Sugar tax ‘would breach EU competition law’

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Taxing sugary drinks would risk Ireland breaching European competition law again, an industry lobby group has warned.

The Irish Beverage Council told the government that a proposed levy on sugary drinks could break European Commission state aid rules. The group, which is part of the Irish Business and Employers’ Confederation, claimed that Ireland’s reputation could be further damaged if it was found to be in breach of such rules again after the Apple decision last summer. The commission ordered the Irish government to recoup €13 billion plus interest from Apple because of two breaches of state aid rules in 1991 and 2007.

Similar sugar tax legislation was scrapped in Finland after a complaint over state aid laws.

The last government failed to introduce a new tax on sugary drinks, an anti-obesity measure that had been included in the Fine Gael manifesto. It did not make it into the budget despite pressure from the Department of Health.

The department is pressing to introduce the levy in April 2018, around the same time as the UK bring in a similar tax. Simon Harris, the health minister, has said that he believes the levy will be included in this year’s budget.

Colm Jordan, director of the IBC, warned that passing a punitive tax based on “populist politics” would not work and could be open to legal challenges.

“This is a critical moment for the government and Ireland’s position as a tax authority. This is not the time to be taking new adventures that could breach state aid rules,” he said.

In its submission to the Department of Finance on the measure, Mr Jordan’s organisation warned that a sugar tax would breach EU state aid laws.

Milk or fruit juice products with high sugar counts could be exempt from the tax, which the IBC argued would equate to supporting one sector through the tax system. It said that it also had “substantial concerns” about the impact the tax would have on small and medium enterprises in the beverage industry.

Finland passed a sugar tax but scrapped it after informal discussions between it and the European Commission. The Finnish Food and Drinks Federation had made a state aid complaint because the tax applied to some foods but not others.

“Even if everyone in Ireland agreed to this tax, there is nothing to stop the Finnish juice corporation, or the Italian one, or anyone, taking a case to the European court,” Mr Jordan said.

He said most evidence indicated that reformulation — reducing the amount of sugar in products — was the easiest way to tackle obesity rather than taxation.

In its tax strategy, the Department of Finance said it recognised that the proposed sugar tax risked breaching state aid rules.

It is up to member states to inform the European Commission if it believes a new tax policy needs to be assessed. The commission’s competition authority did not comment on whether the proposed sugar tax breached state aid rules. The Department of Finance said it was considering all submissions.

“Officials are continuing to engage regularly with the industry and the industry representative body, the Irish Beverage Council trade body of Ibec. As the latest step in this process, last week officials held a series of one to one meetings with the main stakeholders in this area,” a finance spokesman said.

Michael Noonan, the finance minister, had originally stalled plans to pass the law after the Department of Finance had been told that soft drinks companies could leave Ireland if legislation to penalise the purchase of sugary drinks was introduced.

Documents released under the Freedom of Information Act show that the only two meetings Mr Noonan attended on the tax were with Coca-Cola.

Irial Finan, the company’s executive vice-president, and Ronan Farren, its director of public affairs and communications, met with Mr Noonan on December 7. It followed a meeting with Mr Finan on June 22 last year, where the tax on sugar-sweetened drinks was first discussed.

Emails between Coca-Cola and the department said that Mr Noonan had requested a second meeting with Mr Finan later in the year. Mr Finan, who is originally from Castlerea in Co Roscommon, is now based in Atlanta, Georgia.

“Minister Noonan and Irial met during the summer and at that time the minister suggested that they meet again the next time he is in town to follow up discussions which revolved around the Coca-Cola company’s current and potential future investments in Ireland,” Cillian Murphy, a press officer working on behalf of Coca-Cola, said in an email on November 30, released as part of the FOI request.

“Since Irial and the minister last met, the minister announced an industry consultation process on the proposed tax on sugar-sweetened beverages. It is anticipated that this is also likely to come up during the discussion,” the email added.

The Department of Finance said the meetings between the minister and the Coca-Cola executives had no bearing on the decision not to include the sugar tax in last October’s budget.

“Following requests for meetings, Mr Noonan met with Coca-Cola twice, on each occasion the proposed sugar tax was one of a number of issues discussed,” a spokesman for the Department of Finance said.