While it may create some short-term challenges and adjustments, the hope is that it will contribute to a more consistent and comprehensive approach to the regulation and taxation of e-cigarettes and related products in the long run.
