Helsinki Court of Appeal 7 February 2023, judgment no. 104938, R 20/1078 (unpublished) – Legality and taxation of distance sales of alcohol

On 7.2.2023, the Helsinki Court of Appeal (HelHO) issued a rather interesting judgment (7.2.2023 No. 104938) related to the import of alcohol, distance selling and the taxation of online alcohol sales. In the judgment, HelHO amended the decision of the Helsinki District Court (20.02.2020 No. 107454) and sentenced the owner of Creative Alpha Solutions Ou (hereinafter referred to as the Company) to aggravated tax fraud for not paying taxes in Finland. However, of the essence was that HelHO unanimously dismissed the charge of aggravated alcohol offence, expressly stating that the import or distance selling of alcohol does not violate Finnish alcohol legislation.

Background to the case

In the case, the Company, established in Estonia, had sold alcohol and tobacco products to Finland through its websites (www.vironviina.com and www.balticbrännvin.se). The company's sales were also actually directed to Finland, as the online store's customers were mainly Finnish, and the online store was written in Finnish and Swedish. The company had no establishment or warehouse in Finland.

In addition, the online store offered only one option for transporting products from Estonia to Finland: on its website, the online store proposed only one company, which the customer could authorize to conclude a transport contract with a separate carrier. However, the authorized company and the carrier were autonomous and independent companies of the Company and did not belong to the same group as the Company.

In the case, HelHO examined the company's operations between 2014 and 2017.

Decision of HelHO (7.2.2023 No 104938)

VAT and excise duties

HelHO stated that, in the case of the described business, the provision of some kind of transport of products can, in principle, be regarded as an integral part, even a prerequisite, of a profitable business. HelHO further considered that the Company had played a dominant role both in the initiative for the transport of goods and in the organization of the essential stages of transportation. Therefore, the goods had to be considered to have been transported to Finland on behalf of the Company within the meaning of the Finnish Value Added Tax Act and the Excise Duty Act.

In other words, the case concerned the cross-border sale of alcoholic beverages to another Member State of the European Union, i.e. the so-called distance selling, for which the seller was liable to pay tax. Since the Company had not paid taxes to Finland, the owner of the Company was convicted of aggravated tax fraud on the basis of effective control.

Distance sales of alcohol

However, HelHO unanimously dismissed the charge of aggravated alcohol offense. Referring to  the Alcohol Act, its preliminary work (HE 247/1998 vp) and previous case law (KKO 2018:49), HelHO stated that the commercial import of alcoholic beverages to Finland is not restricted. This is due in particular to Finland's membership of the EU, which is why obstacles to the free movement of goods are not possible, with some exceptions. Nevertheless, if one wants to engage in commercial or other business activities related to alcoholic beverages in Finland, i.e. to resell these beverages or further process them, a separate licence is required for this purpose.

According to HelHO, however, the case did not involve retail sale of alcohol which would have required a license, as the Company had not transported alcohol to Finland itself, but the transport was instead arranged by an authorized company and a carrier company that were autonomous and independent of the Company. The Company was also not a party to the transport contracts.

Since the importation of alcohol in itself is not contrary to Finnish alcohol legislation, and since distance selling of alcohol is not punishable under the rule of law, and the Company did not engage in licensed retail sales of alcohol, the owner of the Company was not found guilty of an alcohol offence.

Effects of the decision

Although the decision is still final and can be appealed to the Supreme Court, it nevertheless has a significant clarifying effect on the current legal situation regarding distance selling of alcohol. Until now, conflicting official guidelines on distance selling of alcohol have been issued by, for example, Valvira and the Tax Administration, which is why operators in the sector may have considered distance selling to be even prohibited. Alko Oy's retail monopoly in Finland has likely contributed to the confusion.

The decision has made it clear that distance selling of alcohol to Finland is permitted as long as the relevant VAT and excise duties are paid on the sale. In addition, care must be taken to ensure that the company itself does not transport alcohol to their customers in Finland or hire another company to do it on its behalf, as this may involve the licensed retail sale of alcohol.

Intensive control of webstore alcohol by the Tax Administration and Customs

The case is particularly topical due to the intensified tax control by the Tax Administration's and Customs of alcohol purchased from online stores, which started in November 2022 and will continue at least until the end of 2023. The purpose of the intensive monitoring is especially to get uncollected excise duties to Finland.

According to the Customs, since the start of the intensive control, many online stores have changed their practices and switched from distance selling to distance buying. For example, references and recommendations to specific carriers have been removed from the pages of many online stores. In the case of distance buying, as opposed to distance selling, the buyer arranges the transportation of alcohol instead of the online store. In such cases, the buyer is responsible for paying excise duty instead of the online store.

Our Associate Trainee Savva Kuparinen took part in writing this Article.