The Internal Revenue Service lost the battle over the sugar tax. NSA agreed with the company

According to Rzeczpospolita, the tax office lost the battle over the so-called sugar tax. On Wednesday, the Supreme Administrative Court disagreed with the tax office that the legislator classifies substances of natural origin only as a taxable drink, and not as ingredients based on which drink is produced.

Sugar tax. Fisk is losing the battle

The battle over this issue went on for more than two years. It started in November 2020, two months before the law on the introduction of the sugar tax came into force. Then one of the companies turned to the tax office for clarification of the provisions of the new regulation. The concerns of the companies related to flavored waters and fruit nectars for children, which she was engaged in the production, distribution and sale. The company indicated that both of these products contain water, fruit puree and fruit juice (concentrated) in which sugars occur naturally. They do not contain any additional sweeteners, taurine or caffeine as required by the Act. The company stressed that the legislator’s intent was to charge for drinks that have added certain substances to sweeten them, and thus, in a somewhat artificial way, make them more palatable to consumers. Thus, the levy should not apply to drinks that, although containing such substances, are the source of their “normal” ingredients, in which sugars occur naturally.

The IRS did not share this argument. According to officials, natural substances are classified by the legislator as a paid drink, and not as ingredients on the basis of which it is produced. Thus, the natural substances in a drink should match the characteristics of the drink, not the ingredients. Therefore, food products containing monosaccharide or disaccharide sugars, even if they occur naturally, but added during the production of the drink, are no longer natural substances. Fruit juice containing natural sugar added during the production of a drink is an additive to a sugar-containing food product. As a consequence, the tax office decided that flavored water and fruit nectars were taxed on sugar.

The company filed a complaint with the Voivodeship Administrative Court in Warsaw, emphasizing that the product, which is a mixture of fruit juice and water, in which fruit juice is an ingredient and a source of sugar, contains only natural sweetness. Therefore, it is not subject to the sugar tax (only water and fruit juices are exempt). This argument did not convince the provincial administrative court, which sided with the tax office.

Only the Supreme Administrative Court agreed with the company, which considered the notion of a drink to be key to the case, since its scope must be observed in order to be able to speak about the application of the contested fee. The definition of a drink has two parts. Firstly, it is a product in the form of drinks and syrup, which is a food product included in the corresponding class of the Polish Classification of Goods and Services, which contains at least one of the substances, i.e. sugar, caffeine and taurine. And secondly, the exclusion of substances found in it in nature is shown.

Judge of the Supreme Administrative Court Pavel Borshovsky explained that if in a specific actual state we find that substances occur in nature, they cannot be included in the definition of a drink. As a consequence, it is not possible to apply a tax on sugar. According to the Supreme Administrative Court, the way in which this key phrase is interpreted by the court of first instance for the tax office cannot lead to a situation where the exclusion of naturally occurring substances only applies to the drink and not to its constituents. . Such reasoning contradicts the essence of the controversial legal definition and narrows the scope of its application with consequences for the material amount of remuneration. The decision is final.

Lower-than-expected tax revenues

Recall that the tax on sugar was introduced from January 1, 2021. Its regulation rests with manufacturers and importers. The fee is divided into fixed and variable parts. The fixed part is PLN 0.50 per liter of a drink with sugar and/or sweetener, the surcharge is PLN 0.10 per liter of a drink with caffeine and/or taurine. In turn, the variable part is PLN 0.5 for each gram of sugar in excess of its content of 5 grams per 100 ml per liter of drink. The upper limit of the fee is set, which is PLN 1.20 per liter of drink.

The initiator of the sugar tax was the Ministry of Health. The ministry emphasized that it was about promoting healthy eating among Poles, but also did not hide the fact that the income that the tax will bring is not without significance (96.5 percent of the funds from the collection goes to the National Health Fund, the remaining 3.5 percent to the National health care fund) to the state budget).

At the beginning of this year - on the second anniversary of the introduction of the tax - we asked the ministry for data on the revenues that have been received so far from the tax.

– income from the so-called sugar tax in 2021 amounted to more than PLN 1.6 billion (exactly PLN 1,625,517,929.30), and from January 2022 to October 2022 - more than PLN 1.3 billion (exactly PLN 1,344,670,907.53) – This was reported to Wprost.pl by Maria Kuzniar from the Communications Department of the Ministry of Health.

Meanwhile, in assessing the impact of the sugar tax regulation project, the Ministry of Health estimated that the revenue from it would amount to about PLN 3 billion per year. The data above shows that such revenues were received less than two years after the introduction of the tax.