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Taxation of ethanol used in the production of medicinal products

12 Feb 2016

A recent ruling by the European Court of Justice confirms that there is no obligation to pay tax on ethanol used for cleaning purposes during the production of medicinal products. This ruling has additional implications for the manufacturers of homeopathic medicinal products.

Case C-306/14 of 15 October 2015 (Direktor na Agentsia ‘Mitnitsi’ v Biovet AD, Bulgaria) considered exemptions from harmonised excise duties on alcohol and alcoholic beverages, in particular in relation to ethyl alcohol as used for cleaning and disinfection of equipment and facilities used in the product of medicines. It clarified that the phrase ‘for the production of medicines’ in Article 27(1)(d) of Directive 92/83 does not only apply to alcohol that is an active acting constituent or part of the composition.

This ruling therefore clarifies that ethyl alcohol used to disinfect the facilities and equipment used in the production of medicines should be exempt from tax under European law.

It has further important implications for the manufactures of homeopathic medicinal products as it also applies in the following cases:

  • the manufacture of impregnated homoeopathic pillules (Ph. Eur. 2079): pillules for homoeopathic preparations (Ph. Eur. 2153) are impregnated with one or more liquid homoeopathic preparations, each made with ethanol, which evaporates during impregnation
  • the manufacture of homoeopathic tablets (method 4.2.1 Ph. Eur., or HAB 7: triturations): ethanol based dilutions are incorporated into lactose, dried, potentised and compressed to tablets. During drying ethanol is eliminated.

It remains to be seen how the European tax authorities will change their administrative practice.

References: Relevant terms of the ECJ decision C-306/14

  • “27. First, Article 27(1)(d) is worded in very general terms. The requirement for the alcohol to be used ‘for the production of medicines’ does not of itself express a need for the alcohol to be used as a constituent of the medicine. If the EU legislature had wished to express that notion, it would have specified that the exemption was to apply in cases where the alcohol was used ‘in the composition of medicines’ or ‘as a constituent in the preparation of medicines’.

  • 36. I propose that the Court should rule that Article 27(1)(d) of Directive 92/83 should be interpreted as meaning that ethyl alcohol used to disinfect the facilities and equipment that enable an undertaking to produce medicines is deemed to be used ‘for the production of medicines’ within the meaning of that provision.

  • 40. In other words, it is impossible to envisage medicine production operations being carried out without the associated disinfection of facilities and equipment. Since disinfection is inherent to the process of medicine production, the ethyl alcohol used for that purpose must necessarily be deemed to be used ‘for the production of medicines’ within the meaning of Article 27(1)(d) of Directive 92/83.”