Customs releases steam – Newspaper Kommersant No. 174 (7375) of 09/21/2022

The business of importers of popular disposable electronic nicotine delivery devices (ENDS) has been seriously affected. Customs authorities have begun requiring companies, in addition to paying excise duty on the device, to pay excise duty on the liquid it contains. Market participants are appealing against the actions of customs in court, but lawyers believe the chances of success are low.

A large ENDS distributor, Babylon Vardex Group, filed a lawsuit with the Moscow Arbitration Court to declare illegal the actions of the Central Excise Customs (CAC), including decisions on the classification of goods. The definitions are published in the files of cases. The chief lawyer of Babilon LLC Artem Shevelin explained that in addition to the paid excise tax on the device, the customs authorities demanded payment of an excise tax on the liquid that the evaporator is impregnated with. The requirements relate to goods imported in 2020-2022, their size is not disclosed. Preliminary hearings on the claims are scheduled for September-October.

The Babylon Vardex Group includes the Babylon Vapeshop chain of stores, the assortment includes NOQO, Pons, HQD, Phix, myBlu devices, etc. The main owner is Sergey Bronetsky, follows from the Unified State Register of Legal Entities. He also acts as a co-owner of International Tobacco Group and International Tobacco Group Volga, former Russian structures of the British tobacco concern Imperial Brands (brands Davidoff, West, Jade, P&S, etc.).

As explained in the Union of Enterprises of the Industry of Nicotine-Containing Products (SPINI), disposable ENDS are subject to excise duty at a rate of 62 rubles. per device. But, following the letter of the Ministry of Finance dated July 27, 2022, where the liquid for ENDS is called a separate excisable product, the customs authorities began to require suppliers of disposable ENDS to pay and excise on the contents, SPIN indicates. The size of the requirements there is estimated at “billions of rubles.” The TsAT told Kommersant that they are carrying out customs control measures in relation to ENDS in accordance with customs legislation. The Ministry of Finance confirmed that liquid for ENDS is subject to excise duty, regardless of whether it is sold as a set of ENDS or separately.

SPIN notes that the combined excise tax for disposable ENDS is only planned to be introduced: the relevant bill was adopted by the State Duma in the first reading this September. In the document, the excise rate for this year is set at 62 rubles. per device plus 17 rubles. for 1 ml of liquid. Reusable ENDS, such as Logic, glo, etc., are already subject to a combined excise tax, including 62 rubles. per device plus 17 rubles. for 1 ml of liquid. Oleg Barvin, Director of the Legal Affairs Department at BAT (glo brand), notes that it is necessary to form a common understanding of tax rules in order to prevent budget losses and ensure equal competitive conditions. In addition, a significant part of vape products are imported illegally and excise is not paid from them at all, he adds.

SPIN director Dmitry Vladimirov points out that the pressure on big players only “presses the market into a huge gray zone”, making legal business economically unprofitable for suppliers and sellers. Artem Shevelin believes that the situation requires holding an interdepartmental meeting to discuss the issue of eliminating the potential double taxation of single-use ENDS before the adoption of amendments to the legislation.

Denis Rudenko, head of the customs law practice at the RI-consulting law firm, calculated that with the current requirements of the customs authorities, tax payments by importers of disposable ENDS could double. In his opinion, such products should be subject to excise duty once. But, the lawyer adds, practice, including judicial and legal, is formed by the customs authority. Alimirzoev and Trofimov’s lawyer William Mkrtychyan notes the trend of reducing the number of court decisions in favor of importers in disputes over contesting the declaration of goods. In 2009–2014, the courts sided with the declarant in 80% of cases, and by the end of 2021, only 50–60%, he points out.

Anatoly Kostyrev