Judgment of the Düsseldorf Fiscal Court of 3 June 2025, case no. 4 K 1370/24 VTa
The facts
The Federal Police stopped a car from the Netherlands. The driver and one passenger were in the vehicle. Inside the car, the Federal Police found untaxed smoking tobacco, glycerine, flavourings (“Doppelapfel”), and empty packaging for waterpipe tobacco. The goods carried no German tax stamps. The claimant (the passenger) stated that he had thought the items were sweets. The driver stated that he had picked up tobacco and accessories for an acquaintance.
In the subsequent administrative proceedings, the Main Customs Office assessed tobacco tax against the claimant in respect of the pipe tobacco, as well as the glycerine and flavourings (the latter being assessed as “substitutes for tobacco products”). The claimant’s objection to the tobacco tax assessment notice was unsuccessful, and he subsequently brought an action before the Fiscal Court.
The Fiscal Court’s decision
The action was partly successful.
As regards the glycerine and the flavourings, treated as “substitutes for tobacco products,” the Fiscal Court set aside the tobacco tax assessment notice; as regards the smoking tobacco, however, it upheld the tax assessment.
It gave the following reasons for its decision regarding the glycerine and the flavourings:
Section 1(2c) of the German Tobacco Tax Act (TabStG) covers substitute products for tobacco products (for example, e-cigarette liquids) that are directly consumable. Pure glycerine and pure flavourings, the court held, are not substitute products, but merely ingredients for waterpipe tobacco. From the term “substitutes for tobacco products” in Section 1(2c), second sentence, TabStG, together with the distinction required under Section 1(2c), first sentence, TabStG from other dutiable products, it follows that the intended purpose of the product must be taken into account when classifying it as a substitute for tobacco products. These substances, the court noted, can also be used in the food and chemical industries and are therefore not unambiguously tobacco substitutes.
The substances were, in every case, components required for the manufacture of waterpipe tobacco, a premise the legislator had itself assumed. Accordingly, a waterpipe is not a “device” within the meaning of Section 1(2c), first sentence, TabStG. In addition, the liquids as such, owing to their physical state, are not suitable for consumption in a waterpipe. Rather, further processing into waterpipe tobacco is required for that purpose, that is, combination with smoking tobacco as a carrier substance.
Nor, in the Fiscal Court’s view, can it be inferred from the explanatory memorandum to the legislation that the legislator intended to tax, as substitutes for tobacco products, liquids that, as ingredients, still had to be further processed into waterpipe tobacco, a different dutiable product. The legislator had been prompted to introduce Section 1(2c) TabStG, among other things, by the consideration that preparations in liquid form could not be taxed as products comparable to smoking tobacco or cigarettes under Section 1(8) TabStG. Furthermore, in introducing Section 1(2c) TabStG, the legislator had had in mind the consumption of nicotine-containing or nicotine-free liquids in e-cigarettes as substitute products for cigarettes and smoking tobacco, whereas it had subjected waterpipe tobacco to an additional tax by means of the Act on the Modernisation of Tobacco Tax Law.
For waterpipes, Section 1(2b) TabStG (waterpipe tobacco) applies, not the provision on substitutes. Taxation as “substitutes” would result in a disproportionately higher tax burden than that applicable to finished waterpipe tobacco.
As regards the smoking tobacco, however, the Fiscal Court upheld the Main Customs Office’s assessment of tobacco tax. Untaxed smoking tobacco had been brought into the tax territory from the Netherlands, and the circumstances of the case indicated commercial use (Section 23(1) TabStG). The packaging and the quantity involved argued against private use.
The claimant (the passenger) was also held to be liable for the tax, since, owing to his ability to access the goods within the vehicle, he had joint possession of them. Under the case law of the Federal Fiscal Court (Bundesfinanzhof, BFH), knowledge of the precise contents is not required in order for tax liability to arise.
By Heiko Panke
