Key Points
- An Italian court dismissed the tobacco firms’ appeal.
- Cigarette minimum tax burden rules were upheld.
- Smaller tobacco operators will not receive compensation.
- A six-year tax dispute has effectively ended.
2Firsts
June 25, 2026 — According to Il Sole 24 Ore, Italy’s Lazio Regional Administrative Court has dismissed the appeal filed by Italian Tobacco Manufacturing and Manifattura Italiana Tabacco, upholding the legality of the cigarette excise calculation mechanism and ruling out damages for smaller Italian tobacco companies.
Minimum Tax Burden Rules Upheld
The case concerned the method for calculating excise duty in cigarette retail prices, with the dispute centered on the “minimum tax burden” mechanism, or onere fiscale minimo (OFM). The legal dispute began with an administrative decision dated January 13, 2020, which set out the method for calculating cigarette excise duty.
The appellants argued that the rules could seriously distort competition. Il Sole 24 Ore reported that the Italian cigarette market is dominated by a few large operators, which hold about 90% of the market and produce and sell all types of cigarettes. Smaller economic operators compete in the remaining minority share.
During the proceedings, the appellants also filed supplementary grounds challenging later measures that continued to apply the same calculation mechanism. Public judicial documents show that the litigation involved Italian Tobacco Manufacturing, Manifattura Italiana Tabacco, the Customs and Monopolies Agency (Agenzia delle Dogane e dei Monopoli), and the Ministry of Economy and Finance (Ministero dell’Economia e delle Finanze), among others.
The Lazio Regional Administrative Court twice found that the objections and legal questions raised were relevant and not manifestly unfounded, and referred the constitutional legitimacy of the minimum tax burden rules to Italy’s Constitutional Court. On both occasions, the Constitutional Court found the challenges inadmissible.
In its latest ruling, the administrative court again reaffirmed the legality of the provisions. For cigarette manufacturers in Italy, this means the central legal challenge to the minimum tax burden calculation method has not changed the existing tax framework.
Compensation Claim Rejected
At the start of 2026, Italian Tobacco Manufacturing and Manifattura Italiana Tabacco filed an application for damages. Their argument was that, if the tax calculation mechanism were found unlawful or unreasonable, smaller operators could be compensated for higher tax burdens or competitive disadvantages.
The Lazio Regional Administrative Court rejected that claim. It held that the Customs and Monopolies Agency determined the charges due under the current legal framework and that the case involved the exercise of a binding administrative power, with no discretion.
The court said the administration’s action was lawful because it calculated the charges in accordance with existing binding legislation. On that basis, the prerequisite for liability for damages was absent.
The court further found that there was no unlawful conduct because the contested act complied with the law. It also found no subjective fault by the administration, which merely implemented existing and binding legislation in a timely and dutiful manner.
This reasoning excludes compensation based on the tax burden mechanism. Even if companies believe the mechanism creates competitive disadvantages, courts will not impose damages liability on the administration where the authority is implementing binding law.
Certainty Over Competition Compensation
From an industry perspective, the case is not only a technical tax dispute. It reflects a conflict between Italy’s cigarette market structure, fiscal rules and the competitive position of smaller tobacco companies. Minimum tax burden mechanisms are generally designed to prevent low-price cigarettes from carrying a tax burden that is too low, protecting fiscal revenue and public health policy objectives. In a concentrated market, however, smaller operators may see such rules as limiting price competition.
The ruling reinforces one signal: where a cigarette tax calculation mechanism is grounded in existing law, an administration that applies the rules will generally not be held liable for the competitive outcomes created by that framework.
For larger tobacco companies, the ruling preserves stability in the current tax calculation framework and market rules. For smaller cigarette manufacturers, the legal route to compensation has narrowed, making future tax changes more likely to depend on legislative or policy channels.
The ruling also comes as tobacco taxation continues to evolve across Europe. In 2025, the European Commission proposed revising the Tobacco Taxation Directive to raise minimum tax rates across member states and extend minimum taxes to new products such as e-cigarettes, heated tobacco and nicotine pouches, updating the EU tobacco tax framework last revised in 2010.
The Italian case shows that traditional cigarette tax mechanisms remain a central tool of national fiscal and market regulation. As EU-level tobacco and nicotine tax reform advances, the tax structures for cigarettes, heated tobacco, e-cigarettes and nicotine pouches may remain key variables in competition and compliance costs.
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Cover image:Il Sole 24 Ore
