Judgment of the Court (Fourth Chamber) 15 January 1985

In Case 253/83 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht Rheinland-Pfalz [Finance Court, Rhineland-Palatinate] for a preliminary ruling in the proceedings pending before that court between

THE COURT (Fourth Chamber) composed of: G. Bosco, President of Chamber, P. Pescatore, A. O'Keeffe, T. Koopmans and K. Bahlmann, Judges, Advocate General: CO. Lenz Registrar: H. A. Rühl, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

1. Facts and procedure

2. Summary of the written observations submitted to the Court

Consideration in the light of Articles 37 and 95 of the EEC Treaty

1 — Article 95 of the Treaty

2 — Article 37 of the EEC Treaty

Consideration in the light of the Agreements

3. Oral procedure

Decision

The first part of the question

Article 95 of the Treaty

Article 37 of the Treaty

The second part of the question

Article 21 of the Agreement between the EEC and the Portuguese Republic

Article 3 of the Agreement between the EEC and Spain

Costs

1. Facts and procedure

1.1. The German Law on the Monopoly in Spirits (Branntweingesetz) of 8 April 1922 was amended on a number of occasions. The version applicable at the material time applied to spirits a tax on consumption that was levied in three different ways.

1.1.1. Domestically-produced spirits had in principle to be sold to the Federal Monopoly Administration (Bundesmonopolverwaltung) at an acquisition price for spirits (Branntweinübernahmepreis) which was calculated by reference to the basic price (Branntweingrundpreis) fixed by the Federal Monopoly Administration. In March 1976 the basic price was DM 253 per hectolitre of spirit. In accordance with Paragraph 84 of the Law on the Monopoly in Spirits those spirits were liable to the tax on spirits (Branntweinsteuer) — at the material time DM 1500 per hectolitre of spirit. They were marketed by the Federal Monopoly Administration at a price, known as the normal selling price (regelmässiger Verkaufspreis), which was made up of the sum of the acquisition price, the tax on spirits and the administrative and operating costs of the monopoly. The Federal Monopoly Administration set the normal selling price at DM 1833 per hectolitre of spirit in a notice of 10 September 1975 (Bundesanzeiger [Official Gazette] No 174 of 19 September 1975).

1.1.2. Spirits which are exempted from the requirement to be sold to the Federal Monopoly Administration or which, in breach of that requirement, were not so sold were liable, pursuant to Paragraph 78 of the aforesaid Law, to a spirits surcharge (Branntweinaufschlag). According to Paragraph 79 the surcharge corresponded to the difference between the normal selling price and the basic price for spirits, less the average costs which the Federal Monopoly Administration saved by not taking delivery of the spirits. By virtue of Paragraph 79 (2) to (8) and Paragraph 79a, the spirits surcharge was, in certain circumstances, reduced or increased depending on such criteria as the type of distillery, the quantities produced and the type of raw material used.

1.1.3. Monopoly equalization duty (Monopolausgleich)

1.2. The plaintiff in the main proceedings, Sektkellerei C. A. Kupferberg & Cie KG a.A. (hereinafter referred to as Kupferberg), put into free circulation between 1 and 17 March 1976 various types of alcoholic beverages (whisky, geneva, liqueurs, armagnac, pruneaux, sherry and port) from Great Britain, the Netherlands, France, Spain and Portugal respectively.

1.3. By order of 6 October 1983 the Finanzgericht decided, pursuant to Article 177 of the EEC Treaty, that since the resolution of the dispute hinged on the interpretation of the provisions of Community law set out in the question referred to the Court it should stay the proceedings until the Court gave a preliminaty ruling on the following question :

1.4. The order making the reference was lodged at the Court Registry on 11 November 1983.

1.5. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the Hauptzollamt Mainz, the defendant in the main proceedings, represented by Martin Papenfuss, its Director; by Kupferberg, the appellant in the main proceedings, represented by Dr Dietrich Ehle and Partners, Rechtsanwälte, Cologne; and by the Commission of the European Communities, represented by its Legal Advisers, Friedrich-Wilhelm Albrecht and Peter Gilsdorf.

1.6. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. However, the Court submitted a question to the German Government, which the latter answered in writing.

1.7. By order of 4 July 1984 the Court assigned the case to the Fourth Chamber pursuant to Article 95 (1) and (2) of the Rules of Procedure.

2. Summary of the written observations submitted to the Court

2.1. Taxation of imported spirits under the first sentence of Paragraph 152 (1) of the Law on the Monopoly in Spirits

2.2. Taxation of spirits exempted from the requirement to be sold to the Federal Monopoly Administration under Paragraph 79 (1) of the aforesaid Law

2.3. Taxation of spirits which may be sold to the Monopoly Administration under Paragraph 84 (1) and Paragraph 76 of the Law read together with the circular of 24 March 1976 of the Federal Minister for Finance (III A2-V 7143-4/76-11). With a view to restoring the competitiveness, vis-à-vis the Deutsche Kornbranntwein-Verwertungssteile, of distillers of grain spirit who market their own products (this having been affected by the cut made in the former's prices as from 23 February 1976), the above circular granted those distillers the right to the payment of an aid by the Federal Monopoly Administration. The amount of that aid corresponded to the difference between the acquisition price for spirits (Branntweinübernahmepreis) that the Deutsche Kornbranntwein-Verwertungsstelle would have had to pay had it purchased the spirits and the lowest selling price for products of the Deutsche Kornbranntwein-Verwertungsstelle, plus a flat-rate sum to cover the costs incurred by the distiller in purifying the spirits.

2.4. Taxation of spirits which must be sold to the Federal Monopoly Administration under paragraph 84 (1) of the Law on the Monopoly in Spirits read together with Paragraphs 62, 63 et seq. of that Law.

1 —. Article 95 of the Treaty

(a). The Commission emphasizes that during the period in question imported products were subject to an equalization duty of DM 1500 per hectolitre of spirit, which was equivalent to the tax levied on similar or competing domestic products whether they were spirits sold by the monopoly and subject to the tax on spirits or spirits not sold to the monopoly and subject to the spirits surcharge.

(b). As for Kupferberg's assertion that, in view of the provisions of the Law on the Monopoly in Spirits and having regard to the reduction in the selling price from DM 1833 to DM 1683 per hectolitre of spirit, the rate of equalization duty should have been DM 1430 instead of DM 1500 per hectolitre of spirit, the Commission points out that from the point of view of Community law it is irrelevant whether the lower selling price ought to be viewed under German law as the normal selling price for the purposes of the calculation method laid down in Paragraph 152 (1) of the said Law. All that it is necessary to determine is whether the real tax burden, that is to say, the rate of tax actually applied, is compatible with Community law.

(c). As for Kupferberg's doubts about the amount of tax actually levied on domestic spirits by the monopoly, the Commission points out that the fact that a calculation carried out on the basis of the reduced selling price actually applied by the monopoly (DM 1683 per hectolitre of spirit) and an unchanged basic price (DM 253 per hectolitre of spirit) produces an amount (DM 1430 per hectolitre of spirit) less than the tax (DM 1500) by no means signifies that the Federal Monopoly Administration was partially relieved of its obligation to levy and pay to the Treasury the whole amount of the tax. In its view, it is necessary to start from the principle that the Federal Monopoly Administration always duly levied the tax under Paragraph 84 of the Law on the Monopoly in Spirits and that it always paid the proceeds over to the Treasury in accordance with Paragraph 86.

(d). However, the Commission considers that should it turn out, contrary to its belief, that the spirits sold by the monopoly were in fact less heavily taxed owing to the monopoly's being partly released from levying and paying the tax, the issue would take on a different complexion. In that regard, it points out that from an economic point of view exemption from tax to the extent of DM 70, as would be the case, would constitute no more than a partial offsetting in advance of losses incurred by the monopoly. That would be aid, and, as such, would have to be assessed in the light, not of Article 95 of the Treaty, but of Article 37. It adds that it would be wholly specious to seek to make a distinction depending on whether the tax to be paid is reduced immediately or whether it is first paid in full to the Treasury and later partly offset from general tax revenue, in so far as losses are always offset from tax revenue.

(e). Lastly, although this issue is not the subject of the question referred to the Court for a preliminary ruling, the Commission points out that, in order to satisfy the requirements of Article 95 of the Treaty, imported products must be eligible without discrimination for the tax concessions provided for in the Law on the Monopoly in Spirits and, in particular, in Paragraphs 79 and 79a thereof, provided that they satisfy the requisite conditions. It refers in this connection to the Court's case-law, which provides the necessary guidance to enable the Finanzgericht to decide on the matter once it has made the necessary findings of fact.

2 —. Article 37 of the EEC Treaty

(a). The Commission, while leaving aside its specific observations on the reduced rates resulting from Paragraphs 79 and 79a of the Law, stresses that since the taxes actually levied in the case at issue affected imported products based on distilled spirit and domestic products in the same way, there was no discrimination regarding the conditions under which goods are procured and marketed, within the meaning of Article 37.

(b). Although the Finanzgericht did not ask to what extent the actual reduction in the selling price from DM 1833 to DM 1683 per hectolitre of spirit and the loss apparently incurred by the monopoly as a result come as such within the scope of Article 37, the Commission nevertheless considers that it should tackle that question in view of the fact that it is linked to some extent with the taxation aspects of the case and was raised by Kupferberg.

1 —. Sherry and port are liqueur wines as defined in Council Regulation (EEC) No 337/79 of 5 February 1979 on the common organization of the market in wine (Official Journal 1979 L 54, p. 1). One of the essential quality requirements for such products is the fact that they must be obtained only by the addition of products of the distillation of wine or of concentrated grape must, the aim being to prevent other blends containing alcohol from being produced under the description liqueur wine. Moreover, that requirement of Community law matches the legal requirements of Spain and Portugal.

2 —. In view of the fact that the spirit sold by the Federal Monopoly Administration at the price reduced by DM 150 per hectolitre was not derived from wine, inasmuch as it appears from Paragraph 76 of the Law on the Monopoly in Spirits that spirit obtained by the distillation of wine is not included among the products subject to the requirement to be sold to the Monopoly Administration, the products in question can in no case be eligible for the alleged tax preference at issue in this case since, to adopt the terminology of the judgment in Case 104/81, no similar product (within the meaning of the provisions of the Agreements) existed in the Federal Republic of Germany which could have benefited from the reduction.

3 —. Apart from that, any similarity with any domestic spirit-based product, vermouth for example, should be rejected — even if the product is deemed to be a liqueur wine according to the definition of liqueur wine under German law — if that product is derived from spirit of non-vinous origin, since such a product cannot be deemed to be a similar product in view of the specific quality requirements that port and sherry have to satisfy. The condition of similarity for the purposes of the Agreements should be interpreted strictly and not flexibly, as in the case of the interpretation given to that concept in the context of the first paragraph of Article 95 of the Treaty owing to the need to achieve total equality with regard to competition in the intra-Community sphere, in so far as the Agreements have a much narrower scope than the EEC Treaty. Sherry and port, although they are not similar to spirit-based products made in Germany without the addition of vinous spirit, are at the most partially in competition with those products. But that does not imply that the Agreements have been infringed, since neither of them contain a provision comparable to the second paragraph of Article 95.

3. Oral procedure

1. By order of 6 October 1983, received at the Court Registry on 11 November 1983, the Finanzgericht Rheinland-Pfalz [Finance Court, Rhineland-Palatinate] referred to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Articles 37 and 95 of the EEC Treaty, Article 3 of the Agreement of 29 June 1970 between the EEC and Spain (Official Journal L 182, p. 1) and the first paragraph of Article 21 of the Agreement of 22 July 1972 between the EEC and the Portuguese Republic (Official Journal L 301, p. 164).

2. The question was raised in proceedings calling in question the compatibility with the aforementioned provisions of the amount of monopoly equalization duty (Monopolausgleich) imposed by the Hauptzollamt [Principal Customs Office], Mainz, on spirits imported by the Kupferberg company, the plaintiff in the main proceedings, from Great Britain (whisky), the Netherlands (geneva and liqueurs), France (armagnac and pruneaux), Spain (sherry) and Portugal (port) and put into free circulation in the Federal Republic of Germany between 1 and 17 March 1976.

3. As the Court has already noted in several judgments, the German Law on the Monopoly in Spirits (Branntweingesetz) of 8 April 1922, before it was recast by the Law of 2 May 1976, applied to spirits a tax on consumption which was levied in three different ways depending whether the spirits were :

4. For the period from 23 February to 17 March 1976 the amount of monopoly equalization duty payable on the products imported by Kupferberg was fixed (in accordance with a circular of 23 March 1976 of the Federal Minister for Finance) at DM 1500 per hectolitre of spirit, that is to say at a rate corresponding to the tax on spirits in force at the time when Kupferberg brought an action before the Finanzgericht Rheinland-Pfalz in which it contended that, in accordance with Paragraph 152 (1) of the Law on the Monopoly in Spirits and in view of the fact that the normal selling price actually charged by the Federal Monopoly Administration between 1 March and 17 March 1976 had been reduced from DM 1833 to DM 1683 per hectolitre of spirit, the amount of monopoly equalization duty should have been fixed at DM 1430 per hectolitre of spirit, corresponding to the difference between the actual selling price and the basic price for spirits which at that time was DM 253 per hectolitre of spirit.

5. By a judgment of 13 February 1978 the Finanzgericht allowed Kupferberg's application. On appeal on a point of law by the Hauptzollamt, the Bundesfinanzhof [Federal Finance Court], by a decision of 5 August 1980, quashed that judgment on the ground that the actual selling price of DM 1683 per hectolitre of spirit which had been applied as from 23 February 1976 was not the normal selling price for spirits within the meaning of Paragraph 152 of the Law. The normal selling price had remained the price that had been properly fixed and published in Bundesanzeiger No 174 of 19 September 1975, namely DM 1833 per hectolitre of spirit. If the calculation method stipulated in the first sentence of Paragraph 152 (1) of the Law was used the monopoly equalization duty on imported spirits came to DM 1580 per hectolitre of spirit. The Bundesfinanzhof stressed that the Hauptzollamt in its decision fixing the duty had applied the German rules to a limited degree only, since by fixing the amount of equalization duty at DM 1500 per hectolitre of spirit it had not claimed payment of that part of the equalization duty known as the monopoly equalization margin (Monopolausgleichspitze). The Bundesfinanzhof concluded therefore that, in view of the aim of the proceedings, the levying of equalization duty of DM 1500 per hectolitre of spirit, as set out by the contested decisions, was at all events proper from the point of view of German law.

6. The Bundesfinanzhof found, however, that the judgment of the Finanzgericht had failed to examine the question of the possible incompatibility with Articles 37 and 95 of the EEC Treaty of fixing the monopoly equalization duty higher than DM 1430. In its view, the decision fixing the duty was liable to infringe Article 95 of the EEC Treaty together with Article 3 of the Agreement between the EEC and Spain and the first paragraph of Article 21 of the Agreement between the EEC and the Portuguese Republic only in so far as the Finanzgericht on reexamining the facts should hold that domestic spirits, exempted from the requirement to be sold to the Federal Monopoly Administration and comparable with the imported products, had been accorded the advantages conferred by Paragraphs 79 (2) and 79a of the Law on the Monopoly in Spirits.

7. When the case was once again remitted to it, the Finanzgericht considered that the Bundesfinanzhof had not ruled on whether the reduction of DM 150 per hectolitre of spirit, which the Federal Monopoly Administration had made in the actual selling price of spirits owing to price competition from imported spirits, together with the retention of the former selling price for the purpose of determining the amount of monopoly equalization duty payable on imported spirits was or was not compatible with Articles 37 and 95 of the EEC Treaty and with the corresponding provisions of the Agreements concluded with Spain and Portugal.

8. With a view to resolving this matter the Finanzgericht referred the following question to the Court:

9. That question falls into two parts : the first concerns the compatibility with Articles 37 and 95 of the EEC Treaty of the defacto reduction in the selling price of spirits sold by the Federal Monopoly Administration together with the concurrent retention of the former selling price for such spirits for the purpose of calculating the monopoly equalization duty payable on imported products; the second concerns the compatibility of the practice described above with the provisions corresponding to Article 95 of the EEC Treaty which are contained in the Agreements concluded with Spain and Portugal.

10. According to the plaintiff in the main proceedings, between 23 February and 17 March 1976 imported spirits suffered discrimination within the meaning of Articles 37 and 95 of the Treaty in so far as during that period Paragraph 152 (1) of the Law on the Monopoly in Spirits, which prescribed the method for calculating the monopoly equalization duty payable on imported spirits, was interpreted and applied contrary to its wording. The effect of that interpretation was that imported spirits were taxed — on the basis of the normal price for monopoly spirits — at a rate of DM 1580 per hectolitre of spirit, whereas had the actual selling price been employed the rate of taxation arrived at would have been DM 1430 per hectolitre of spirit. Kupferberg maintains that the Federal Monopoly Administration would have had to sell its spirits at a loss if the taxation levied thereof had been the same as that levied on imported spirits. It argues therefore that spirits sold by the Federal Monopoly Administration were subject to a lower rate of taxation than imported spirits.

11. As the Commission observes, the fact that imported spirits might have been subject to lower taxation during the period in question had the reduced selling price charged by the Federal Monopoly Administration been deemed to be the normal selling price is irrelevant as far as Article 95 of the EEC Treaty is concerned given that the rate of tax actually levied on imported products during that period was neither directly nor indirectly greater than the taxation actually levied on similar or competing domestic products.

12. It should be observed in that regard that, as the Court has already stated in its judgment of 7 May 1981 (Case 153/80, Rumhaus Hansen v Hauptzollamt Flensburg, [1981] ECR 1165), although Article 95 requires imported products actually to be treated in the same way as comparable domestic products Community law does not require Member States to treat imported products more favourably than domestic products.

13. Lastly, it should be emphasized that it is not for the Court of Justice but for the national court to establish the facts underlying the dispute and to verify whether the imported spirits and the corresponding domestic spirits were in fact generally subject, during the period in question, to the same rates of taxation pursuant inter alia to the circular of 23 March 1976 of the Federal Minister for Finance or whether in fact they were taxed at different rates. Moreover, in reply to a question put by the Court, the Government of the Federal Republic of Germany stated that throughout the period in question the Federal Monopoly Administration paid tax at the same rate as that imposed on spirits imported from the other Member States.

14. The purpose of the question relating to Article 37 of the EEC Treaty is to enable the national court to determine whether the reduction in the selling price actually charged by the Federal Monopoly Administration from DM 1833 to DM 1683 per hectolitre of spirit is compatible with Article 37.

15. As the Court has already observed in the judgment of 13 March 1979 (Case 91/78, Hansen GmbH v Hauptzollamt Flensburg [1979] ECR 935), where such a measure is dictated by reasons connected with the monopoly's marketing practices, it is not automatically open to criticism unless the application of that measure is injurious to the equality of opportunity which must be accorded to imported products in so far as domestic spirits are marketed with the aid of public funds at an abnormally low resale price compared with the price, before tax, of spirits of comparable quality imported from another Member State.

16. In that regard the sole determining factor is that the object of the price reduction was to make the spirit sold by the monopoly competitive vis-à-vis imported products. As the Commission acknowledges, the reduction does not constitute a measure peculiar to the State monopoly but a commercial measure dictated by competition. Although the reduction in price was achieved with the aid of public funds, it should be observed that that aid, which fell to be considered in the light of Article 92 of the Treaty, was duly notified to the Commission, which considered that it constituted a transitional, short-term measure, and hence raised no objection in principle.

17. As the Court has already held in its judgment of 26 October 1982 (Case 104/81, Hauptzollamt Mainz v Kupferberg & Cie, [1982] ECR 3641) the first paragraph of Article 21 of the Agreement between the EEC and the Portuguese Republic — like Article 95 of the EEC Treaty — aims at the elimination of tax discrimination. A fortiori it may not be inferred from the wording of Article 21 that the Contracting Parties are under an obligation to treat imported products more favourably than domestic products.

18. Since the first paragraph of Article 21 of the Agreement merely requires the Contracting Parties not to practise discrimination in the fiscal field where the products concerned are of a similar nature, the fact that if in a given period a reduction in the selling price charged by the Federal Monopoly Administration had been taken into account in the method of calculating the monopoly equalization duty that would have enabled imported spirits to be less heavily taxed is of no consequence from the point of view of that provision, provided that the rate of taxation that was actually applied to imported spirits during that period did not exceed the taxation actually applied to similar domestic products.

19. The concept of similarity contained in the first paragraph of Article 21 of the Agreement, as interpreted by the Court, implies that the products concerned are similar both as regards their method of manufacture and as regards their characteristics. Accordingly, it is for the national court to judge whether during the period at issue imported spirits were in fact taxed at a rate identical to the rate at which similar products of Community origin were taxed.

20. The considerations set out above also apply to Article 3 of the Agreement between the EEC and Spain since the wording of that article is identical to that of the first paragraph of Article 21 of the Agreement with the Portuguese Republic and the subject-matter and the scope of the two agreements are comparable.

21. The answer to both parts of the question referred to the Court for a preliminary ruling should therefore be that Articles 95 and 37 of the EEC Treaty, Article 21 of the Agreement between the EEC and the Portuguese Republic and Article 3 of the Agreement between the EEC and Spain must be interpreted as not precluding the de facto reduction made in the selling price of spirit sold by the Federal Monopoly Administration in a given period provided that the rate of taxation actually applied to imported products during that period did not exceed the rate of taxation actually levied on corresponding domestic products.

22. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable.

23. As these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings before the national court, costs are a matter for that court.

On those grounds, THE COURT (Fourth Chamber), in answer to the question referred to it by the Finanzgericht Rheinland-Pfalz by order of 6 October 1983, hereby rules:

1 Language of the Case: German.