DENIS RUDENKO, HEAD OF CUSTOMS LAW PRACTICE, RI-CONSULTING LAW FIRM

Importers of electronic nicotine delivery systems (ENDS) reported that customs authorities (the Central Excise Customs) began to assess additional excise duty on liquids within already imported and re-imported single-use ENDS for 2020-2022.

According to the business, the customs authorities are guided by letter #03-13-12/72734 from the Tax Policy Department of the Ministry of Finance dated July 27, 2022, which indicates the need for combined excise taxation.

At the same time, importers point out that so far disposable ENDS are only subject to excise tax on the device, while the taxation of liquids in their composition is provided only by Bill No. 69209-8, which is still only being read in the State Duma.

One of the importers has already filed several lawsuits challenging the decisions of customs authorities

The Central Excise Customs said that they conduct measures of customs control over the "electronic nicotine delivery systems" goods.

Expert opinion of Denis Rudenko, Head of Customs Law Practice, RI-Consulting: What are the chances of importers to overturn the decisions of customs authorities? How often do businesses successfully challenge decisions on additional excise duties and customs payments? What will it take? Is it a sufficient argument that the bill on the establishment of excise taxes on liquids has not yet been adopted?

Denis Rudenko: "Looking at the current practice of the customs authorities, namely the Central Excise Customs, which is a specialized customs authority for the collection of customs duties and excise taxes on excisable goods, we can say the following.

The above-mentioned letter of the Ministry of Finance of the Russian Federation fundamentally changed the entire practice of collecting excise duty on electronic nicotine devices. Previously, excise duty was levied only on the device itself. After the release of the abovementioned letter the customs, namely the Central Customs Office, began to apply a double rate of taxation - the tax is imposed on the device itself and separately nicotine, nicotine liquid, which is contained in this device.

From the point of view of a law enforcer, I honestly doubt the correctness of the above decision. Because if one is saying that the device itself contains nicotine, then that device should be charged as a single device containing nicotine. And there is no need for the 2nd time to tax the liquid that is in this device, because that rate of customs payments and the Foreign Economic Activity Commodity Nomenclature Code already provides for charging payments from the device, which contains the liquid.

Yes, if the device is to be refilled with this liquid, of course, it is necessary to tax devices and the liquid that comes separately with the device or the liquid that comes separately and can refill the aforementioned device. Regarding devices that already contain liquid, I believe that this is wrong, but the customs authority is the enforcer. It forms practice, including judicial and legal practice. We all follow very closely the lawsuits filed by the importer, because all importers of the above items, namely electronic nicotine delivery devices have now all been subjected to this double taxation. Accordingly, that everything related to excise goods - both alcohol and tobacco and nicotine products - attracts the special attention of the customs authorities.

It is also important to say that the change in the practice of application of the excise tax in connection with this letter has led to double taxation and increased costs for participants of foreign economic activity, namely for importers. If earlier they had planned one sum of payment of customs duties, now this sum increases twofold. We can also add the following, that all this "nicotine" story is connected with high criminal and administrative risks, which partners are trying to bypass in every possible way," the lawyer commented.

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