PRIVATE AND CONFIDENTIAL SUGAR SWEETENED ......23% VAT on sugar-sweetened drinks led the Minister...

PRIVATE AND CONFIDENTIAL

SUGAR SWEETENED DRINKS TAX CONSULTATION

RESPONSE FROM LUCOZADE RIBENA SUNTORY IRELAND (LRSI)

3RD JANUARY 2017

1. EXECUTIVE SUMMARY

Lucozade Ribena Suntory Ireland (LRSI) welcomes the opportunity to respond constructively to this

consultation, yet it should be recognised that we remain in fundamental disagreement with the

principle of the Sugar Sweetened Drinks Tax (SSDT) and comments on the implementation do not

change this position.

Opening Statement

LRSI agrees that current levels of obesity are too high and significant action is needed to address the

issue. The causes of obesity are complex and there is no silver bullet to solve the problem. The key to

success will be bringing about lasting changes in consumer behaviour, which will require action by and

support of all stakeholders, including industry. Sugar intake is only one of many causes of obesity

(ranked from dietary habits to lifestyle/sedentary or to genetic reasons) and sugar contained in soft

drinks account only for 3% of the average calorie intake.1 Setting a discriminatory tax on soft drinks

demonises an individual industry with potentially very serious consequences for our corporate

reputation and our brand equity. It sets the soft drink industry as being solely responsible for obesity in

the country and not drinking soft drinks as the magical solution to an extremely complex problem.

Moreover this is unfair when this has been an industry that has significantly removed calories from the

Irish diet over the last seven years2

However, it is worth noting that Ireland’s VAT system already imposes a tax on soft drinks. The existing

23% VAT on sugar-sweetened drinks led the Minister for Finance, Michael Noonan, to rule out

introducing a specific tax on sugar-sweetened beverages as part of the Budget 2013.3 Despite this high

VAT rate, Ireland’s obesity levels remain stubbornly high. We believe this is sufficient to cast significant

doubt on the efficacy of a sugar tax as a public health intervention.

We believe that this type of tax on consumption which hits all consumers equally regardless of their

health status or income is badly targeted. There is much evidence to show that food based sin-taxes are

1 http://www.iuna.net/wp-content/uploads/2010/12/National-Adult-Nutrition-Survey-Summary-Report-March-2011.pdf 2 The FDII/Creme Global Reformulation Report was launched by then Minister for Health, Leo Varadkar 3 http://www.irishtimes.com/news/noonan-ruled-out-sugar-tax-1.753047


regressive and have a disproportionate effect on low income households.4 The effectiveness of taxation

as a means of tackling obesity is not proven. McKinsey’s 2014 report, Overcoming Obesity: An Initial

Economic Analysis found reformulation of products to be significantly more effective taxation.

Reformulation in the context of soft drinks is described as when “beverage producers deliver small

incremental reduction in the caloric content of beverages that consumers do not notice.”5 This

combined with the development, bringing to market and marketing of new products has been shown to

have been considerably more effective in reducing consumption of sugar and energy intake than the

Health Impact Assessment, undertaken by the Institute of Public Health for the Department of Health,

claims possible through the introduction of a “sugar tax”. A tax on the consumption of sugar-sweetened

drinks would hit all consumers equally, regardless of their BMI or health status. Those of healthy weight

and occasional consumers will all pay more – not just those in whom it is sought to encourage

behavioural-change. It is also important to note that the majority (60%) of Irish adults indicate that the

introduction of a tax would make no difference to their consumption levels of sugar sweetened drinks.

This corresponds to the results found in countries that have introduced a similar tax.6

As a source of revenue, such a discriminatory tax would be extremely unstable and, as the Department

of Finance and Revenue have said, both complex to design and challenging to collect. International

evidence shows that additional taxation on sugar-sweetened drinks does not achieve public health

objectives of reducing incidence of obesity, overweight and related illnesses. Experience shows no

sustained reduction in consumption of soft drinks has ever been caused by imposition of a punitive levy.

There is no reason to think Ireland will prove successful where others have failed.

It is interesting to note Minister Noonan has signalled issues that exist around effective compliance

measures, “to support collection in a Single Market environment in which the free movement of

products cannot be impeded and products cannot be made subject to cross-border or excise movement

controls”.7 We welcome Minister Noonan’s recognition that the issues around cross-border trade will

have to be examined carefully, and that he must “consider the effects that the design and timing of the

introduction of the UK tax may have on an Irish tax on SSDs”.8 We also welcome Minister Noonan’s

commitment to carefully consider all aspects of the design and implementation of the SSDT before he

proceeds, and that he recognises the potential trade distortion if the Irish and UK taxes are not aligned.

4 http://onlinelibrary.wiley.com/doi/10.1002/hec.3006/full 5www.McKinsey.com, Overcoming Obesity: An Initial Economic Analysis, 2014 6 Red C polling 7 Minister Noonan, Dáil Debates, 23 June 2016, PQ reply. 6. Ibid


In this regard, we note that “Brexit”, and the UK’s proposal to leave the European Union, could give rise

to significant implications. The proposed tax measure needs to be able to function in the context of

Brexit. Given cross-border trade on the island of Ireland, it is not immediately apparent how the

Department of Finance and the Revenue Commissioners could accommodate these concerns absent

greater clarification of the UK’s position post-Brexit.

We understand the Irish Beverage Council (IBC) have shared concerns that there could be consequences

for EU rules and restrictions in order to maintain the integrity of the single market. In addition, we note

there are potential unlawful State Aid implications of the SSDT (at least in its current form) which need

to be carefully considered prior to implementation. The consequences of a subsequent finding of

unlawful State Aid could be very significant. In particular, the typical European Commission remedy in

similar situations would be to extend – rather than abolish – the proposed tax measure to a fuller range

of producers and importers. In the Irish context, it seems clear that this could mean that, for example, a

variety of dairy based drink producers would then be caught within the scope of the SSDT. The liability

of dairy producers could be substantial, and the Department of Finance would then be obliged to seek

reimbursement from such producers.

Finally, to make an informed and meaningful Submission, LRSI believe there needs to be clarity on the

key facts of the proposed tax. We have outlined further in the Submission the key facts on which we

require clarity. In the absence of this clarity, we can at this time only base our Submission on the

assumption that the Irish SSDT will align with the UK Soft Drinks Industry Levy in substance and timing.

We welcome the Government’s promise to have detailed consideration and engagement meetings with

the Industry to design the most effective policy instrument post the 3rd January closing date, the

content of which will be considered in the development of the Tax.

The key points of our submission are summarised below:

— We welcome Government’s promise to have further detailed discussions with LRSI post the 3rd

January 2017 to get further clarity on the details of the Tax to allow us to input in an informed &

meaningful manner to the SSDT’s design.

— We believe the Government should align the SSDT with the UK SDIL in structure & timing and

should offer guarantees that the sugar thresholds and tax rates will not alter to compensate for

any decline in revenues as companies and consumers adapt their behaviour.


— LRSI calls on Government to carefully consider the potentially unlawful State Aid implications of

the proposed SSDT. The Government should ensure that the proposed tax does not unfairly

advantage some businesses over others.

— We suggest the tax should become payable at point of invoice.

— We suggest a relief system is required unless the tax is payable at point of invoice. LRSI calls on

Government to make allowances for spoilt or unfit for sale products to which the tax should not

apply.

— We suggest the Government uses the sugar definition in EU REGULATION (EU) No 1169/2011

which forms the basis of a definition of added sugar.

— We would suggest that the tax should not unfairly discriminate against drinks containing

astringent fruits such as blackcurrants.

— The Government should trust and allow manufacturers to set a dilution rate that matches

consumer tastes whilst also serving public policy ends.

— We believe it is appropriate to exempt or offer relief for product donations to registered charities.

— It would be appropriate to exempt specific products with medicinal benefits. LRSI queries the logic

of applying a tax to a product on health grounds that is then used by some Diabetics to manage

their condition.

— LRSI calls for reporting to be on a Brand not SKU level for administrative and cost purposes

— LRSI calls for a review and sunset clause to be built into the tax to ensure its removal

should the health aims be met or the proposal proves ineffectual.


LRSI and Industry action

LRSI is already taking action as part of a responsible industry. In 2013, 60 tonnes of sugar and 240million

calories were removed from Lucozade Energy and Ribena, and in 2015 we pledged to deliver a 20%

calorie reduction across our portfolio by 2025. We are on track: with a 4.5% reduction already delivered

in our first year. This clearly demonstrates that companies are taking voluntary actions to reduce sugar

and calories.

We have achieved this by creating new lower calorie drinks, for example the Lucozade Zero launch

February 2017; reducing the sugars in existing drinks, for example replacing full sugar Lucozade Energy

Pink Lemonade with Lucozade Energy Pink Zero; and by introducing smaller pack formats, such as the

200ml no added sugar Ribena Minis.

Though this submission is based on our current portfolio of products we believe it is important to note

that we have recently announced that from July 2017 we will reduce the sugar in our entire soft drinks

portfolio by over 50%

All the added sugar drinks we make will have less than 4.5g of sugar per 100ml – (4.5g is

approximately one teaspoon.)

Every brand we sell will be available in zero or lower calorie alternatives – we will continue to

invest in low and no added sugar variants as we grow.

Labelling calories clearly on front of pack and introducing new healthier drinks

Invest €5 million over the next three years to help get the nation moving more. This will include

the launch of a new Movement fund that will help disadvantaged groups access sport and activity.

This work will mirror our internal employer commitment to make LRSI one of the healthiest places

to work in the country.

We are deeply proud of the industry-leading work we have been able to do on reformulation which helps

us reach our shared objective with DOH of helping consumers make healthier choices.

The wider soft drinks industry has also invested heavily in reformulation, to reduce added sugar in its

products, and promoting low or no calorie options. The FDII / Creme Global Reformulation Report

launched by then Minister for Health Leo Varadkar showed that IBC members took 2500 tonnes of sugar

and 10 billion calories out of the Irish diet each year between 2005 and 2012. Now 46% of all soft drinks

sold in the Ireland are low and no calorie products.9

9 AC Nielsen


LRSI understands and have acted on concerns about exerting advertising influence over children. This is

why we created our unique responsible code of marketing. This shapes our company’s marketing

behaviours, and goes above and beyond the Irish Industry norm.

In particular:

We do not advertise any products or target marketing communications to any children under 12 years of

age. We will not sponsor events or celebrities that are likely to be of particular appeal to children under

12.

— We do not directly market HFSS categorised products to those under the age of 16.

— Any sponsorship which appeals to 12-16 year olds must encourage physical activity and promote

a balanced and healthy lifestyle.

— These rules apply online and offline, to television and all other forms of communication. They go

further than those operated under Irish legislation.

The lack of effectiveness of a selective sugar Tax

There is no evidence from Ireland or elsewhere that additional taxes on soft drinks deliver beneficial public

health outcomes. Mexico’s tax saw calorie consumption reduced by only six calories a day; France has

seen sales of soft drinks increase again after an initial drop of only 2%; while Denmark scrapped its tax

due to the small impact on public health. The authoritative 2014 McKinsey Global Institute Survey found

HFSS taxes to be well down the list of effective interventions (ranking 13th out of 16 studied),10 while a

recent Oxford Economics report forecast that the levy will result in an average daily calorie intake

reduction of just five calories per person.11

Moreover, even if the SSDT results in fewer soft drinks being purchased by consumers, independent

research and the experience of other European countries suggest that consumers are likely to substitute

their purchases of soft drinks for other products, which in many cases will be unhealthier.12 Product

substitutability studies indicate that consumers would view, for example, chocolate milk products, juices

and smoothies as good substitutes for soft drinks, all of which are likely to contain relatively high levels

of sugar. This would have detrimental effect on any underlying health objective relating to the SSDT. In

addition, such substitutability is problematic from a State Aid law perspective, as these comparable

10 McKinsey Global Institute, How the world could better fight obesity, (London 2014) 11 Oxford Economics, The Economic Impact of the Soft Drinks Levy (London, 2016) 12 Fletcher, J.M., Frisvold, D.E., and Tefft, N. “The effects of soft drink taxes on child and adolescent consumption and weight outcomes,” Journal

of Public Economics (Dec 2010). P. 967-974. Doi: http://dx.doi.org/10.1016/j.jpubeco.2010.09.005 Fletcher, J. “Soda taxes and Substitution Effects: Will Obesity Be Affected?” Choices, Agriculture and Applied Economics Association (2011)

http://dx.doi.org/10.1016/j.jpubeco.2010.09.005


products should be treated equally from a tax perspective (as discussed in further detail subsequently in

this submission). More generally, we note that in France, the introduction of a soft drinks tax led to an

increase in consumption of salted crisps, as consumers switched their purchases towards other "treats",

undermining the health benefits sought by the French Government.13 This illustrates the lack of

effectiveness of such a selective levy, both from a legal standpoint and health policy perspective.

The impact of this tax has the potential to restrict future ability to invest in new innovations in food and

drink technology and may actually prove counterproductive in implementing the Government’s stated

aim of reducing sugar consumption.

This is why we are disappointed that the Government chose to announce a soft drinks tax given the many

proactive steps taken by LRSI & the soft drinks industry and the lack of evidence for the proposed tax’s

effectiveness. Change will only come when we all work together: government, industry and retailers. We

need a holistic approach to affect consumer behavioural changes, not regressive tax measures with no

proven success, and specifically not a tax measure which potentially constitutes unlawful State Aid given

the manner in which it proposes to arbitrarily differentiate between products containing sugar.

Potential impact on industry

Ireland’s food and drink industry is our most important indigenous industry with a turnover approaching

€24 billion. Our reputation abroad as a ‘Food Nation’ is growing every year. Exports have increased

from less than €8 billion in 2010 to just less than €10.8 billion in 2015. Agri-food is Ireland’s most

important indigenous sector employing 50,000 directly, with 180,000 linked jobs in farming and support

industries. IBC’s companies alone employ approximately 3,500 people directly and support a similar

number of additional jobs. Members range from Irish-owned SMEs to major multinational corporations

and operate throughout the country.

We welcome the ambitious plans by this Government to revitalise all of Ireland so that economic

benefits are felt across every community. Uniquely, the food and drink industry is dispersed throughout

all regions of Ireland and is at the heart of the social fabric of rural Ireland. We believe that the

Government has a responsibility to support confidence and competitiveness in this important industry,

and to provide stability and reassurance. We understand that the IBC recognises Ireland’s food industry

as a key driver for our economy and is calling on the Government to work with industry to ensure the

sector is not damaged by taxation which is costly to the consumer, damaging to Irish businesses and will

13 European Policy Center, Food Taxes – What is their impact?, http://www.epc.eu/prog_details.php?cat_id=6&pub_id=5117&prog_id=2

http://www.epc.eu/prog_details.php?cat_id=6&pub_id=5117&prog_id=2


make no sustainable positive contribution to public health. This economic success story is potentially

threatened by the tax.

Potential impact on LRSI

The SSDT will have a direct impact on LRSI and its supply chain at a time when the company faces a

challenging business environment. This is especially true in light of Brexit, which has created significant

regulatory uncertainty for the food and drink sector. Given the importance of cross-border trade on the

island of Ireland, it would seem sensible to await clarification of the UK’s position post-Brexit negotiations

to ensure alignment.

We cannot with certainty estimate the annual cost of the tax to LRSI as the details of the tax have not

been confirmed by Government.

Minimising the negative impacts of the Tax

LRSI understands that the Government will be going ahead with the SSDT regardless of the lack of

evidence in achieving a reduction in obesity. Therefore, in these circumstances, we would urge that the

Government seeks to ensure that it minimises the potential unintended consequences and impacts on

Irish business as far as possible.

We believe that the tax, even if aligned with the UK tax, will distort competition, will have arbitrary

consequences for market participants, and will fail to achieve the health objectives for which it is being

introduced.

To help address some of these issues, the Government should:

— Offer business certainty. Though it is unclear, we assume that the purpose of the tax is to bring

about beneficial changes to consumer and corporate behaviour and so improve public health. We

assume revenue generation is not a goal and should not become one.

We believe the Government should align the SSDT with the UK SDIL in structure & timing and

should offer guarantees that the sugar thresholds and tax rates will not alter to compensate

for any decline in revenues as companies and consumers adapt their behaviour.

— Ensure current exemptions do not distort competition. Any proposed exclusions for small

producers, milk based products, fruit juices and syrups, amongst others, risk treating producers and

importers who are in a similar factual and legal position differently, and are therefore likely to create


an unfair selective advantage for certain producers and importers. This appears to be contrary to the

rules on State Aid law.

Potential distortion is best illustrated by reference to recent State Aid investigations conducted by the

European Commission in respect of measures introduced in other jurisdictions including, for example:

o In Finland, the Commission reached a preliminary view that an exemption for milk-based

beverages from its tax on soft drinks constituted unlawful State Aid, in so far as it had the

effect of taxing producers of milk-based beverages and other beverages differently; and

o In Poland, on 19 September 2016, the Commission released its preliminary assessment that

an exemption from a tax for small producers of itself constituted unlawful State Aid, finding

that state aid requires that taxation "should not unduly favour a particular type of company,

for example companies with lower turnover".

The Government should ensure that the proposed tax does not unfairly advantage some

businesses over others.

— Avoid contradictory public health messages. In its proposed form, the tax will have irrational

consequences. The proposed exclusions mean the tax will fail to adequately take action in relation to

some of the most sugary, unhealthy, beverages on the market, while taxing many nutritious drinks

with well-established health benefits. The distortions this will cause to the market will in many cases

run counter to the health objectives underpinning the tax and undermine its effectiveness.

As well as distorting the market and competition within it, the exclusions from the tax also run the

risk of sending out confusing and contradictory public health messages. Milkshakes containing very

high levels of sugar will be exempt, while fruit based drinks such as Ribena, which have significant

nutritional benefits, will be hit. Indeed, many pure fruit juices have comparable or even higher levels

of sugar than LRSI drinks, yet contain lower levels of micronutrients. Many of the health benefits of

blackcurrants are in part a result of their high concentration of polyphenols, which impart a highly

astringent taste and therefore require sugar to be added to become palatable. We are concerned that

the final Tax structure will discriminate against astringent fruits such as blackcurrants and cranberries,

in favour of naturally sweeter fruits such as apples and strawberries.

We would suggest that the tax should not unfairly discriminate against drinks containing

astringent fruits.


— Levy the tax at a less burdensome point. It is implied in the Consultation document that the

liability to pay the tax should fall at the earliest possible point in the distribution chain. In the UK the

payment point for the tax was initially to be at point of bottling/packing and since 5th Dec changed

to at the point of factory gate. Both would be unduly burdensome for business, adding unnecessary

cost, complexity and creating significant cash flow issues. We would suggest the tax should become

payable at point of invoice, which would address the aforementioned issues and ensure

transparency and reduce complexity for both business and Irish revenue in the collection of the

SSDT There are further complexities regarding companies who import from sister companies in the

UK being double taxed, once in the UK and then again in Ireland. It is crucial that the Government

keep an open mind on the tax’s implementation until there is clarity from the UK on their system of

export relief. Equally, having imported product from the UK, it is possible that companies or their

customers may re-export these products for which they should not be doubly taxed.

We suggest the tax should become payable at point of invoice.

— Use EU Legislation for the definition of Sugar. Added sugars are already defined in EU

legislation. EU REGULATION (EU) No 1169/2011 defines sugar and forms the basis of a definition of

added sugar as all monosaccharaides and disaccharide, but excludes polyols. This would in turn

create consistency with labelling regulations. We are strongly of the view that any legislative

proposal for this proposed tax expressly state that all non-calorific sweeteners are exempt from

consideration, including those derived from sugar, to indicate the permissibility of these ingredients.

We suggest the Government uses the sugar definition in EU REGULATION (EU) No

1169/2011 which forms the basis of a definition of added sugar.

— Avoid a prescriptive approach to dilution ratios. We believe that encouraging consumers to

further dilute concentrates and cordials through a targeted communications campaign could be an

effective means for reducing added sugar in the diet.

The Government should trust and allow manufacturers to set a dilution rate that matches

consumer tastes whilst also serving public policy ends.

— Create a relief for unsold, out of date or spoilt products. By the end of 2016 we estimate that

0.4 million litres of LRSI product will not reach our customers due to spoilage or product being out of

date. As a result, these litres will never reach consumers and therefore will not contribute to sugar

consumption. If the point of taxation is not moved to invoice, we believe a relief system is required


to ensure business is not further penalised as a result of the tax being levied at an earlier point in the

distribution chain.

We suggest a relief system is required unless the tax is payable at point of invoice.

— Create a relief for donations to registered charities. LRSI is supportive of its local community

and makes regular product donations to registered charities with an estimated 0.3 million litres being

provided in 2016 This not only supports civil society, but our donations to sports clubs and activities

can be beneficial to public health objectives.

We believe it is appropriate to exempt or offer relief for product donations to registered

charities.

— Create an exemption for products with medicinal benefits. LRSI is aware that many diabetics

in Ireland use its products (particularly, Lucozade Energy Original) to help regulate blood sugar levels.

It would seem sensible to ensure that specific products used by such individuals are exempt from any

SSDT.

It would be appropriate to exempt specific products with medicinal benefits.

— Ensure Tax Does not conflict with EU State aid rules

One of the four stated purposes of the Department of Finance’s Public Consultation is to ensure that

the SSDT is implemented in a manner that “Does not conflict with EU State Aid rules.” LRSI strongly

agrees with this proposition. We believe any sugar-related tax should be introduced in a fair and

harmonious manner that treats all producers and importers in a similar factual and legal position

equally, leaving a level-playing field for everyone. To do otherwise may lead to unintended

consequences, particularly given the likely European Commission response were the SSDT found to

constitute unlawful State Aid (which would be to extend the measure to a fuller range of importers

and producers).

LRSI calls on Government to carefully consider the potentially unlawful State Aid implications

of the proposed SSDT.


Next steps

LRSI is committed to work with the Department of Finance and the Revenue Commissioners in order to

address the significant issues highlighted in this response document.

It is our strong contention that any tax on the soft drinks industry should be applied rationally and not

arbitrarily in light of the health objectives pursued. This includes ensuring that the tax is designed in a

form which achieves those objectives and implemented in a manner that does not create an unfair

advantage to some businesses over others thereby distorting competition. While the Government's

objective in tackling obesity is laudable, the proposed SSDT is not appropriate to achieve this aim.

Regardless of the outcome of this consultation, LRSI remains committed to playing our part in addressing

the problem of obesity as seen by our commitment to ongoing reformulation as per our recent

announcements in November. We look forward to continue working closely with the Government on the

issue in the future.

2. ABOUT LUCOZADE RIBENA SUNTORY IRELAND

— Lucozade Ribena Suntory Ireland (LRSI) was formed in 2014 and is part of Suntory Beverage & Food,

a core part of Japan’s global Suntory Group. We are the second largest branded soft drinks supplier

in Ireland, our much loved brands - Lucozade, Ribena and Orangina - account for 11.6% of the Irish

market.

— Our brands are worth an estimated €59m in Ireland and are enjoyed by consumers around the world.

— Despite our global presence, we owe our success to our team here in Ireland where we directly

employ over 44 people and a further 48 indirectly. We also support an estimated 50 jobs in our Irish

supply chain and c.90% of our 230 suppliers are Ireland based.

— Our global companies' mission is to work in harmony with people and nature. As a responsible

corporate citizen we have the opportunity to shape the environment around us, building a better

community for future generations. We meet the highest international standards of environmental

management. Meanwhile, whether through grassroots sport or our partnership with Barretstown, we

are passionate about enabling people to reach their full potential.


3. CONSULTATION QUESTIONS

LRSI welcomes the Consultation’s invitation to provide:

Views on the specific questions 1 – 16.

Details of any issues or concerns that should be considered in dealing with the issues being

addressed and to suggest alternative courses of action throughout our submission.

Details of relevant issues not covered in this paper.

However, LRSI would welcome further consultation with Government to gain clarity on the Purpose,

Objective, & Detail of the Tax. In order for us to be able to comment meaningfully we need clarity

regarding the basis of the tax in terms of definitions, the calculation of the percentage/quantity of sugar

in a soft drink, the rate, application & implementation.

We welcome Government’s promise to have further detailed discussions with LRSI post the 3rd

January 2017 to get further clarity on the details of the Tax and to allow us to input in an

informed & meaningful manner to the SSDT’s design.

The Key facts on which we require clarity are:

— The Purpose of the Tax as referenced at “1. Introduction” in the Consultation document:

Is it being introduced as a

a. Health levy with a related strategy where the monies collected are reinvested in activities

that will help eradicate Obesity? If the purpose of the tax is a health measure designed to

impact consumer behaviour then it is important to state the Consumer behaviour targets so

that the tax can be rescinded when they are achieved.

b. Or solely as a revenue raising measure?

Further clarity & discussion is required with Government to make an informed, meaningful

submission to the Consultation process on this point.

— Understanding the Health Objectives as referenced at “1. Introduction” in the Consultation

document:

The Consultation says “The objective of this consultation is to determine how the tax will operate

in practice. This consultation will seek input…. in terms of how to impose the new tax in a way

which ensures that the health objectives of the tax are met…..”


The three Objectives and “The Ten Steps Forward” activities, (specifically Steps 1b, 3b & 3c)

which are the only Industry related steps in the Government’s “A Healthy Weight for Ireland”

are:

Objectives:

A sustained downward trend (averaging 0.5% per annum as measured by the HI Survey)

in the level of excess weight averaged across all adults

A sustained downward trend (averaging 0.5% per annum as measured by the COSI) in

the level of excess weight in children

A reduction in the gap in obesity levels between the highest and lowest socioeconomic

groups by 10%, as measured by the Healthy Ireland and COSI Surveys.

The Ten Steps Forward:

Step 1 b: Develop proposals relating to the roll out of evidence based fiscal measures,

including a levy on sugar sweetened drinks, in support of healthy eating.

Step 3 b: Establish a forum of meaningful engagement with Industry on best practice

initiatives towards a healthy food environment – already proposed in the FDII Health

Strategy

Step 3 c: Develop a code of practice for food and drinks promotion, marketing,

sponsorship and product placement – this group is already established, has met

throughout 2016 and the codes are at a well-developed stage.

The Objectives are very broad and an SSDT will not singlehandedly impact upon them, whilst the

activities are already happening. It is difficult to understand how the SSDT will ever be able to

ensure the health objectives of the tax are met.



— Understanding the proposed Tax bands at “2. Background” as referenced in the Consultation

document:

It says in the Consultation document at 2.1 Background that “The Department of Health

proposes that the sugar-sweetened drinks tax should apply to water-based and juice-based

drinks which have an added sugar content of 5grams/100ml and above.” However later at “2.2

United Kingdom Proposal” there is a description of the UK proposal, it says “It (the UK tax) will

similarly consist of a two-band approach as set out above in the DOH proposal”.


We would welcome clarity around this as our reading of the DOH proposal is that there would

be one-band i.e. drinks “which have an added sugar content of 5grams/100ml and above”

Given the lack of clarity we have had to assume details and have also suggested alternative

approaches where appropriate in answering the Consultation questions.



— Understanding the definition of “pre-packaged drinks” at “2.1. Background” as referenced in the

Consultation document:

We need clarity on what is meant by “pre-packaged drinks” as all drinks are “pre-packaged”

whether in liquid or powder format. It is unclear what is meant by the excluded non-pre-

packaged drinks definition.



— Understanding the “scientifically established link to obesity and related diseases” through

consumption of sugar in drinks at “2.1. Background” as referenced in the Consultation

document:

We welcome the evidence based approach as stated in the Government’s “A Healthy Weight for

Ireland” strategy hence we are surprised that the DOH’s rationale of proposing “to reduce

consumption of sugar in drinks because of the scientifically established link to obesity and related

diseases.” when there is an equal amount of scientific based evidence that indicates that Obesity is

caused from multifactorial societal issues. In fact it was clear from the Scientific Advisory Committee

on Nutrition (SACN) carbohydrates and health report (2015) that the evidence associating SSBs with

obesity and other related conditions was very limited with very mixed results. Although they

concluded that there was an association between SSBs and increased BMI in randomised controlled

studies they also agreed that this evidence was limited and also concluded that there was no

association between SSBs and BMI or body fat in cohort studies and insufficient evidence to provide

any association between SSB’s and body weight or weight gain from both cohort and randomised

trials.




— Understanding a number of points at “2.3 Administration of Tax” as referenced in the


We agree with The Revenue Commissioner’s advice as stated in the Consultation document,

hence why we require clarity on the following points if we are to meaningfully comment on the

burden and implications of the tax being applied “at the earliest possible point in the distribution

chain.”

i) clear identification of the product to be taxed

ii) the point at which the tax becomes liable

iii) the person liable to pay the tax.

Given the lack of clarity we have had to assume details and have suggested alternative approaches

where appropriate in answering the Consultation questions.



— Understanding a number of points at “2.4 Purpose of Consultation” as referenced in the


We agree with a number of the points regarding the tax’s implementation made at “2.4 Purpose

of Consultation” i.e. that the tax

Is collectable without posing an undue burden

Minimises cross-border impact as much as possible.

Does not conflict with EU State aid rules.

Seeks to assess the impact the tax may have on exchequer receipts and on business in

general.

In the absence of clarity of the Tax details it is extremely difficult to comment meaningfully on

the above points. We agree that the UK & Irish Soft Drinks markets are “highly integrated”

hence we strongly propose that the Irish Tax is aligned with the UK Tax in terms of “structure

and timings”. For the purpose of our Submission and in order to comment meaningfully we

have assumed that the Irish tax will be aligned with the UK tax.




SPECIFIC ANSWERS to Consultation Questions

Question 1: The tax will apply to water-based and juice based drinks with an added sugar content of above 5 grams per 100ml. It will not apply to milk-based drinks. Are there drinks on the market which do not fit neatly into these categories, which may be of concern for producers from a compliance point of view? As noted above, there are potential unlawful State aid concerns with the SSDT in its current form.

Milkshakes that contain very high levels of sugar will be exempt, while fruit based drinks such as Ribena,

which have significant nutritional benefits, will be hit. Indeed, many pure fruit juices have comparable or

even higher levels of sugar than LRSI drinks, yet contain lower levels of micronutrients. Many syrups and

liquid drinks flavourings contain comparable levels of sugar and calories to Ribena yet do not contain the

high levels of nutrients, including Vitamin C and polyphenols, which Ribena contains.

Any exemption only exacerbates the arbitrary effects of the tax, taxing beverages with established health

benefits, while leaving more unhealthy beverages untaxed. This would appear contrary to the stated health

objectives of the SSDT, as well as State aid rules. Any additional exemption to the SSDT for pre-packaged

sugar syrups and flavourings could provide a further argument that the SSDT creates a selective and unfair

advantage for the producers and importers of those products, as it would treat those producers and

importers differently from producers and importers of comparable beverages; and any exemption to the

SSDT for candy sprays, ice lollies, and dissolvable powders could also provide an argument that the SSDT

constitutes a selective and unfair advantage for the producers and importers of those products. Moreover,

the differential treatment proposed for producers and importers of these products is illogical and arbitrary

in light of the health objectives pursued.

Another example of products that “do not fit neatly into these categories” are products donated to

charities. From July 2015 to July 2016, LRSI donated over 5300 litres of product to charitable causes. We

also support the Government’s ambitions to increase physical activity through donations to a range of

sporting clubs and events. We believe these donations are an important part of what we do as a company

and have a significant beneficial impact. It would therefore be appropriate to exempt or offer relief for

products donated to registered charities.

Further, drinks ordered and/or packaged on a premise (e.g., a coffee shop) are not within the scope of the

proposed measure but, clearly, could contain significant levels of added sugar.

Finally, Concentrate, aka Dilutes, do not fit neatly into this category as there is no way of knowing by how

much consumers will dilute with water. A solution is to use the Manufacturer’s recommendation of the

recommended dilution ratio.

LRSI calls on Government to carefully consider the potentially unlawful State aid implications

of the proposed SSDT.


Question 2: Naturally occurring sugar will not be included within the scope of the tax. Do producers have the mechanism for identifying and declaring the added sugar content as opposed to the naturally occurring sugar content of their drinks? Under the current EU labelling rules (REGULATION (EU) No 1169/2011) the sugar content of all foods must

be determined by the Food Business Operator and the resulting value must appear on the label. According

to this regulation the declared nutritional values (including sugar) must be based on either:

(a) the manufacturer’s analysis of the food;

(b) a calculation from the known or actual average values of the ingredients used; or

(c) a calculation from generally established and accepted data.

LRSI determine the sugar content of drinks via method (b), supported by analysis of the drinks at the

developmental stage and other measurements made at the factory during and after production. In addition

we routinely test products taken from retail shelves for quality purposes. We believe that this co-ordinated

system of sugar calculation provides a far more accurate determination of sugar content than an annual

one-off analytical test which would only provide a ‘point in time’ value and add additional cost.

LRSI calls on the Government to use the EU REGULATION (EU) No 1169/2011 which forms the

basis of a definition of added sugar.

Question 3: It is intended that the tax will be collected at first point of import or production. What compliance issues does this present for producers? We believe that a more effective point of taxation than the current proposal would be the point of invoice.

This would reduce the administrative burden on all parties, avoiding some of the many disadvantages

associated with collecting at the point of bottling/factory gate/importation. These include:

1. Cost - Under the current scope we understand that the tax point is at point of production/importation

which would be considerably onerous requiring significant system and process enhancement

estimated to cost up to €1m.

2. A cash flow disadvantage to whoever is subject to the tax - Under the current scope we understand that

the tax point is at point of production/importation with payment the month following the quarterly

return. However it could then be some time before this product is invoiced (for example it could be

held in a warehouse) and even longer before the actual cash collection (payment terms of 60 days are

fairly standard). Each delivery shipment can come directly from factory or co-packer to importer’s


warehouse. To verify the products that are to be taxed and those that are not and to have to separate

these from each other will slow down the logistics process which will necessitate longer delivery times

and stock holding levels all of which uses valuable cash flow and human interaction cost. Taxation at

point of importation means significant outlay of funds, a significant hindrance to cash flow, surely it is

not the Department of Finance’s intention to reduce companies’ cashflow, therefore would it not be

better to apply the tax retrospectively?

3. Product spoilt, spilt or unfit for use after the bottling process – In 2016 (based upon data to August), 0.4

million litres of LRSI product will not reach our customers or consumers as they were spoilt, spilt or

unfit for use after the bottling process. We require clarity as to how such spoilt drinks will be treated

before we can comment further.

Imports – We require greater clarity regarding the details of the tax especially as to how it will treat

imported product. It would be completely unfair for LRS to be taxed doubly, once in the UK and then

again in Ireland. We also need to get clarity from the UK regarding how they intend to deal with export

relief. In addition to collecting the tax at the point of invoice, we firmly believe that payment should

be aligned with typical industry cash flows to avoid causing unnecessary difficulties for producers and

importers. We recommend that payment of the tax should only be required within three months

(rather than one month) of the quarterly return, to smooth out cash flows for producers and importers

by aligning payment of the levy with the "60 days after invoice" payment terms which are typical in the

industry.

Finally, increased cost is another issue as this tax will create both one-off and on-going costs which is a

further burden on businesses. The producer would incur significant one-off costs for systems configuration

in order to capture all relevant information to track the movements and to calculate the return amounts.

This would not be a straightforward process and would require the support of costly external SAP

consultants. In addition, it may also require additional head count to ensure compliance on an on-going

basis.

LRSI calls on Government to apply the tax at the point of invoice.

Question 4: The tax will apply to pre-packaged drinks products only. This presents difficulties in relation to drinks which are intended to be consumed as a diluted level. Is there scope to declare the sugar contents of these particular products at their intended consumption levels, at the early point of import or production?


We believe that encouraging consumers to dilute concentrates/cordials further would actually achieve

the desired end point of reducing added sugar into the diet. It is important to design the tax so that this

is seen positively, as it could assist in achieving the sugar reduction policy objective. Manufacturers

should be trusted and allowed to set a reasonable dilution rate that matches consumer tastes whilst also

serving public policy ends.

To avoid any suggestion of tax avoidance we suggest that any such changes in dilution ratios are

accompanied by consumer marketing campaigns.

If syrups and liquid drinks flavourings which contain comparable levels of sugar and calories to Ribena yet

do not contain the high levels of nutrients, including Vitamin C and polyphenols, which Ribena contains,

were excluded this would exacerbate the arbitrary effects of the tax, taxing beverages with established

health benefits, while leaving more unhealthy beverages untaxed. This would be contrary to the stated

health objectives for the SSDT as well as potentially constituting a measure of unlawful State aid.

Moreover, any additional exemption to the SSDT for non pre-packaged (for which a definition is required)

sugar syrups and flavourings could provide a further argument that the SSDT creates a selective and unfair

advantage for the producers and importers of those products, as it would treat those producers and

importers differently from producers and importers of comparable beverages.

Dilution ratios are often a matter of intended taste which is subjective. As such, objectively testing a

product to determine an appropriate dilution ration would prove challenging.

As we note above, we believe that encouraging consumers over time to further dilute concentrates/cordials

would be effective in reducing added sugar in the diet. Department of Finance fixing a standard

‘appropriate’ dilution ratio would close off the approach to sugar reduction and could also provide

opportunities for new market entrants to take advantage of the system, thus gaining an unfair advantage

over existing brands in the market.

LRSI calls on Government to allow Manufacturers to set a reasonable dilution rate that matches

consumer tastes whilst also serving public policy ends and to carefully consider the potential

unlawful State aid implications of excluding non pre-packaged drinks from the scope of the

proposed SSDT.

Question 5: What do respondents consider to be an ‘added sugar’? What would they define as necessary to include in this definition in order to cover the types of sugars typically added to soft drinks?


The Sugar definition EU legislation (REGULATION (EC) No 1169/2011) forms the basis of a definition of

added sugar as all monosaccharaides and disaccharides present in food but excludes polyols and we believe

that this provides the best basis for added sugar definition. We are strongly of the view that any legislative

proposal for this proposed tax expressly state that all non-calorific sweeteners are exempt from

consideration, including those derived from sugar, to indicate the permissibility of these ingredients. This

would in turn create consistency with EU labelling regulations.

Under the current EU labelling rules (REGULATION (EU) No 1169/2011) the sugar content of all foods must

be determined by the Food Business Operator and the resulting value must appear on the label. According

to this regulation the declared nutritional values (including sugar) must be based on either:

(a) the manufacturer’s analysis of the food;

(b) a calculation from the known or actual average values of the ingredients used; or

(c) a calculation from generally established and accepted data.

LRSI determine the sugar content of drinks via method (b), supported by analysis of the drinks at the

developmental stage and other measurements made at the factory during and after production. In addition

we routinely test products taken from retail shelves for quality purposes. We believe that this co-ordinated

system of sugar calculation provides a far more accurate determination of sugar content than an annual

one-off analytical test which would only provide a ‘point in time’ value and add additional cost.

Furthermore, LRSI believes that the exemption for fruit juices does not capture certain fruits, which

naturally are more astringent and require sugar for taste e.g. blackcurrants. The Tax, in its current form,

unfairly discriminates against these astringent fruits hence distorting competition.

The Government recognises that pure fruit juices have health benefits that outweigh concerns over sugar

content. The blackcurrants that go into Ribena are one of the most nutritious fruits consumed in the human

diet. For example 100g of blackcurrants contains approximately 180mg of Vitamin C which equates to over

200% of the daily reference intake for adults. In contrast, apples contain just 5mg of Vitamin C per 100g.14

In addition to their high vitamin content, blackcurrants also contain a very high concentration of a group of

plant compounds called polyphenols, which may in part explain the health benefits of blackcurrants which

include benefits to cardiovascular and metabolic health. A recent study published in peer reviewed journal

Free Radical Biology & Medicine showed that a blackcurrant juice drink was able to improve vascular health

14 USDA Food Composition Database


and reduce oxidative stress.15 Furthermore, new research suggests that blackcurrants may help protect

against brain ageing and enhance brain function.16 Blackcurrants contain approximately 800mg of

polyphenols per 100g, compared to 200mg in apples and 279mg in oranges.17

However, this concentration of polyphenols also means that blackcurrants have a very astringent taste.

This makes them very difficult to consume without adding sugar or artificial sweeteners (for sweetness)

which suggests why there are no 100% pure blackcurrant juice products on the market. Nevertheless,

Ribena has a lower or comparable overall sugar content than some of the pure fruit juices that are excluded

from the tax.

Working with the James Hutton Institute, we are continuously looking at long-term breeding programmes

for blackcurrants to improve both the quality and nutritional content, as well as increasing the natural sugar

content of the currant thus reducing the amount of added sugar needed. However these are long-term

agricultural practices that take many years to deliver. In the meantime, as we cannot sweeten blackcurrants

naturally we are required either to add sugar or use artificial sweeteners, which do not appeal to all

consumers.

LRSI calls on the Government not to unfairly discriminate against drinks containing astringent

fruits in the SSDT and to use the EU legislation (REGULATION (EC) No 1169/2011) which already

defines Sugar which forms the basis of a definition of Added Sugar.

15 Khan, F., et al. (2014). "Lowering of oxidative stress improves endothelial function in healthy subjects with habitually low intake of fruit and vegetables: a randomized controlled trial of antioxidant- and polyphenol-rich blackcurrant juice." Free Radic Biol Med 72: 232-237. 16 Ghosh et al., (2006) “Effects of anthocyanins and other phenolics of boysenberry and blackcurrant as inhibitors of oxidative stress and damage to cellular DNA in SH-SY5Y and HL-60 cells.” Journal of the Science of Food and Agriculture. 86: 678-686. 17 http://phenol-explorer.eu/compounds

Energy

(kcal/100g)

Total

Sugar

(g/100g)

Micronutrients and their nutrient reference value

(NRV)/100ml

Ribena blackcurrant

RTD*

43 10.4 Vitamin C

32mg (40% NRV)

Orange juice* 46.5 8.2 Vitamin C

25.0mg (31% of NRV)

Apple juice* 47 9.6 n/a**

Red grape juice* 47.5 11.5 n/a**

http://phenol-explorer.eu/compounds


Question 6: If you are a very small producers of SSDs, what concerns do you have regarding being included in the SSD tax? Any exemption to the SSDT for small businesses is likely to attract scrutiny from the European Commission.

There is a strong argument that any such exemption from the SSDT would constitute unlawful State Aid for

small producers and importers benefitting from the exemption.

This was reiterated in the European Commission's Press Release dated 19 September concerning the Polish

tax on the retail sector, which included an exemption for companies with a low turnover.18 The Commission

found that "the tax system should respect EU law, including State Aid rules, and should not unduly favour

a particular type of company, for example companies with lower turnover".

LRSI calls on Government to carefully consider the potentially unlawful State Aid implications

of the proposed SSDT to the extent it were to exempt small producers of SSDs from its scope.

A subsequent finding of unlawful State Aid could put significant liability on small producers,

as well as a burden on the Department of Finance in recouping taxes owed.

Question 7: In relation to milk-based drinks, should there be a minimum milk content in order for a drink to be defined as milk-based? Any exemption to the SSDT for milk-based beverages is likely to be viewed as offering a selective and unfair

advantage to some businesses. There is a good argument that any such exemption from the SSDT would

constitute unlawful State Aid for the producers and importers of those products. This would remain the

case whatever minimum proportion of milk is required to benefit from the exemption. We also believe

that this argument applies to ‘open cup’ products if they are to be excluded from the proposed tax.

Recent experience in relation to the sugar tax on soft drinks imposed in Finland, which also had an

exemption for milk-based products, demonstrates that such an exemption is likely to attract scrutiny from

the European Commission. The European Natural Soy and Plant Based Manufacturers Association (and

others) complained that the tax constituted State Aid for producers of milk-based drinks when compared

with "soya milk"-based drinks (and other drinks based on alternative "milks"). The Commission investigated

the tax and suggested it could be unlawful on State Aid grounds, following which it has been reported that

Finland will redesign (and partly repeal) its sugar-related taxes effective from 2017.

In addition to constituting State Aid, the proposed exemption runs the risk of sending out confusing and

contradictory public health messages. As can be seen from the table below, milkshakes containing very

18 http://europa.eu/rapid/press-release_IP-16-3104_en.htm?locale=en

http://europa.eu/rapid/press-release_IP-16-3104_en.htm?locale=en


high levels of sugar and limited levels of micronutrients will be exempt, while fruit based drinks such as

Ribena, which have significant nutritional benefits, will be hit.

Oxford Economics’ report, The Economic Impact of the Soft Drinks Levy, modelled the potential impact of

the levy on sales patterns, concluding that sales volumes of milk based drinks were likely to increase as

consumers switched from drinking taxed drinks towards non-taxed categories. However, given the high

sugar content of many milk based products, this was projected to have a negligible impact on the daily

calorific intake, which was estimated to fall by an average of only five calories per person. This result was

very similar to evidence from Mexico, where the introduction of a tax on soft drinks was estimated to

reduce daily intake by an average of only six calories per person.

Energy

(kcal/100g)

Total

Sugar

(g/100g)

Micronutrients and their nutrient reference

value (NRV)/100ml

Ribena blackcurrant RTD

41 10 Vitamin C

32mg (40% NRV)

Tesco strawberry flavoured milk

(94% milk)

62 9.5 Vitamin B12

0.4µg (15% of NRV)

Calcium

118mg (15% of NRV)

Avonmore Mooju Chocolate /

Strawberry Milk

(94% milk)

74 10.4 Calcium

121mg or 15% of RDA

Frijj chocolate fudge brownie

milkshake

(91% milk)

78 12.9 Calcium

132mg (17% NRV)

Vitamin B12

0.4µg (16% NRV)

Mars refuel sports cap

(75% milk)

70 9.6 n/a

Galaxy thick shake

(78% milk)

68 11.6 n/a

Zott Monte Chocolate And

Hazelnut Milk Drink

(90% milk)

83 10.2 Calcium

120mg (15% NRV)


LRSI calls on Government to carefully consider the potentially unlawful State aid implications

of exempting milk-based drinks from the scope of the proposed SSDT.

Question 8: Are there particular cross-border issues that you envisage will exist if the Irish SSDT does not closely align with the UK soft drinks industry levy? We welcome the Departments’ acknowledgement of the importance of aligning the Irish tax with the UK

levy. With 231 entry points currently existing between Northern Ireland and the Republic of Ireland,

there are always concerns regarding cross-border, Illicit trade and smuggling issues. Northern Ireland &

Republic of Ireland would need to be aligned from the outset to allow Companies, such as LRSI, to

manage their businesses in a disciplined manner post the introduction of the Tax. Also, it will be almost

impossible to track the product from a product quality perspective if there is an ongoing advantage or

disadvantage in where the Customer can purchase the product. Let there be no doubt, if the Irish tax

does not closely align with the UK soft drinks industry levy there will be increased cross-border shopping

which results in a loss of revenue for the State and potential job losses. Where illicit trade and smuggling

issues are concerned, consumer health risk in the case of the development of unregulated counterfeit

products is a strong possibility. We strongly advocate, given the highly integrated nature of the UK and

Irish soft drinks markets in terms of production and supply, that the Irish tax has to be set at a similar

level, implemented at similar times and with similar collection methods as the UK levy if cross border,

Illicit trade and smuggling issues are to be minimised.

Following Brexit there will be significant difficulties posed in controlling illegitimate trade imports from

the UK unless taxes are aligned and control is introduced at potential border crossings.

LRSI calls on Government to align the SSDT with the UK tax.

Question 9: How integrated are the production systems for soft drinks across borders in the UK and Ireland? Does the cross-jurisdictional nature of production of soft drinks present particular difficulties to producers? LRSI, an Irish incorporated company, is a wholly owned subsidiary of Lucozade Ribena Suntory Limited

which is incorporated in the UK. The Lucozade Ribena Suntory Group is part of the Suntory Beverage and

Food Group, a core part of Japan’s global Suntory group and a significant inward investor to Ireland & the

UK. The Suntory Beverage & Food Group has a number of sites across the EU. The production systems of

LRS Ltd & LRSI are 100% integrated and the cross-jurisdictional nature of production of our soft drinks

does not present any particular difficulties.





Question 10: Is there a system whereby producers can track their individual products, for example in the case of a product recall being necessary? Would it be possible to integrate this system with the SSDT, to allow the Revenue Commissioners to audit whether products for sale to the consumer have been subject to the tax? We use systems to track our products for financial analysis, sales and traceability purposes but details

such as what is the basis of the tax in terms of the calculation of the percentage/quantity of sugar in the

drink and at what point in the chain is the tax to be levied would need to be known before an informed,

meaningful comment to this question can be made. Further clarity & discussion is required with

Government.




Question 11: More broadly, do you have any concerns from a health perspective about which products are included and excluded by the scope of the tax? Lucozade Energy Original provides a concentrated and palatable source of glucose and all the

carbohydrate is glucose based. These properties mean that Lucozade Energy Original can be useful in

certain medical scenarios when it is necessary to administer controlled doses of glucose. Such scenarios

include oral glucose tolerance testing and self-treatment of hypoglycaemia by diabetics. A number of

Diabetic Associations and the HSE recommend Lucozade Energy Original as a treatment for

hypoglycaemia so applying a tax to a product that is used by people living with Diabetes on health

grounds is counterintuitive. An exemption for products used for health purposes must be considered as

to do otherwise has a clear cost implication for individuals using products on health grounds.

LRSI queries the logic of applying a tax to a product on health grounds that is then used by

some Diabetics to manage their condition.


Question 12: Producers may be required to provide regular documentation to verify the added sugar contents of their produce to the Revenue Commissioners. We anticipate that this information will already form part of industry production methods. How costly a task would this be for producers? Gathering documentation on a regular basis increases cost, both on a one-off and on-going basis which is

a further burden on businesses. The producer/importer would incur significant one-off costs for systems

configuration in order to capture all relevant information to track the movements and to calculate the

return amounts. This would not be a straightforward process and would require the support of costly

external SAP consultants. In addition, it may also require additional head count to ensure compliance on

an on-going basis.

To report on every SKU (stock keeping unit) would create complexity due to the sheer number of

variations within a brand. LRSI alone has 125 SKUs. We would recommend for administrative ease that

reporting on product lines is defined by brand only.

These requirements could also create a significant and complex administrative and resource burden for

co-packers who produce a large number of SKUs for a varied number of brand owners. This cost will be

reflected back in the cost of goods to the brand owner.

Further, LRSI calls on the Revenue Commissioners to explain how it will enforce and audit the proposed

SSDT measure. LRSI expects that there will be adequate enforcement measures built into any legislation

pertaining to the SSDT to ensure it is actively policed.

LRSI calls for reporting to be on a Brand not SKU level for administrative and cost purposes

Question 13: Those who are liable to pay the tax will be required to register and submit returns. Are respondents aware of any data sources that can be relied upon to support compliance and/or reduce administration burden on businesses? (e.g. traceability records) LRSI would note that Intrastat and the EC Sales Lists may currently be used to support compliance.




Question 14: Are there circumstances where soft drinks may become spoiled or unfit for use after the bottling process and if so, can producers advise the extent that this occurs and the quantities involved? It is not unusual for soft drinks to become spoilt or unfit for use once they have been bottled.

We estimate we will destroy 0.4 million litres of product classified as aged or obsolete. This process

occurs before the product leaves the warehouse and does not reach our customers or consumers.


There are also circumstances where product is withdrawn from sale due to regulatory, food safety or

quality issues. Though this happens very infrequently, depending upon its nature such an event could

result in large volumes of the product being returned to the producer and destroyed. In such

circumstances, there is a high requirement to be able to track stock movements, manage stock

destruction and credit customers for returned stock, so the scale and valuation of the levy relating to this

product would be more transparent, but would still remain an administrative and complex burden.

Through normal business there is also a low level of product which is sold to customers that then

becomes damaged in transit or otherwise unsaleable. Some customers do return low levels of product

and receive credit notes for such stock.

LRSI calls on Government to make allowances for spoilt or unfit for sale products to which the

tax should not apply.

Question 15: Are you involved in any export or re-export trade in soft drink or SSDs and if so, do you see any difficulties posed to those transactions? There are some cases where our products may be re-exported The product can be sold in good faith to

the current customer base and then this product can be sent abroad by such customer due to their other

contracts in which they are involved, e.g. Irish Army, Missions etc. Our products also experience a level of

imports that do not come through our distribution processes in Ireland, for example stock is sold to a

customer, WH Smith UK, by Lucozade Ribena Suntory in GB and is subsequently transported by WH Smith

to all of their retail outlets including their outlets in Ireland. Another example would be Dealz Ireland, the

Irish arm of Poundland, would also supply their Store network in Ireland via their GB Warehouses.

Without the clarity of the detail of the Tax it is impossible to say what difficulties these types of

transactions will experience other than to say, there will be difficulties.

LRSI calls on Government to apply the tax at the point of invoice as we believe this is a more effective

point of taxation. This would reduce the administrative burden on all parties, avoiding some of the many

disadvantages associated with collecting at the point of bottling. Considering exports & re-exports, the

question arises as to which party would be able to claim export relief. We assume that the

packager/bottler/Importer, being the person liable for the initial levy, would have to reclaim the export

relief, rather than the exporter. However the exporter would be the party who would hold details of the

product exported and proof of export. The examples given above demonstrates this point.

In the examples above if the tax was levied at point of Packaging/Bottling/Importation this would create

additional administrative burden on the packager/bottler/importer and would be prone to error. It would


also create a cash flow disadvantage for the packager/bottler/importer as they would pay the levy at the

point of bottling/importing, but would not receive any credit for the product export until much later.

In addition to collecting the levy at the point of invoice, we firmly believe that payment should be aligned

with typical industry cash flows to avoid causing unnecessary difficulties for producers and importers. We

recommend that payment of the levy should only be required within three months (rather than one

month) of the quarterly return, to smooth out cash flows for producers and importers by aligning

payment of the levy with the "60 days after invoice" payment terms which are typical in the industry.

LRSI calls on Government to apply the tax at the point of invoice.

Question 16: What “black-market” or other tax evasion activity do you consider might be directly caused by introducing a SSD tax? We welcome the Departments’ acknowledgement of the importance of aligning the Irish tax with the UK

levy. With 231 entry points currently existing between Northern Ireland and the Republic of Ireland,

there are always concerns regarding “black-market” or other tax evasion activity if there are differences

in the two jurisdictions which encourage Illicit trade and smuggling. Let there be no doubt, if the Irish tax

does not closely align with the UK soft drinks industry levy there will be increased Illicit trade and

smuggling which could result in consumer health risk in the case of the development of unregulated

counterfeit products and/or tax evasion. If there are wide pricing differentials for similar products it does

allow for new opportunistic non-traditional Van wholesalers operate from Northern Ireland in the

Republic of Ireland an on-going basis. We strongly advocate, given the highly integrated nature of the UK

and Irish soft drinks markets in terms of production and supply, that the Irish tax has to be set at a similar

level, implemented at similar times and with similar collection methods as the UK levy if Illicit trade,

smuggling issues and tax evasion are to be minimised.

Following Brexit there will be significant difficulties posed in controlling “black-market” imports from the

UK unless taxes are aligned and control is introduced at potential border crossings.

LRSI calls on Government to align the SSDT with the UK tax

RELEVANT ISSUES NOT COVERED IN THE CONSULTATION DOCUMENT.

— LRSI would note that it is increasingly common in the tax context for penalties to be imposed on a

behavioural basis. This typically means that if a taxpayer can demonstrate that they have behaved

reasonably and that they have fully cooperated with the Revenue Commissioners, the Revenue


Commissioners have discretion to reduce any penalties, including reducing penalties to nil. For

example, where a company makes an error in its corporation tax return, if it can nevertheless

demonstrate that it took reasonable care and disclosed the error to the Revenue Commissioner once

identified, penalties may be reduced by the Revenue Commissioners to nil.19 A similar regime, in the

context of the SSDT, would not only be convenient but also consistent with existing practice.

We would suggest that the Revenue Commissioners should have this discretion in relation to any

penalties imposed in relation to the SSDT.

— LRSI would welcome establishing a central team within the Revenue Commissioners responsible for

the tax. This would be helpful in so far as it would enable taxpayers to have a clear point of contact.

We would suggest that there is a link between this central specialist team and each company’s

Customer Relationship Manager within the Revenue Commissioners.

Given that the category of taxpayers liable for the tax is likely to be relatively discrete, we would

suggest that this central team should reach out to identifiable taxpayers to offer its support and

to notify and advise them of their obligations, including any notification/registration obligations.

— LRSI would also welcome clarity on how the Revenue Commissioners intend to enforce the proposed

tax. This is a key issue to prevent compliant operators from being punished when compared to non-

compliant operators.

SUMMARY

In summary, LRSI welcomes the opportunity to respond constructively to this consultation, but as

mentioned above, it should be recognised that we remain in fundamental disagreement with the

principle of the SSDT and the above comments on the implementation do not change this position.

LRSI agrees that current levels of obesity are too high and significant action is needed to address the

issue. The causes of obesity are complex and there is no silver bullet to solve the problem. The key to

success will be bringing about lasting changes in consumer behaviour, which will require action by and

support of all stakeholders, including industry.

There is a lack of public health rationale as outlined above and by Shemilt et al (2013) who reviewed 880

studies and concluded that “the public health case for using economic instruments to promote dietary

19 https://www.gov.uk/guidance/corporation-tax-penalties

https://www.gov.uk/guidance/corporation-tax-penalties


and physical activity behaviour change may be less compelling than some proponents have claimed.20.

Data for suggesting the effectiveness of SSD taxes remains heavily reliant on models rather than precedent

and current evidence suggests caution in implementing an SSD tax solely for the purpose of addressing

obesity.

We cannot with certainty estimate the annual cost of the tax to LRSI as the details of the tax have not

been confirmed by Government but for certain the tax will bring additional financial cost and

compliance burden. The SSDT will have a direct impact on LRSI and its supply chain at a time when the

company and Ireland face a challenging business environment, especially true in light of Brexit.

Assuming it is the case that the sole reason for introducing an SSDT is to achieve health targets then the

tax and its impact, if any, must be reviewed on the appropriate targets. Surprisingly the health

objectives (Healthy Weight for Ireland pg29) include self-assessment surveys which as such will not be

evidence based but will be open to interpretation, so appropriate agreed measures should be

considered. There should be a review and sunset clause built into the tax to ensure its removal should

the aims be met or the proposal proves ineffectual. Finally, we welcome Government’s promise to have

further detailed discussions with LRSI post the 3rd January 2017 to get further clarity on the details of

the Tax and to allow us to input in an informed & meaningful manner to the SSDT’s design.

FOR FURTHER INFORMATION PLEASE CONTACT:

Catherine Bent

Corporate Affairs

[email protected]

086 817 3965

20 Shemilt, I., G. Hollands, T. Marteau, R. Nakamura, S. Jebb, M. Kelly, M. Suhrcke (2013) Economic

instruments for population diet and physical activity behaviour change: A systematic scoring review. PLoS One 8(9): 1-11

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