JUDGMENT OF 30. 10. 1980 — CASE 26/80 SCHNEIDER-IMPORT v HAUPTZOLLAMT MAINZ

REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht Rheinland-Pfalz [Finance Court of Rhineland-Palatinate], for a preliminary ruling in the action pending before that court between

THE COURT (Second Chamber) composed of: P. Pescatore, President of Chamber, A. Touffait and O. Due, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts

I — Facts and written procedure

II — Written observations lodged with the Court

The first question

The second question

The first question

The second question

The first question

The second question

III — Oral procedure

Decision

Costs

I —. Facts and written procedure

1. Must the first and second paragraphs of Article 95 of the EEC Treaty be interpreted as meaning that spirits imported from the Community which are comparable (similar within the meaning of the first paragraph of Article 95 of the EEC Treaty) with domestic spirits made from fruit (Law on the Monopoly in Spirits, Artide 27 (1), may, with regard to the tax advantages granted to domestic fruit spirits by Article 79 (2) of the Law on the Monopoly in Spirits, qualify for a correspondingly reduced rate of monopoly equalization duty only if the imported spirits come from a distillery with a small annual production (small distillery) within the meaning of Article 79 (2) of the Law on the Monopoly in Spirits (see Article 151 (1), third sentence, of that Law)?

2. In the case of an affirmative answer to Question 1 :

II —. Written observations lodged with the Court

(a). The Court is asked to rule whether the restriction by the third sentence of Article 151 (1) of the German Law on the Monopoly in Spirits to imported spirits from a distillery with an annual production which does not exceed 4 hectolitres of ethyl alcohol of the tax advantages provided for in Article 79 (2) of that Law is compatible with Article 95 of the EEC Treaty.

(b). The rule is that within the framework of Article 95 of the EEC Treaty national tax relief must be applied without restrictions to products imported from other Member States. Cognac, a spirit for which fruit is the raw material, is a product similar to German spirits produced from fruit. The nature of the raw materials, the size of the undertaking and the volume of production may indeed influence the price of a product but such economic factors may not be taken into consideration for the purposes of comparing the tax burden within the framework of Article 95.

(c). In any case, such factors must be objectively justified.

(d). In any case the different taxation on imported spirits fails in that exporting undertakings in other Member States cannot subsequently comply with the conditions laid down in Article 79 (2) of the Law on the Monopoly in Spirits and with the provision of the monopoly system on which they are based. The identical treatment of all imported products in respect of the level of taxation laid down in Article 79 (2), that is, the abolition of that provision in the future, is the sole means of avoiding discrimination, direct or indirect, against imported spirits.

(e). The reply to the first question should be as follows:

(a). According to the settled case-law of the Court tax advantages, even if they benefit only a small proportion of domestic production, must be extended to imported Community spirits under Article 95 of the EEC Treaty. In no case may an imported product be made subject to higher taxation than that imposed on similar domestic products. Within the framework of Article 95 social or other reasons cannot justify different taxation.

(b). It does not suffice that the rate of the monopoly equalization duty on imported cognac is reduced to 30.5% in accordance with Article 79 (2) of the Law on the Monopoly in Spirits; the tax-free production surplus must also be taken into account, at any rate as a proportion and a percentage.

(c). The upper limit for the application of the reduced rate of the monopoly equalization duty must be considerably raised. The criterion is constituted on the one hand by the distillation right of a former Abfindungsbrennerei for the duration of the fixed period (30 hectolitres) increased by the average production surplus assessed at 50% (15 hectolitres). To this must be added, taking that period into account, the annual quantity which an Abfindungsbrennerei is authorized to distil and may distil for a number, to be determined, of Stoffbesitzer, in addition to the production surplus also deriving from such distillation.

(a). The court making the reference raises the question whether imported spirits must qualify for a reduced rate of monopoly equalization duty even though they do not satisfy the conditions which are prescribed for a corresponding reduction in tax for domestic spirits. According to the case-law of the Court of Justice there is no breach of Article 95 of the EEC Treaty if a Member State applies to a specific product on the national territory graduated rates of tax and does not grant similar imported products a reduced rate of tax unless they fulfil the same conditions as those prescribed for domestic products in order to qualify for the correspondingly reduced rate of tax.

(b). None of the categories of producers qualifying for tax advantages under Article 79 (2) of the Law on the Monopoly in Spirits can exceed the authorized annual production quantity of 4 hectolitres of ethyl alcohol since that upper limit is even appreciably lower in the case of Abfindungsbrennereien and Stoffbesitzer. The third sentence of Article 151 (1) of the Law permits small distillers of other Member States with an annual production not exceeding 4 hectolitres of ethyl alcohol to qualify for the same tax advantage as the comparatively small group of domestic distilleries which comply with the conditions laid down by Article 79 (2).

(c). The extension to all imported spirits, even if they do not come from small distilleries, of the lowest rate of tax in the Federal Republic far exceeds the contents of the prohibition against discrimination in tax matters laid down in Article 95 of the EEC Treaty.

(d). The first question submitted in this case has already been covered by the detailed reply in the judgment of the Court of 10 October 1978 (Hansen), in conjunction with the judgment of 22 June 1976 (Bobie). The Court ruled that at the stage of development at which Community law was at the time it did not prohibit Member States from granting tax advantages to certain types of spirits or to certain classes of producers since tax advantages of that kind might serve legitimate social or economic purposes; in stating that such preferential systems must be extended without discrimination to spirits coming from other Member States the Court referred, with regard to the treatment of imported spirits, not only to the amount entailed under such preferential systems but also to the conditions to which they were subject. Imported products cannot in principle qualify for the tax advantage prescribed by the national system unless they satisfy the same conditions as competing domestic products. According to the Court, Article 95 requires that tax advantages granted in respect of domestic products must be extended without discrimination to spirits coming from other Member States. In a situation where a Member State lawfully applies different rates of tax to similar products the application of the lowest rate of tax to all similar imported products alone necessarily results in discrimination at the expense of products which do not qualify for that advantage under national law and which are nevertheless in competition with the imported products in a similar fashion to the products qualifying for the advantage in question.

(e). According to the court making the reference there may be indirect discrimination if the importation at the reduced rate of tax is linked exclusively to an annual production limit whilst, with regard to domestic products, Article 79 (2) of the Law prescribes a number of other conditions which may be laid down for the grant of the fiscal advantage and which foreign producers cannot normally fulfil. That question falls within the exclusive jurisdiction of the court dealing with the main action.

(f). Furthermore the arrangements regarding imports in question cannot be contrary to Article 95 of the EEC Treaty merely because the tax advantage provided for in Article 79 (2) of the Law on the Monopoly in Spirits constitutes an aid within the meaning of Article 92 et seq. of the Treaty. The Commission was duly informed of it and found no grounds for complaint. It must also be emphasized that an extension going beyond Article 95 of the tax advantage in question to all imported spirits would in fact result in the abolition of that lawful system of aids. The abolition of that system would jeopardize the existence of small distillers and is inconceivable on a number of grounds of both social and agricultural policy.

(g). The reply which should be given to the first question is as follows :

(a). This question concerns two sets of detailed rules on methods of collecting tax and the procedures for taxing given categories of domestic distilleries. Since these rules are in the nature of technical procedures they do not come within the scope of Article 95. The reply to the two parts of this question can thus only be in the affirmative.

(b). Abfindungsbrennereien make the methods of collection of tax easier; social considerations and considerations of agricultural policy are also involved.

(c). The arrangements whereby distilleries are assessed over a fixed period do not come within the scope of Article 95: they do not constitute a tax advantage. The mere procedure whereby it is possible to distil on favourable tax conditions a larger quantity of spirits in certain years, that quantity being reduced by as much in other years, does not constitute an advantage in view of the balance which is achieved within the period; the fact that this advantage is not extended to foreign products does not fall within the prohibition on tax discrimination laid down in Article 95. In any case the arrangements in question are compatible with the principles laid down by Article 95 : an extension of the right to distil a certain quantity over a fixed period to foreign producers of spirits would not entail equality of treatment in tax matters but rather the granting of a considerable advantage in favour of imported spirits.

(d). Both parts of the second question submitted to the Court of Justice should be answered in the affirmative.

(a). Under the arrangements in dispute the Federal Republic of Germany is granting in respect of spirits produced from fruit tax advantages on the basis of a criterion which disregards the similar or competing nature of those products in relation to the same spirits produced by undertakings having a production level in excess of the annual limit fixed by the national legislation and also in relation to other types of similar or competing spirits.

(b). These arrangements were referred to in the Hansen case in which the Finanzgericht Hamburg gave a ruling on 23 May 1979 requiring equality of treatment in matters of taxation by extending to rum from Martinique the most favourable rate laid down in Article 79 (2) of the Law on the Monopoly in Spirits solely to spirits produced from fruit.

(c). The Court, in ruling in its judgments of 27 February 1980 that the Member States concerned had failed to fulfil their obligations under Article 95, declared that the Italian, French and Danish tax arrangements must be adjusted so that all imported spirits were subject to the same rate of tax. The reasons for which the Court disregarded the criterion based on the various types of spirit in order to maintain certain productions also applies to the criterion based on the production levels of undertakings as laid down in the German legislation in question.

(d). With regard to the economic and social objectives which might be invoked in defence of the tax reductions in question it must be recalled that intervention measures for the benefit of certain fruit used as raw materials for the spirits in question are laid down by the common organization of the market in fruit and vegetables.

(e). The following reply should be given to the first question:

(a). Taxation based on an estimate of the quantity of raw materials used necessarily entails a difference in the actual taxation depending on how good the yield of the distillery is. Surplus production as compared with the normal yield is frequent; it amounts on average to 20 % and in certain cases to between 50 and 60 %. Accordingly domestic small distilleries may well record an actual production of up to 5 hectolitres without losing their privileged status, whilst the tax reduction is withdrawn from foreign undertakings as soon as their production exceeds 4 hectolitres.

(b). The right of domestic Abfindungsbrennereien to carry forward and aggregate production rights limited annually to 4 hectolitres of ethyl alcohol over a period of ten years constitutes an advantage which is not enjoyed by imported spirits manufactured by their counterparts in other Member States: for the latter the limit of 4 hectolitres of ethyl alcohol is assessed annually, which means that they lose the benefit of the tax relief for the proportion below that limit if the harvest is poor.

(c). The measures in dispute, which were designed in terms of the position of domestic undertakings alone, cannot be transferred to the distilleries of other Member States.

(d). The reply to the second question should be as follows:

III —. Oral procedure

1. By order of 20 December 1979 which was received at the Court on 17 January 1980 the Finanzgericht Rheinland-Pfalz [Finance Court of Rhineland-Palatinate] referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions as to the interpretation of Article 95 of the EEC Treaty in order to enable it to appraise the compatibility with the EEC Treaty of certain provisions of national legislation on the taxation of spirits concerning the application of reduced rates of tax to various categories of producers.

2. The order for reference shows that the plaintiff in the main action imported and released to the market in 1978 a consignment of cognac bought from a major French producer and on which it paid on so doing the Monopolausgleicb [equalization duty] at the regular rate of tax then in force amounting to DM 1950 per hectolitre of ethyl alcohol. The plaintiff instituted proceedings against the decision of the customs authorities, claiming that there was discrimination against the imported spirits contrary, in particular, to Article 95 of the Treaty because certain categories of domestic spirits qualified for a more advantageous rate of tax.

3. It is clear from the file and from the explanations provided by the plaintiff in the course of the procedure that it is not in dispute that the rate of tax applied in this matter by the customs authorities in fact corresponds to the general rate of tax applicable to domestic spirits. The plaintiff's objection is based on the fact that national legislation makes provision for certain exceptions from that general rate for various categories of small producers who benefit from a reduced rate of tax. It claims the application of that rate of tax to the product which it imported.

4. The provisions for which the plaintiff wishes to qualify are contained in Article 79 (2) of the Law on the Monopoly in Spirits [Gesetz über das Branntweinmonopol]. These provisions provide for a reduction in the rate of tax for three categories of producer:

5. The German tax authorities dismissed the complaint of discrimination, maintaining that pursuant to Article 151 (1) of the Law on the Monopoly in Spirits as last amended by the Law of 13 July 1978 (Bundesgesetzblatt I, p. 1002), the benefit of the reduced rates of tax in Article 79 was extended to all spirits imported from other Member States of the Community if it is established that they come from a distillery whose annual production does not exceed 4 hectolitres of ethyl alcohol. In the opinion of the authorities these arrangements are in accordance with the requirements of Article 95 since the tax advantages given to certain categories of domestic spirits and certain groups of domestic producers are thereby extended to all imported spirits which fulfil the same conditions. This, on the other hand, does not apply to the cognac which forms the subject-matter of the dispute, which comes from a manufacturer whose production considerably exceeds that limit.

6. In this connexion the plaintiff objects that the production limit of 4 hectolitres applicable to imported spirits under Article 151 of the Law on the Monopoly in Spirits does not really constitute an equivalent of the tax measures applicable to national production. Since these measures are neither objective nor clear they cannot be transferred as such to the imported products. In this connexion the plaintiff relies more particularly on the following circumstances: with regard to the Abfindungsbrennereien, the fact that the production limits fixed on the basis of a tax on the must may be exceeded by means of a production surplus, which is exempt from all tax and varies between 20 % and 50 % depending on the year; the procedure known as Brennen im Abschnitt whereby the distiller may freely use his distillation right within ten-year periods makes it possible to improve even more on that result; finally, the aggregation of the distilling rights of Stoffbesitzer in the hands of certain distilleries which enables the latter considerably to exceed the limit of 4 hectolitres.

7. In order to settle this dispute the Finanzgericht submitted two questions which are worded as follows:

8. In substance these questions raise the problem whether a provision such as Article 151 (1) of the. Law on the Monopoly in Spirits, read in conjunction with Article 79 (2), constitutes a provision in accordance with the requirements of Article 95 of the Treaty. It is necessary to provide the Finanzgericht with the criteria of interpretation based on Community law enabling it to decide that problem.

9. In this connexion it must be recalled first of all that the Court, in its judgment of 10 October 1978 in Case 148/77 Hansen and Balk [1978] ECR 1787, stated that at the present stage of its development and in the absence of any unification or harmonization of the relevant provisions, Community law does not prohibit Member States from granting tax advantages, in the form of exemption from or reduction of duties, to certain types of spirits or to certain classes of producers. It added that tax advantages of this kind may serve legitimate economic or social purposes, such as the use of certain raw materials by the distilling industry, the continued production of particular spirits of high quality, or the continuance of certain classes of undertakings such as agricultural distilleries to which it added that, according to the requirements of Article 95, such preferential systems must be extended without discrimination to spirits coming from other Member States. That opinion was confirmed in a series of judgments of 27 February 1980 in which the Court remarked that although it acknowledged in the judgment in the Hansen and Balle case, taking into account the state of development of Community law, that certain tax exemptions or tax concessions are lawful, this is on condition that the Member States using those powers extend the benefit thereof without discrimination to imported products in the same conditions (see in particular the judgment in Case 168/78 Commissions French Republic, paragraph 16 of the decision).

10. The difficulties of interpretation expressed in the question from the national court are caused by the close link existing between the tax advantages provided for by Article 79 of the Law on the Monopoly in Spirits and the methods of taxation and of supervision under German law. For that reason it is particularly difficult to transfer those provisions to the tax treatment of spirits produced under the arrangements of the legislation of another Member State. In view of that situation it must be stated that the requirements of Article 95 of the Treaty are fulfilled where the legislation of a Member State makes it possible to apply to imports of spirits from other Member States arrangements the practical effect of which may be considered as equivalent to the arrangements applied to domestic spirits.

11. It is not for the Court, within the framework of an application for a preliminary ruling on interpretation under Article 177, to give a judgment in this matter on the German legislation since that appraisal is reserved to the national court. It is sufficient to find in this connexion that, from the point of view of Community law, none of the arguments put forward by the plaintiff has been of such a nature as to cast doubts on the compatibility with the requirements of Article 95 of arrangements such as those which are laid down in Articles 151 and 79, read together, of the German Law.

12. The plaintiff in the main action has not succeeded in establishing that the possibilities of a production surplus available to Abfindungsbrennereien permit them to attain, or appreciably to exceed, the annual production limit of 4 hectolitres or to achieve a considerable reduction in the level of taxation. This also applies to its observations concerning the exercise of distilling rights over ten-year periods (Brennen im Abschnitt) since it has been shown that that right merely permits the transfer of distilling rights within the ten-year period but not their increase. With regard to the distilling rights of the Stoffbesitzer, the German Government has stated that the distilling merely constitutes work carried out under contract and does not thus extinguish the identity of the rights granted to individual holders.

13. The plaintiff is again unsuccessful in the criticisms which it makes to the Court when it claims that the provisions of Article 151 do not constitute an exact transposition to the imported products of the conditions applicable to the various methods of production which qualify for preferential tax treatment under the German Law. In this connexion it must be observed that the German legislature, by retaining as the sole criterion for the granting of the tax advantages in question the volume of the annual production of distilleries in other Member States, has avoided transferring to imported spirits a series of technical procedures peculiar to German legislation which in fact cannot be fulfilled by producers of Member States whose legal systems do not contain the equivalent of the provisions the essential points of which have been recalled above.

14. Finally, it is also necessary to dismiss the argument put forward by the plaintiff to the effect that, having regard to the large number of persons who benefit from the provisions laid down in Article 79 of the Law on the Monopoly in Spirits, the proportion of production obtaining preferential tax treatment appreciably affects competition on the market in alcoholic products. In fact the information supplied in the course of the procedure by the German Government, which the plaintiff did not seriously challenge, shows that the quantities obtaining preferential tax treatment in reality constitute only an insignificant proportion (5 %) of total domestic production.

15. In view of those considerations the reply to the questions submitted must be that Article 95 of the EEC Treaty, in its application to the tax advantages reserved by national legislation to certain categories of small-scale producers of spirits, must be interpreted as meaning that the requirement of nondiscrimination laid down in the provision of the Treaty is fulfilled where the arrangements applicable to spirits imported from other Member States may be considered as equivalent to the arrangements applicable to national production, so that imported products may in fact enjoy the same advantages as comparable national products.

16. In this connexion, the fixing by the legislation of a Member State of an upper limit for production which is imposed upon producers of other Member States as a condition for qualifying for a reduction in the rate of tax conforms to the requirements of Article 95 of the EEC Treaty where that limit corresponds in general to the upper limit to which national producers are subject in order to qualify for the same tax advantage. Article 95 does not require the Member States to extend the same advantage to imported products coming from undertakings whose production exceeds the production limit thus fixed.

17. The costs incurred by the Government of the Federal Republic of Germany and by the Commission of the European Communities, which submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT (Second Chamber) in answer to the questions referred to it by the Finanzgericht Rheinland-Pfalz by order of 20 December 1979, hereby rules:

1 Article 95 of the EEC Treaty, in its application to the tax advantages reserved by national legislation to certain categories of small-scale producers of spirits, must be interpreted as meaning that the requirement of non-discrimination laid down in that provision of the Treaty is fulfilled where the arrangements applicable to spirits imported from other Member States may be considered as equivalent to the arrangements applicable to national production so that imported products may in fact enjoy the same advantages as comparable national products.

2 The fixing by the legislation of a Member State of an upper limit for production which is imposed upon producers of other Member States as a condition for qualifying for a reduction in the rate of tax conforms to the requirements of Article 95 of the EEC Treaty where that limit corresponds in general to the upper limit to which national producers are subject in order to qualify for the same tax advantage. Article 95 does not require the Member States to extend the same advantage to imported products coming from undertakings whose production exceeds the production limit thus fixed.