Report for the Hearing delivered in Joined Cases 76, 86 to 89 and 149/87

I — Facts and procedure

A — The national legislation concerned

Before Law No 85/695 of 11 July 1985 containing various provisions of an economic and financial nature (Journal Officiel de la République Française of 12 July 1985, p. 7855) was adopted there were two types of annual tax on motor vehicles in France: first, a differential tax on vehicles with a power rating for tax purposes (fiscal horsepower rating) of 16 CV or less and, secondly, a special tax of a fixed and substantially higher amount applied to vehicles with a power-rating in excess of 16 CV.

In a judgment of 9 May 1985 (Case 112/84 Humblot v Directeur des services fiscaux [1985] ECR 1367) the Court held that a tax with the characteristics of the French special fixed tax was contrary to Article 95 of the Treaty.

In order to comply with that judgment the French legislature adopted Article 18 of the abovementioned Law of 11 July 1985.

Article 18 abolished the special fixed tax on cars rated for tax purposes at more than 16 CV and created four new tax bands for vehicles exceeding that threshold (17 and 18 CV, 19 and 20 CV, 21 and 22 CV, 23 CV and over). It also fixed a coefficient for each new tax band (14.1; 21.1; 31.7; 47.6 respectively).

Each year, the conseils généraux adopt a resolution fixing a basic tax for their départements. The basic tax is multiplied by the various coefficients to determine the amount of the differential tax payable for the corresponding tax bands.

The tax bands and the corresponding coefficients are now as follows: (for the first five bands, the figures are unchanged; for the last four bands, the new coefficients replace the single coefficient of 48 which previously applied to all vehicles of 17 CV and above) : up to 4 CV: 1; from 5 to 7 CV: 1.9; 8 and 9 CV: 4.5; 10 and 11 CV: 5.3; from 12 to 16 CV: 9, 4; 17 and 18 CV: 14.1; 19 and 20 CV: 21.1.; 21 and 22 CV: 31.7; 23 CV and over: 47.6.

Thus, for example, the above figures yield the following amounts for Paris in 1984 (basic tax: 184): up to 4 CV: FF 184; from 5 to 7 CV: FF 349; 8 and 9 CV: FF 828; 10 and 11 CV: FF 975; from 12 to 16 CV: FF 1729; 17 and 18 CV: FF 2594; 19 and 20 CV: FF 3882; 21 and 22 CV: FF 5832; 23 CV and over: FF 8758.

Article 18 (V) of the Law of 11 July 1985 provides that for the purpose of settling proceedings which are pending, persons who have paid the tax may obtain a rebate in respect of the difference between the amount of the special fixed tax which they have paid and the amount of the differential tax payable under the new legislation.

Article 18 contains no provisions relating to the formula for calculating the power-rating for tax purposes. It therefore continues to be calculated according to the following formula, contained in an administrative circular of 23 December 1977 (Journal Officiel de la République Française of 8 February 1987, p. 1052):

In that formula P stands for the power-rating for tax purposes, m is 1 in the case of petrol and 0.7 for diesel and C is the cylinder capacity of the engine in cubic centimetres. K is a parameter representing the transmission of motion and is obtained by calculating the weighted arithmetic mean of the speeds expressed in kilometres per hour which would in theory be attained by the vehicle at an engine speed of 1000 revolutions per minute for the various ratios of the forward gears of the gear box.

The circular explains that the formula is intended to obtain a power-rating for tax purposes which best reflects the intrinsic characteristics of the vehicle's fuel consumption over a particular itinerary and encourages efforts to reduce such consumption.

In an annex to the circular it is also specified that the maximum value which may be attributed to parameter K is in any event limited to 21 kilometres per hour.

B — The facts

The plaintiffs in the main proceedings own cars of non-French manufacture whose power-rating exceeds 16 CV. They paid the special fixed tax on those cars for various tax periods between 1980 and 1985.

However, they considered that the special fixed tax penalized the purchase of cars manufactured abroad, in particular in other Member States, since only foreign cars had a power-rating exceeding 16 CV. They alleged a breach of Article 95 of the Treaty and brought claims against the administration des impôts (Tax Administration) for the reimbursement in respect of each financial year of the difference between the amount of the special tax paid and the highest amount of the differential tax applicable to cars manufactured in France.

While those claims were pending the Court of Justice gave its judgment of 9 May 1985 (the abovementioned Humblot case) and the French legislature amended the taxation system by adopting Article 18 of the Law of 11 July 1985.

On the basis of paragraph V of Article 18 the administration des impôts upheld in part the claims of the plaintiffs in the main proceedings. The administration granted them, in respect of each financial year concerned, a rebate amounting to the difference between the sum of the former special fixed tax and that of the new differential tax corresponding to the power-rating for tax purposes of their car. For the rest, the claims were rejected.

The plaintiffs in the main proceedings considered that the new legislation was also contrary to Article 95 of the Treaty because cars of foreign manufacture continue to be taxed more heavily than comparable French cars. They therefore brought proceedings against the administration des impôts for repayment, in respect of each financial year concerned, of the difference between the amount of the special tax paid and the highest amount of differential tax applicable to cars of French manufacture.

The tribunaux de grande instance before which the cases were brought took the view that in adopting Article 18 of the Law of 11 July 1985 the French legislature had not correctly implemented the abovementioned Humblot judgment of 9 May 1985. They stressed that under Article 18 vehicles whose power-rating for tax purposes exceeds 16 CV, which are all manufactured abroad, are taxed more heavily than comparable French vehicles. They therefore considered it necessary to refer to the Court the issue of the compatibility with Article 95 of the Treaty of a system of taxation such as that contained in Article 18 of the Law of 11 July 1985.

In a judgment of 9 December 1986 the tribunal de grande instance de Saint-Brieuc decided to stay the proceedings and refer the following question to the Court of Justice under Article 177 of the Treaty:

In judgments of 5 March, 12 March and 7 May 1987, the tribunal de grande instance de Nancy decided to stay the proceedings and refer the following question to the Court of Justice for a preliminary ruling under Article 177 of the Treaty:

C — Procedure before the Court

The judgment of the tribunal de grande instance de Saint-Brieuc was received at the Court Registry on 16 March 1987 (Case 76/87). The judgments of the tribunal de grande instance de Nancy were received at the Court Registry on 23 March 1987 (Cases 86 to 89/87) and 13 May 1987 (Case 149/87).

By order of 17 June 1987 the Court joined Cases 86 to 89/87 for the purposes of the written and oral procedure and the judgment.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted in Case 76/87 on 14 May 1987 by G. Seguela, the plaintiff in the main proceedings, on 1 June 1987 by the French Government, represented by R. de Gouttes, acting as Agent, on 3 June 1987 by the Commission of the European Communities, represented by its Legal Adviser J. F. Buhl, acting as Agent, and on 24 June 1987 by the United Kingdom, represented by H. R. L. Purse, Treasury Solicitor, acting as Agent.

In Joined Cases 86 to 89/87 written observations were submitted on 3 August 1987 by the French Government, represented by E. Belliard, acting as Agent, on 3 August 1987 by the Commission of the European Communities, represented by its Legal Adviser J. F. Buhl, acting as Agent, on 21 August 1987 by P. Dellestable, a plaintiff in the main proceedings, represented by J.-L. Tassigny, avocat, on 24 August 1987 by A. Lachkar, a plaintiff in the main proceedings, represented by Berrodier and Gottlich, avocats, and on 24 September 1987 by the United Kingdom, represented by H. R. L. Purse, Treasury Solicitor, acting as Agent.

In Case 149/87 written observations were submitted on 24 July by the French Government, represented by E. Belliard, acting as Agent, on 3 August 1987 by the Commission of the European Communities, represented by its Legal Adviser J. F. Buhl, acting as Agent, on 10 August 1987 by F. Sargos, the plaintiff in the main proceedings, represented by E. Baumann, avocat, and on 20 August 1987 by the United Kingdom, represented by H. R. L. Purse, Treasury Solicitor, acting as Agent.

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.

By order of 20 January 1988 the Court decided to join Case 76/87, Joined Cases 86/87, 87/87, 88/87 and 89/87 and Case 149/87 for the purposes of the oral procedure and the judgment.

By order of 20 January 1988 the Court assigned the cases to the First Chamber of the Court pursuant to Article 95 (1) and (2) of the Rules of Procedure.

II — Written observations submitted to the Court

Mr Seguela, the plaintiff in the main proceedings in Case 76/87, considers that the French differential tax system, as amended by Article 18 of the Law of 11 July 1985, is contrary to Article 95 of the Treaty.

He stresses that for the first 16 power-ratings for tax purposes there are only five tax bands, whereas for the following seven power-ratings (from 17 to 23 CV) there are four. The increase in tax is therefore much more rapid above 16 CV than below that threshold. Only cars manufactured abroad, in particular in other Member States, have a power rating for tax purposes exceeding 16 CV. Such a difference in taxation is discriminatory because it is not justified by the actual power of the cars, their fuel consumption or their level of comfort.

Furthermore, limiting the parameter K to a maximum value of 21 km per hour has the effect of attributing a power rating for tax purposes exceeding 16 CV to cars with a cylinder capacity greater than 3 litres. Since only cars of foreign manufacture exceed that cylinder capacity the discriminatory character of the system is obvious.

Mr Seguela therefore suggests that the reply should be that a tax with the characteristics of the French differential tax is contrary to Article 95 of the Treaty.

Mr Lachkar, the plaintiff in the main proceedings in Case 86/87, considers that the Humblot judgment of 9 May 1985, correctly implemented, would allow all sums paid by way of the special fixed tax to be recovered in so far as they exceed the differential tax payable in the 12 to 16 CV band.

Article 18 of the Law of 11 July 1985 limits the right to reimbursement and therefore constitutes an incorrect implementation of the judgment.

Mr Lachkar argues that the national court should have held that Article 18 was incompatible with Community law and refused to apply it without referring a question to the Court.

He considers that in those circumstances the Court should dismiss the judgment making the reference and declare that his action against the administration des impôts is admissible and well founded.

Mr Dellestable, the plaintiff in the main proceedings in Case 89/87, takes the view that the differential tax system, as amended by Article 18 of the Law of 11 July 1985, does not meet the criteria necessary in order to comply with Article 95 of the Treaty which are set out in the Humblot judgment of 9 May 1985. That is to say, Article 18 does not establish a system of progressive taxation embodying balanced differentials as that judgment requires.

In that respect, Mr Dellestable stresses that the 12 to 16 CV tax band, which includes the top-of-the-range French cars, contains five power-ratings for tax purposes whereas each of the higher tax bands, which cover only cars of foreign manufacture, contains only two power-ratings. Furthermore, beyond 16 CV the amount of tax due under a given tax band increases each time by 50% in relation to the tax due under the previous band. The result is that taxation increases much more rapidly for foreign cars than for French cars which are comparable as regards consumption, actual power, price or comfort.

Mr Dellestable therefore submits that the reply should be that Article 18 of the Law of 11 July 1985 is contrary to Article 95 of the Treaty.

Mr Sargos, the plaintiff in the main proceedings in Case 149/87, submitted identical observations to those submitted by Mr Dellestable.

He suggests that the reply should be that Article 18 of the Law of 11 July 1985 is contrary to Article 95 of the Treaty.

The French Government referred in each case to the observations which it submitted in the Feldain case (the judgment of 17 September 1987 in Case 433/85 [1987] ECR 3521).

It considers that an identical reply should be given to the questions in these cases to the reply which it suggested in the Feldain case, that is to say that a tax with the characteristics of the French differential tax is compatible with Article 95 of the Treaty.

The United Kingdom submitted identical observations in Case 76/87 Seguela, in Joined Cases 86 to 89/87 Lachkar and Others and in Case 149/87 Sargos.

The United Kingdom takes the view that the differential tax system, as amended by Article 18 of the Law of 11 July 1985, is contrary to Article 95 of the Treaty.

First, the United Kingdom states that the formula for calculating power-ratings for tax purposes produces discriminatory results. It points out that the formula makes the power-rating dependent essentially on the cylinder capacity of the engine. Cars equipped with turbochargers, which for the most part are of French manufacture (in particular the Renault Alpine GTA), have a small cylinder capacity and for that reason are rated at no more than 16 CV. However, their actual power and their fuel consumption are as great as certain foreign vehicles which are rated at greater than 16 CV. The choice of the formula used for the purposes of calculation is therefore to be explained not by a desire to encourage the purchase of cars which consume less energy but by a wish to protect national production. Furthermore, the limitation of the parameter K to a maximum value of 21 km per hour works to the detriment of cars of a large cylinder capacity, which are of foreign manufacture, by giving them a power-rating of more than 16 CV.

Secondly, the United Kingdom stresses that the high rate of progression (50%) of the tax between each tax band above 16 CV brings about a very rapid increase in the amount of the tax applicable to the cars concerned. Only cars manufactured abroad are classified in the bands above 16 CV. No objective factors such as maximum speed, comfort or fuel consumption justify such excessive taxation of foreign cars in relation to the most prestigious French cars.

Thirdly, the United Kingdom notes that the new tax bands created by Article 18 each cover only two power-ratings whereas the top-of-the-range French cars are covered by a single tax band which comprises five horsepower ratings (12 to 16 CV). The new tax system has not, therefore, instituted a system of progressive taxation embodying balanced differentials as required by the Humblot judgment of 9 May 1985.

The United Kingdom therefore suggests that the Court should reply that the differential tax system as amended by Article 18 of the Law of 11 July 1985 is contrary to Article 95 of the Treaty.

The Commission also considers that the tax in question is contrary to Article 95 of the Treaty.

In the observations which it submitted in Case 76/87 Seguela, it states that a Member State may certainly adopt a fiscal policy which encourages the saving of energy. However, the French system in issue is not likely to attain that objective. It taxes cars with a power-rating for tax purposes exceeding 16 CV much more heavily than those with a lower power-rating, although cars in the latter category do not consume significantly less fuel, and indeed in certain cases may even consume more than the others. Furthermore, only cars manufactured abroad, in particular in other Member States, have a power-rating for tax purposes in excess of 16 CV. The French taxation system therefore entails discrimination contrary to Article 95 of the Treaty.

In the observations which it submitted in Joined Cases 86 to 89/87 Lachkar and Others and Case 149/87 Sargos the Commission referred to the observations which it had submitted to the Feldain case (the judgment of 17 September 1987, cited above).

The Commission proposes that the answer should be that a tax with the characteristics of the French differential tax is contrary to Article 95 of the Treaty.

1 Language of the Case: French.