Report for the Hearing in Case C-327/90

I — Facts and relevant legislation

A — The national legislation at issue

Law No 363/1976, as supplemented and amended by Laws Nos 1003/1979 and 1591/1986, introduced in Greece a special consumption tax on private vehicles which are imported or assembled in Greece (hereinafter the tax).

Pursuant to Article 1(3) of Law No 363/1976, the basis of assessment of the special tax on imported cars is the sum of the following components:

For cars assembled in Greece, Article 4(2) of Law No 1573/1985 of 19 and 27 November 1985 provides that the basis of assessment is to be calculated by reference to the ex-factory price indicated in the catalogue submitted by the automobile industry to the price-control committee.

The second subparagraph of Article 4(2) of that Law adds that the price components are not to include any fiscal charges of any kind incorporated in the cost price of the car.

Finally, by virtue of Article 3(1) of the same Law, raw materials imported from abroad or purchased by the automobile industry within national territory are exempt from any fiscal charge accruing to the State or to third parties, with the exception of the customs duties provided for by Community legislation for raw materials from nonmember countries.

In addition, Articles 2, 4, and 6 of Law No 1573/1985 make Greek automobile plants subject to a customs supervision regime, so that the consumption tax on cars produced in Greece is collected by the customs authorities at the time of customs clearance under the same conditions as for imported cars.

B — The pre-litigation procedure

By letter of 18 October 1988, the Commission informed the Hellenic Republic that it regarded that system of differentiated taxation as contrary to Article 95 of the Treaty. Its effect was systematically to favour cars assembled in Greece at the expense of those imported from other Member States.

The discrimination derived mainly from the fact that a flat-rate increase of 21% or 23% of the basis of assessment of the tax was prescribed for imported cars, whereas those assembled in Greece were taxed on the basis of actual figures, namely ex-factory prices.

The Commission considered that there were no objective grounds for that distinction. In particular, it was not justified by any need to offset nondeductible charges, fiscal or otherwise, incorporated in the overall cost of cars assembled in Greece. Greek law in effect granted an exemption for imports of spare parts intended for the assembly of cars.

The Commission formally requested the Greek Government to submit its observations within a period of two months.

By letter of 5 January 1989, the Greek Government stated that the flat-rate increase of 21% or 23.2% represented two factors: (a) the discount on the wholesale price granted by the manufacturer to the concessionaireimporter to offset expenses (of marketing, special exhibitions, after-sales service, and so on) to be incurred by it in Greece on behalf of the exporter; and (b) the commission received by the sole importer who served as intermediary for the purchase of cars imported direct from the factory. The increase of 23.2%, applied when cars were not bought direct from the manufacturer but from a foreign distributor, was intended to cover the reseller's profit. In such cases, the concessionaire's price, plus the foreign distributor's profit, was taken into account.

Although no increase was prescribed for cars made in Greece, that was because the Greek automobile industry was not yet very developed and Greek manufacturers sold direct to the final consumer without using intermediaries. In those circumstances, the manufacturer's sale price, used as the basis for calculating the tax on cars assembled in Greece, was in fact equivalent to the retail price.

Thus, the contested system of taxation was applied in the same way to imported cars and to those assembled in Greece.

The Greek Government also considered that the added percentage was not excessive. This was apparent from the fact that the basis of assessment for the tax on cars assembled in Greece was generally higher than that used for calculation of the tax on foreign cars.

Accordingly, the contested Greek legislation was entirely objective and was in conformity with Article 95 of the Treaty.

On 7 July 1989, the Commission issued a reasoned opinion in which it reiterated the charge made by it in the letter calling for the Greek Government's observations.

It also maintained that the flat-rate addition of 21% or 23.2% manifestly exceeded the difference between the ex-factory price and the wholesale price; accordingly, it led automatically to higher taxation on imported cars than on cars assembled in Greece.

The Commission also gave little credence to the Greek Government's argument that the ex-factory price of cars assembled in Greece was equivalent to the retail price. In the Commission's view, that argument highlighted, rather than justified, the discriminatory nature of the contested legislation by showing that the two calculation methods provided for by the Greek legislation were radically different: whereas, for cars manufactured in Greece, the basis of assessment of the tax was determined by the retail price, in the case of imported cars it was calculated on the wholesale price charged by the manufacturer.

The Commission repeated that there was no objective reason for that difference of treatment: whether imported or assembled in Greece, the car was stored before being put on the road so that, in both cases, its retail price could be established in advance.

The Commission gave the Hellenic Republic a period of two months within which to comply with the reasoned opinion.

The Hellenic Republic replied to the Commission by letter of 24 October 1989. It adhered to the arguments which it had put forward in response to the formal letter calling for its observations.

It also stated that Greek automobile production was limited to 8000 cars a year and that, by contrast with other Member States, it did not export motor cars.

It also stated that, since the abolition of the regulatory tax imposed by Law No 1477/1984, no protection of any kind was afforded by Greek legislation. That contention was supported by the fact that, other things being equal, the basis of assessment for the tax on cars made in Greece was generally higher than that applied to imported cars.

Finally, it emphasized that the contested system of taxation had been in force since 1976 and had not previously attracted any criticism from the Community.

It nevertheless gave the Commission an assurance that the system would be examined by the Greek Parliament after the forthcoming election.

On 13 October 1990 the Commission brought the present action.

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, it decided to put a question to the Greek Government and two questions to the Commission. The answers to those questions are set out in part IV of this report.

II — The forms of order sought

The Commission claims that the Court should:

The Hellenic Republic contends that the Court should:

III — Submissions and arguments of the parties

The Commission considers that the method of calculating the basis of assessment for the consumption tax introduced by the Greek legislation is contrary to Article 95 of the Treaty. It refers to previous decisions of the Court, according to which the first two paragraphs of that article supplement the provisions on the abolition of customs duties and charges having equivalent effect. The aim of those rules as a whole is to ensure free movement of goods between Member States under normal conditions of competition by the elimination of all forms of protection resulting from the application of internal taxation which discriminates against products from other Member States (see in particular the judgment in Case 168/78 Commission v France [1980] ECR 347, paragraph 4).

The Court also considered in that case that although the Member States retain the right to lay down differentiated tax arrangements within one and the same category of products, they may do so only if the differentiation pursues objectives of economic policy which are compatible with Community law and if the detailed rules are such as to avoid any form of discrimination, direct or indirect, against imports from other Member States. However, such differentiated taxation is not compatible with Community law if the products that are more heavily taxed are, by their nature, imported products (see in particular the judgment in Case 319/81 Commission v Italy [1983] ECR 601).

The Commission states that the contested legislation gives rise to four differences in tax treatment as between imported cars and cars produced in Greece.

Whereas cars assembled in Greece are taxed solely on the basis of the manufacturer's selling price, imported cars are taxed on the basis of the pretax wholesale price, to which are added, first, the price of any optional equipment, secondly, transport and insurance costs set at 7% of the ex-factory price, and thirdly, the importer's profit, which is estimated as 21% or 23.2% of that price. Those being flat rates, the persons concerned have no opportunity to prove that the actual charges are lower. Fourthly, in the case of cars assembled in Greece, and only for such cars, the second subparagraph of Article 4(2) of Law No 1573/1985 also provides for the deduction of all charges of a fiscal nature incorporated in the manufacturing cost of the car.

In the Commission's view, that differentiation, particularly the addition of 21% or 23.2% to the wholesale price of imported cars, has no objective foundation: all cars, whether imported or assembled in Greece, are stored in a customs warehouse before being put on the road so that in both cases it is always possible to establish the retail price in advance.

The Commission rejects the two explanations given by the Greek Government on that point.

In response to the Greek Government's contention that the addition of 21% or 23.2% is intended to cover the costs of marketing borne by the importer, it states that if those costs are included in the ex-factory price of cars assembled in Greece they are without doubt included in that of imported cars. Therefore, as Greek law stands, those marketing costs are taken into account twice in calculating the basis of assessment for imported cars.

As regards the risk of under-invoicing which, according to the Greek Government, the flat-rate addition is intended to counter, the Commission points out that the same risk exists in relation to VAT, but VAT is nevertheless charged on the transaction price. The Commission advocates that the Community approach to this problem in relation to VAT should be adopted for the special consumption tax.

Even if it is assumed that the contested addition is in fact justified by the concern to include in the basis of assessment the marketing costs borne by the importer, the Commission considers that the rates fixed by the contested legislation are excessive. In that connection, it criticizes various aspects of the documents produced by the Greek Government as annexes to its defence (balance-sheets of car importers). In the first place, those documents are undated and unsigned and thus have no legal value. Also, the 1400 cc cars to which they relate are not representative of car imports into Greece as a whole. Accordingly, the conclusions to be drawn from them are confined to that particular category of cars, which, moreover, is typical of Greek production. On that point, the Commission criticizes the Greek Government for basing its legislation on its own production. Finally, the calculation of rates on the basis of those balance-sheets is of no value since the storage costs depend not on the value of the car but on its weight and volume.

Article 10 of Law No 1573/1985, to which the Greek Government refers, does not prove that the rate of tax is not excessive. That provision requires account to be taken of the value for customs purposes whenever the latter is greater than the basis of assessment calculated in accordance with the contested rules. The Commission points out that that provision does not mean that the basis of assessment is not relied upon where it exceeds the value for customs purposes, and that it thus leads to discrimination. The Commission calls on the Hellenic Republic to abandon the existing system and to rely systematically on the transaction value.

Finally, the Greek Government does not, in the Commission's view, clearly explain why the average basis of assessment for the tax on imported cars is lower than that of the tax on cars manufactured in Greece.

The Commission also considers that the argument based on the volume of Greek car exports is irrelevant in the context of Article 95 of the Treaty.

Similarly, in response to the Greek Government's contention that the abolition of the regulatory tax provided for by Law No 1477/1984 removed all protection from Greek legislation, the Commission states that an infringement of Article 95 of the EEC Treaty is proved by the mere existence of the legislation to which the present action relates.

The Greek Government considers that its taxation system — which, it emphasizes, was introduced in 1976 with the approval of the association of car importers and concessionaires — does not have the effect of favouring Greek cars at the expense of those imported from other Member States of the Community. It is therefore perfectly in conformity ^vith Article 95 of the Treaty. It states that Greek, cars represent only 10% of total car purchases in Greece.

The Greek Government states that, in the case of private cars manufactured in Greece, the special consumption tax is calculated on the basis of the manufacturer's selling price. Since the automobile industry is not highly developed in Greece, the manufacturer's selling price is equivalent to the retail price: manufacturers in fact usually sell cars direct to the final consumer without recourse to intermediaries. Consequently, the manufacturer's selling price, which is used as the basis for calculating the tax, includes the marketing expenses.

For imported cars, the system does not differ significantly: the increase of 21% or 23.2% represents the difference between the wholesale price and the normal distribution price under fully competitive conditions. More specifically, it is intended to cover the marketing costs incurred by the concessionaireimporter, such as promotional and advertising expenses and after-sales service.

Consequently, the Greek Government considers that if the basis of assessment were not raised, cars assembled in Greece would be treated less favourably than imported cars since the marketing expenses would be taken into account in the case of the former but not in that of the latter.

In its rejoinder, the Greek Government concedes however that the marketing expenses are already a component of the ex-factory price of cars produced abroad. The addition is nevertheless justified, it says, because in the case of cars assembled in Greece those expenses are borne exclusively by the manufacturer in whose name the cars are cleared through customs, whereas in the case of imported cars such expenses are also incurred by the sole importer-concessionaire. Importation adds a further stage to the transaction, the effect of which is to add to the components making up the cost of the car.

The Greek Government also contends that the differentiated calculation method is intended to obviate fraud through underdeclaration of the invoice price, to which car imports are particularly susceptible as a result of the very high rate (up to 400%) of the consumption tax. Lorries, which are subject to a lower rate of tax and are thus less susceptible to that type of evasion, are taxed on the transaction value, as defined in Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes (OJ 1980 L 134, p. 1). No distinction is drawn according to whether the lorries are imported or manufactured in Greece. For the same reasons, the same basis of assessment is adopted for the collection of VAT on both lorries and private cars.

With regard to the percentage added to cover marketing expenses, the Greek Government contends that it is not excessive: an analysis of the company balance-sheets produced by it shows that the distribution expenses incurred by importer-concessionaires represent on average 7% of the final selling price of the car, which is equivalent to 22.26% of its import value. The Greek Government states that that calculation is made on the basis not of the ex-factory price in the country of origin but of the CIF value, which includes transport costs. It follows that the rate of 22.26% is still lower than the true figure.

Contrary to the Commission's assertion, the foregoing conclusions are not valid solely for 1400 cc cars, to which the balance-sheets annexed to its defence relate. In support of that view, the Greek Government provides further tables for 1200, 1300, 1600 and 2000 cc cars. In its view, they disprove the assertion that the Hellenic Republic based its legislation on the characteristics of its own production.

The Greek Government states that, although the first documents produced to the Court were unsigned, that was because they were official balance-sheets published in the press by importers pursuant to Law No 2190/1920. In support of that statement, it produces copies of balance-sheets for 1989 as they appeared in the Athens daily newspapers.

The moderate nature of the rates is, in its view, also demonstrated by the fact that the basis of assessment of the special consumption tax is usually close to the value for customs purposes, calculated in accordance with. the criteria laid down in Regulation No 1224/80. Furthermore, where the basis of assessment is lower than the customs valuation, Article 10 of law No 1573/1985 requires the latter to be used.

As regards the adoption of a system of taxation based on the transaction value, the Greek Government does not consider that it would eliminate the risk of under-invoicing. Although it was possible to adopt that system for lorries, that is because, in view of the lower rate of tax applicable to them, they were less susceptible to fraud. The same applies to VAT which does not exceed 8% for cars and, moreover, involves taxation at each stage of the transaction.

The Greek Government states, finally, that, as Community law stands at present, the Member States are in any event free to determine the calculation procedures for consumption tax.

IV — Replies to the questions put by the Court

The Court asked the Greek Government to describe in greater detail the operation of the customs supervision regime established by Law No 1573/1985 to which Greek car manufacturers are subject.

By way of reply to that question, the Greek Government submitted to the Court the text of Law No 1573/1985; the explanatory memorandum to the Draft Law of 3 September 1985 from which it derived, which was presented when the draft was submitted for voting on by the Chamber of Deputies; Report No 169/93 of 28 August 1985 which, by law, must accompany the Draft Law, prepared by the State Audit Office; Decisions Nos D.139/72/11 of 11 February 1986, S.212/20 of 17 January and 21 February 1986 and E.3184/376 of 6 February and 18 April 1986 of the Minister of Finance, and the provisions of Article 30 of Law No 1731/1987.

The Court put the same question to the Commission.

The Commission replied as follows:

The Court also asked the Commission whether its complaint related only to Article l(3)(c) of Law No 363/1976, in so far as it provides for an addition to the basis of assessment of 21% or 23%, as the case may be, or whether it also related to:

The Commission replied that its complaint related to all the abovementioned provisions.

1 Language of the case: Greek.

2 The Commission does not refer to the deduction of amounts under Article 2(3) of Law No 363/1976 or Article 5(2) of Law No 1223/1981 because those deductions, being temporary, ceased to be made as from 1 January 1989.