Germany Advances a Sugary-Drinks Tax Expected to Raise More Than €1.1 Billion

Germany is moving toward a new tax on sugary drinks that could reshape prices, product formulas, and tax compliance across the beverage market if it becomes law.

A draft sugar-drinks tax law entered interministerial review on Oct. 5, according to an analysis published by Freshfields, the international law firm. The coalition parties aim to introduce the measure as part of the 2027 budget legislation, and the tax would apply to taxable events taking place after June 30, 2027.

The proposal has two stated goals. One is to help finance the federal subsidy to Germany’s statutory health insurance system after a smaller-than-planned cut this year. The other is to reduce sugar consumption. The draft expects annual revenue of more than €1.1bn from 2028, although that estimate could change if manufacturers lower sugar levels in their products or consumers buy less of them.

Under the draft, the tax would be tied closely to customs tariff classifications. It would cover drinks under Combined Nomenclature positions 2009, which includes juices, and 2202, which covers soft drinks and other nonalcoholic beverages. It would also apply to sugary preparations under position 2106 if they are meant to be diluted or dissolved into a taxable drink.

A drink would become taxable once its total sugar content reaches 5 grams per 100 milliliters. The draft counts both naturally occurring sugar and added sugar. The proposed rates are €0.26 per liter for drinks with 5 grams to less than 7 grams of sugar per 100 milliliters, €0.32 per liter for drinks with 7 grams to less than 10 grams, and €0.38 per liter for drinks with 10 grams or more.

For syrups and concentrates, the tax would be based on the ready-to-drink beverage produced using the mixing ratio stated by the manufacturer or importer in the product instructions.

Several categories would be excluded. According to the Freshfields analysis, the draft exempts juices and juice spritzers with no added sugar, nonalcoholic alternatives to spirits, and drinks in certain customs subcategories, including nonalcoholic beer, beverages with milk fat, and plant-based drinks. Medicines and food for special medical purposes would also be outside the tax. Drinks prepared on site by restaurants, farm shops, and kiosks and consumed there would be excluded as well.

The draft also contains an exemption for small independent producers with annual output of no more than 70,000 liters. But Freshfields said political discussions in Berlin suggest that threshold may not be settled. The coalition, according to current information cited in the analysis, may already have agreed to raise the de minimis threshold to 1 million liters a year, even though that higher figure does not yet appear in the draft text.

The proposal follows the familiar structure of excise taxes in Germany. The tax would generally arise when drinks are removed from a tax warehouse, with the warehouse operator becoming the taxpayer. Separate rules would apply to imports, commercial purchases from other European Union member states, and distance selling. Permits for 2027 would be issued on a provisional basis and could be revoked.

For beverage companies, the measure could have immediate commercial effects long before the tax takes effect. Soft drinks, energy drinks, sweetened juice-based products, and cocktail mixers could face higher costs depending on sugar levels, while producers of exempt categories such as nonalcoholic beer or some alcohol-free spirit alternatives may need to confirm that their products clearly fit within the protected customs classifications. Distributors, importers, and retailers may also need to reassess recipes, labeling, warehouse arrangements, contracts, and pricing clauses if the bill advances.

Freshfields said the draft raises several unresolved legal questions, starting with whether the levy fits Germany’s constitutional framework for excise taxes. The firm noted that Germany’s Constitutional Court has made clear that lawmakers do not have unlimited power to invent new forms of taxation. In this case, the proposed tax is closer to a traditional excise tax than the nuclear fuel tax that the court struck down in the past, because it targets consumer goods and is designed to be passed on to end buyers. Even so, Freshfields said the final legal assessment would depend on the overall design of the measure rather than its label.

Another issue is how far the law’s scope would really extend. Because the draft relies heavily on customs classifications, many boundary questions would be pushed into customs law. Freshfields said that problem is especially clear for exemptions involving alcohol-free alternatives, where the exact reach of the carveouts remains uncertain. The wording of the bill and the explanatory memorandum do not fully match in every point, the firm said, making it harder to know which products would qualify.

The tax bands also create sharp thresholds. A drink with 4.9 grams of sugar per 100 milliliters would be tax-free, while one with 5 grams would be taxed at €0.26 per liter. Above 10 grams, the rate no longer rises, which means the burden per gram of sugar falls as sugar content increases. That structure could push companies to reformulate products around the cutoffs rather than reduce sugar evenly across product lines.

Freshfields also pointed to a technical feature that could create compliance problems over time. The draft refers to the Combined Nomenclature as it stood on Jan. 1, 2026. Because the nomenclature is updated regularly, companies and tax authorities might eventually need to work with two different versions at once: the current one for customs purposes and the fixed historical one for the sugary drinks tax.

The proposed exemptions could also face equal-treatment challenges. Freshfields said the government justifies the tax mainly by arguing that liquid sugar has limited satiating effect. Against that logic, the firm said, lawmakers may have to explain more clearly why sugar-rich juices without added sugar, certain milk-based and plant-based drinks, and some nonalcoholic alternative products are excluded, while a lemonade becomes taxable at 5 grams of total sugar per 100 milliliters. The bill is also limited to drinks, which could raise questions about why other sugary foods are not included if the broader policy goal is public health.

The draft may also face scrutiny under EU law. Sugary drinks are not part of the EU’s harmonized excise-tax regime, which is limited to energy products and electricity, alcohol and alcoholic beverages, and tobacco. Member states can tax other goods, but they cannot create border-related formalities in intra-EU trade that conflict with EU rules. Freshfields said the German draft imports the full procedural framework used for harmonized excise goods, including rules for commercial acquisitions from other member states and permit requirements for distance sellers. The law firm said it is not yet clear whether all those obligations would be seen as acceptable tax-collection procedures or as prohibited formalities linked to cross-border movement.

The structure of the exemptions could also attract state-aid and internal-market questions if they are seen as favoring domestic or regional products, or smaller suppliers, while placing more of the burden on industrially produced and cross-border traded drinks. That issue could become more acute if the small-producer exemption is raised from 70,000 liters to 1 million liters.

Freshfields said the draft also contains a practical tension between its public-health aim and its budget purpose. If manufacturers reduce sugar to stay below the tax thresholds, or if consumers sharply cut purchases, revenue would fall at the same time that the health objective is being met. The bill nevertheless assumes rising revenue over time.

The compliance burden could also be significant. For syrups and concentrates, the tax depends on the recommended mixing ratio, which may create room for tax planning and require extra checks by authorities. For ready-to-drink beverages, the bill uses declared total sugar content, meaning measurement and labeling tolerances could determine whether a product falls just above or just below a tax threshold.

The start date of July 1, 2027, would give manufacturers, importers, and retailers limited time to adapt. According to the Freshfields analysis, companies may need to review product formulas, labels, IT systems, tax-warehouse arrangements, proof-of-compliance processes, and supply contracts. Businesses that operate across categories, including soft drinks, alcohol-free drinks, and mixers used in the spirits trade, may have to examine not only whether a product is taxable but also whether an exemption is secure under the customs code used by the bill.

The path chosen for the legislation may also shape the debate. The coalition plans to bring the measure through budget-related legislation, a route that can shorten the political timetable. Freshfields said that approach is not unconstitutional by itself, but for a new and administratively complex tax it increases the risk that classification rules, enforcement details, and EU-law concerns may not receive full scrutiny before parliament acts.