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Finance Act 2012

Background Note

3.British compounds are spirits which have, in the United Kingdom, had any flavour communicated to them or ingredient or material mixed with them, not being denatured alcohol. Spirits of wine are plain spirits of a strength of not less than 80 per cent manufactured in the United Kingdom. Section 22 ALDA allows manufacturers of such products to reclaim the excise duty that they have paid on such products when they are exported from the manufacturer’s premises or placed in a warehouse for certain approved purposes.

4.Insofar as section 22 permits drawback on export, it is unnecessary, since identical provision is made by the Excise Goods (Drawback) Regulations 1995 (“the EGDR”). To the extent that section 22 permits drawback in other circumstances (e.g. shipment as stores and warehousing for certain purposes, including export), it is undesirable, since there is no such provision for other spirits and there is no present policy justification for having different arrangements for British compounds and spirits of wine to those that apply to other spirits. Further, it is doubtful whether section 22 is fully compliant with EU directive 2008/118, which concerns the general arrangements for excise duty.

5.It follows that the repeal of section 22 will remove redundant legislation from the tax code, produce greater consistency with the arrangements that apply to other spirits and avoid the minor risk of infraction proceedings.

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