Cheers! Ireland gets sweet deal on state aid

The European Commission has approved, under the State Aid rules, Ireland's proposed "sugar tax" on sweetened water-based and juice-based beverages.

In February 2018, Ireland notified formally to the Commission the country's plans to introduce a sugar sweetened drinks tax.  The tax would apply to soft drinks, i.e., water-based beverages and juice-based beverages containing added sugar with a sugar content of 5 grams or more.  The tax was designed to curb obesity.

On 24 April 2018, the European Commission approved under the EU's State aid rules the proposed sugar sweetened drinks tax.

Interestingly, the Commission decided that Ireland's sugar sweetened drinks tax does not involve State aid and, in particular, the Commission found that the measure's scope and design are consistent with the health objectives pursued by Ireland, namely, tackling obesity and other sugar-related diseases.

In announcing its decision, the Commission reiterated that it is a Member State's right to decide on the objective of different taxes and levies. However, in order to comply with EU State aid rules, Member States must design taxes in a non-discriminatory manner.

The Commission commented in its press release:

"The Commission in its assessment found that soft drinks can be treated differently to other sugary products in view of health objectives. For example, the Commission took into account the fact that soft drinks are the main source of calories devoid of any nutritional value and thereby raise particular health issues. Furthermore, soft drinks are particularly liable to lead to overconsumption and represent a higher risk of obesity, also compared to other sugary drinks and solid food.

On this basis, the Commission concluded that the scope of the Irish sugar sweetened drinks tax and its overall design are consistent with the health objectives pursued and does not unduly distort competition."

It is notable that the Commission used the word "main" rather than "only" source of calories devoid of any nutritional value so it will be worth studying the Commission decision when it is published finally.

The tax was due to enter into force on 7 April 2018 but was delayed pending the European Commission approval because Member States may not implement a measure which would amount to a State aid without prior European Commission approval and Ireland understandably took the precaution of waiting for the Commission's decision.

The Commission's final decision is not yet available but the reasoning in it will be very interesting and worth studying because it might give some comfort to other Member States introducing such measures and also help give clarity as to what the Commission regards as acceptable health measures from the perspective of EU State aid law.

For further information, contact Dr Vincent Power, Partner, or any member of the EU, Competition & Procurement team at A&L Goodbody.

Date published: 27 April 2018