Europe's highest court has ruled against allowing consumers to avoid paying domestic excise duties when they order cheap alcohol and cigarettes from abroad.
The judgment was welcomed by the Government, which stood to lose valuable revenue on excise duty and VAT on these goods if the court had eased restrictions for online shopping within the EU. In yesterday's ruling the European Court of Justice (ECJ) upheld a 1992 EU law that duty is charged in the EU state where goods are bought for personal use - but only if transported by the purchaser.
The court found that goods bought in other EU countries would have to be brought back physically by the purchaser, rather than transported back by a shipping company, to avoid paying domestic excise duties.
This means travellers will still be allowed to bring back significant quantities of alcohol and cigarettes when they return from a holiday or a business trip in Europe.
However, the judgment clarifies that people will be liable for excise duty if they order these goods on the web or by phone and have them transported back by a third party or shipping company.
Levels of excise duty vary widely, with Ireland levying among the highest rates for alcohol and cigarettes in the EU. For example, the Government levies €2.1 on a 750ml bottle of wine, while 13 EU states charge no excise duty on the same product.
High VAT and excise duty on tobacco products in Ireland also mean 20 cigarettes can cost several times more than if bought in Latvia or Poland.
Several EU states that levy high excise duty and VAT on alcohol and cigarettes had argued to the ECJ that there should be a strict interpretation of the rules on "personal use and transportation" to prevent the loss of billions of euro in excise revenue.
Minister for Finance Brian Cowen said the court had made a good decision and he welcomed that the tax base would not be threatened.
The Government collected €1.038 billion excise on alcohol and €1.080 billion on tobacco in 2005.
Retailers, who feared their customers would begin shopping online for alcohol and cigarettes, also welcomed the decision.
But consumer groups were disappointed and predicted that further court challenges would be taken.
The ECJ case was brought by a Dutch wine enthusiast who set up a group to buy duty-paid French wine for delivery to members in The Netherlands for their own use.
The Netherlands charged him excise duty, even though French taxes were already paid, as third-party transport was involved. So the wine circle appealed against the Dutch tax.
The court chose not to follow an opinion issued by the advocate general to the ECJ in March that would have enabled consumers to avoid excise duty when buying goods from abroad online.