Swedish cider maker Kopparberg has filed a High Court claim against HMRC over allegations of unlawful tax discrimination.
Kopparberg argues that the UK applied excessive duties on imported alcoholic ciders by allowing domestic producers to dilute their products to avoid taxes.
The tax loophole, known as post duty point dilution (PDPD), allows UK-based producers of flavoured wines and ciders to pay duty only on high strength wine concentrates imported to Britain, rather than on the finished product.
Kopparberg, which until recently imported all its drinks from its brewery in Sweden, accuses the government of knowingly providing the loophole in a way that unfairly reduced its own profits.
In papers lodged at the High Court, seen by the Financial Times, argued the tax rules gave an “unfair and unlawful advantage” to UK-based producers because it breached EU state aid rules that require all companies to be treated equally.
Industry experts told the newspaper that if Kopparberg won its case it could open the floodgates to a tide of similar claims from other importers of alcoholic drinks, including top supermarket chains.
The practice of PDPD was banned for beer in 1993 and for pure cider in 2001, but remained in place for mixed products such as flavoured ciders and alcopops.
HMRC finally closed the loophole in April last year following a warning by the European Commission in 2017 that the practice broke EU state aid rules.
Lawyers for HMRC argued that the tax regime was not discriminatory to EU companies such as Kopparberg because nothing was preventing them from setting up in the UK and taking advantage of the same loophole.
“The claim that PDPD conferred an economic or selective advantage on domestic producers . . . depends on the claim that the claimants and other importers could not readily have used PDPD,”
Tax does have to be taxing.
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