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Italy: E-Cigarette Taxation Regime

(Aug. 10, 2015) On May 15, 2015, the Constitutional Court of Italy published a decision that invalidated a legal provision on the taxation of e-cigarettes. (Corte Costituzionale, Sentenza No. 83/2015 (Apr. 15, 2015), Constitutional Court website (in Italian).) The Court invalidated article 11(22) of Decree-Law No. 76, First Emergency Measures on the Promotion of Employment, Particularly Among Youth, on Social Cohesion, as well as on Value-Added Tax (VAT) and Other Urgent Financial Measures (D.L. No. 76). (D.L. No. 76 (June 28, 2013), GAZETTA UFFICIALE [G.U.], No. 150 (June 28, 2013), NORMATTIVA (in Italian).)

Pursuant to article 11(22), an administrative agency had imposed an excise tax on e-cigarettes for the year 2014 equivalent to 58.5% of the selling price. The Court held that article 11(22) gave unconstitutionally broad discretion to the agency, in violation of article 23 of the Constitution, which requires the legislature to provide guiding criteria for administrative determinations involving taxation. The Court found the law unduly broad because it did not specify what products could be considered substitutes for tobacco, and could be applied even to e-cigarettes that do not include nicotine. (Sentenza No. 83/2015, supra.)

The tax at issue in the decision had never been applied, however, because an administrative tribunal had suspended its implementation before it went into effect, and new provisions on the taxation of e-cigarettes were enacted while the litigation was pending. (La sentenza della Consulta: illegittima l’imposta del 58,5 per cento sulle sigarette elettroniche [The Decision of the Consultation: Illegality of the 58.5% Tax over E-cigarettes], CAMERA DEI DEPUTATI (May 15, 2015).)

The current legal regime on the taxation of e-cigarettes in Italy is composed of:

  • Legislative Decree No. 188, Provisions on the Taxation of Tobacco Products, Their Substitutes, and Matches, in Accordance with Article 13 of Law No. 23 of March 11, 2014 [L.D. No. 188] (Dec. 15, 2014, in force on Jan. 1, 2015), G.U., No. 297 (Dec. 23, 2014) NORMATTIVA (in Italian); and
  • Decree of December 29, 2014, Provisions on the Marketing of Products by Inhalation Without Combustion Consisting of Liquid Substances Containing or Not Containing Nicotine [Marketing Decree], G.U., No. 302 (Dec. 31, 2014) (in Italian), which contains administrative provisions implementing Legislative Decree No. 188.

L.D. No. 188 addresses the taxation of tobacco products and their substitutes, including e-cigarettes. The Decree defines “tobacco for inhalation without smoke” (i.e., e-cigarettes) as “tobacco products without smoke that can be consumed without a combustion process.” (L.D. No. 188, art. 1(1)(a)(2).) The definition of e-cigarettes also includes products inhaled without smoke consisting in whole or in part of solid or liquid substances other than tobacco. (Id. art. 1(1)(b)(1).) L.D. No. 188 establishes a minimum tax for such products. (Id. art. 1(1)(c) & (d).)

Mechanical and electronic devices, including spare parts, that allow the consumption of products containing nicotine or other substances that are a substitute for the consumption of manufactured tobacco are excluded from the excise tax. The excise tax is applied only on the fluids used in e-cigarettes, under specific conditions. (Id. arts. 1(8) & 2(1).) Fluids used in e-cigarettes are subject to a consumption tax of 50% of the rate applicable to the equivalent quantity of cigarettes, determined by a complex formula established in L.D. No. 188. (Id. art. 1(1)(f)(1).)

The Marketing Decree concerns in particular the registration of liquid inhalation products; the obligations, including the accounting requirements, of their producers and distributors; the registry for the products; and the assessment and payment of taxes on the products. (Chamber of Deputies Research Service, Provisions on Taxation of Tobacco Products and Their Substitutes, as well as on Matches, Legislative Decree December. 15, 2014, n. 188 (Art. 13 of Law 23/2014) – Outcome of Advice to the Government, Dossier of Documentation, XVIIth Legislature, Acts of Government No. 111 (Feb. 11, 2015) (in Italian).)