Innovative products are a relatively new concept in the Polish legal order, introduced for the purposes of excise duty. Due to the emergence of new solutions regarding the way of working of tobacco products, or more broadly non-drug smoking products, it became necessary to clarify information on how to calculate the tax base of such products.
In the individual interpretation issued on April 8, 2020, the Director of the National Tax Information presents the stand regarding excise taxation of tobacco cartridges used in heating devices.
In the description of the future event, the Applicant describes the product they intend to produce – these are tobacco cartridges for heating devices. They would contain tobacco both in a roller placed in the heating device and in a filter that would protrude above the heating device.
The applicant emphasizes that when using this product, the tobacco contained in the filter should not be subject to excise duty, as it does not supply an aerosol, but only adds flavor. According to him, the tax base should not include the aluminum filter and wrapper, because they do not provide an aerosol and do not constitute a mixture.
The Director of the National Tax Information mostly did not agree with the way of understanding the regulations presented by the Applicant.
First, the tax authority stated that the entire product – consisting of a tobacco roller, aluminum foil wrapping it, filter and paper casing – constitutes a single innovative product.
His stand is motivated by the fact that by heating the tobacco contained in the roller, the user can inhale substances and sense the aroma, which is further intensified by the tobacco contained in the filter.
The tobacco contained in the filter, although not heated, changes the final composition of the mixture supplied to the user of the product, as it provides additional fragrances. The impact of tobacco present in the filter on the final composition of the mixture (aerosol) determines that it should be included in the excise tax base.
Moreover, the tax authority reminds that the whole mixture contained in the product is subject to excise duty, not just tobacco or dried tobacco. This is due to the fact that the purpose of taxing innovative products with excise duty was to ensure analogous tax treatment of products belonging to the category of stimulants (and thus both traditional tobacco products and their substitutes).
According to tax authority, there is no doubt that the mixture in a roller and tobacco in the filter need to be taxed. The authority distinguishes two tax-different variants in terms of including the filter in the tax base.
If the tobacco contained in the filter will be a separate component from the material from which the filter was made (it will not be combined with the material), then the weight of the filter should not be included in the tax base.
If the tobacco is applied to the material from which the filter is formed, in the form of tobacco dust, and is therefore combined with this material and does not constitute a separate component, the tax base for the innovative product will be the total amount of tobacco with other substances in the tobacco roller and the weight of the filter containing tobacco dust, which is in this case an inseparable component.
The tax base does not include parts of the innovative product that are not a mixture of tobacco or dried tobacco – this means that the weight of the aluminum wrapper should not be taken into account when calculating the tax base for an innovative product.
Based on: Letter of April 8, 2020. Director of National Tax Information 0111-KDIB3-3.4013.11.2020.2.2JS Excise taxation on innovative products.
It is enough to enter any newsagent or shop selling smoking products to find out that smoking products indicated in the title are not marked with excise bands. This probably means that no excise duty was charged to them, nor were they subject to a number of obligations related to the production or movement of excise goods (e.g. production in a tax warehouse, which was the case here). The interpretation described above may therefore mean incoming trouble for potential taxpayers.
As for the assessment of an interpretation, innovative products are defined as products that are:
a) a mixture containing tobacco or dried tobacco,
b) the mixture referred to in point a, and containing liquid for electronic cigarettes separately
– other than products referred to in article 98 paragraph 1 and article 99a paragraph 1 that provide the aerosol without burning the mixture.
Undoubtedly, what results from the description contained in the interpretation, we are dealing here with a mixture of tobacco or dried tobacco and inhalation of the aerosol. Unfortunately, the applicant also admitted that the mixture does not burn. It seems that, in fact, the only way to prove non-taxation would be:
– showing that there is no mixture here, or
– showing that, in technical terms, tobacco does not supply an aerosol.
The second issue here is the essence of the dispute – the applicant claimed, and the authority denied – in both cases in principle without justification. Of course, in interpretative proceedings, evidence is impossible, although it is true that the applicant should have justified their stand more widely. Fortunately, there are proceedings in which such verification is possible and the taxpayer has the opportunity to initiate them.