C-45/64

2. Policy of the EEC— Tax provisions — Export of products to another Member State — Internal taxation — Taxation imposed directly or indirectly on the products — Concept — Repayment — Legality

(EEC Treaty, Article 96)

3. Policy of the EEC — Tax provisions — Export of products to another Member State — Internal taxation — Repayment — Flat rate system — Legality —

Proof — Onus of proof

1. In the case of a failure of a Member manufacture of the product.

State to fulfil its obligations under Duties which are not imposed the Treaty, the various measures directly or indirectly on exported

production on the raw materials ducts affected by the measure in or semi-finished products used in the question.

In Case 45/64

COMMISSION OF THE EUROPEAN ECONOMIC COMMUNITY , represented by its Legal Adviser, Giuseppe Marchesini, acting as Agent, with an address for

1 — Language of the Case: Italian. 2 — CMLR.

JUDGMENT OF 1. 12. 1965 — CASE 45/64

service in Luxembourg at the offices of Henri Manzanarès, Secretary of the Legal Department of the European Executives, 2 place de Metz,

or of the method of repayment, the Italian Republic has failed to fulfil an

obligation under the said Treaty,

THE COURT

composed of: Ch. L. Hammes, President (Rapporteur), L. Delvaux, Presi­ dent of Chamber, A. M. Dormer, A. Trabucchi and R. Lecourt, Judges,

Advocate-Gneral: J. Gand Registrar: A. Van Houtte

gives the following

1. By L­ aw No 103 or 10 March 1955, 2. As the Commission of the EEC extended until 31 December 1963 by believed that evidence existed that in Law No 284 of 18 March 1958, the practice the refunds were extended to Italian Republic allowed a refund on other taxes imposed on raw materials

the export of certain products of the or semi-finished products incorporated

COMMISSION v ITALY

in the products of the Italian engineer­ Italian Council of Ministers and sub­

ing industry, or even imposed independ­ mitted to Parliament.

ently of such use, discussions took place 8. Because of the similarity which it

declared that it was to deter­ Treaty. prepared

T he draft Law How­ mine as soon as possible that part of 9. in question was, the refund relating to taxes other than ever, approved by the two Chambers of turnover tax and to agree on a time­ the Italian Parliament. Law No 639 on

table for its abolition. the of duties and in­ gradual refund customs

After a fresh excnange ox corres­ direct internal taxation other than the

pondence and further discussions, Imposta Generale sull'Entrata (turnover followed by an additional reduction of tax) on the export of certain industrial 10% of the amount of the refunds, the products was promulgated on 5 July Commission set in motion the procedure 1964 and published in the Gazzetta laid down in Article 169 of the EEC Ufficiale of 5 August 1964. It came

Treaty by requesting the Italian Govern­ into force on that date, with retroactive ment, by letter of 6 June 1963, to effect to 1 January 1964. submit its observations on the alleged 10. As it considered that no break in

the EEC Treaty. This opinion gives Treaty. reasons for the belief of the Commis­

sion that the Italian Republic had failed to fulfil its obligations under Article II — Conclusions of the

96 and invites it to terminate by 31 parties

December at the latest the grant of re­

payment of internal taxation on exported The applicant claims that, after dismiss­ industry. ing as unfounded the objection of inad­ engineering products of the

7. By note 18 December 1963, of the missibility raised by the defendant and Italian Permanent Representation con­ the objection on the substance for lack veyed to the Commission the text of a of proof, the Court should: declare (that, draft Law intended to replace Law No by permitting the refund of taxes which 103, which had been approved by the according to Article 96 of the Treaty

the substance; it criticized the Italian Republic both order the Commission to pay the costs. in the reasoned opinion and in the ap­

plication on the ground of the actual

III — Submissions and functioning of the system of refunds,

arguments of the that is, it criticized the practice of nat­

parties ional administrations ofgranting repay­

ments which are incompatible with

before the Court are different. of repayments which were incompatible The administrative procedure concerns with the obligations in Article 96; by Law No 103 of 1955, whilst the ap­ introducing a legislative provision with

plication to the Court concerns Law retroactive effect to 1 January 1964 No 639 of 1964; there has been a mis­ continuing the scheme of repayments

understanding of Article 169 of the 'beyond the date fixed the defendant Treaty as regards the latter in that the clearly refused to comply with the terms Italian Government submitted no ob­ of the reasoned opinion.

servations on this Law nor was any Finally, the applicant maintains that, in reasoned opinion given on it by the its letter of 16 December 1963 with Commission. which it sent the Italian Government The applicant replies first or all mat the the reasoned opinion of 11 December, procedure laid down in Article 169 is it anticipated subsequent events by stat­

deprived of all effect if it is accepted ing that 'its intention and duty was to

that a Member State has complied with prevent the continued infringement of

The defendant replies that Law No 639, the subject of any repayment as it is which introduces independent rules and impossible to identify them and to cal­

a sliding-scale for export repayments, culate their respective effects on pro­

dif­ created a situation fundamentally duction costs. Finally, in its applica­

ferent from that previously existing. The tion the Commission explained the non-

important factor in laws granting tax repayable nature of the charges on the

advantages is the amount of such ad­ ground that they 'belong to a special

by the Treaty. and the rules of Community law which Lastly, the defendant observes that the have allegedly been infringed. administrative stage provided for in The applicant maintains, moreover, that Article 169 is of legal importance from the defendant is distorting the argu­

the point of view both of the procedure ments actually, put forward by the Com­ and of the actual subject-matter. It is mission. In its letter of 6 June 1963, for this reason that a letter accompany­ the Commission maintained essentially ing the reasoned opinion must be con­ that the duties in question are imposed sidered as being without legal effect and on the undertaking and not on the ex­

ad­ that, when the subject-matter of the ported products as such; the reasoned

ministrative stage was a situation created opinion takes up this view and points

by a legislative measure which was ex out that it is impossible to separate and hypothesi contrary to the Treaty, the specify the effects of such duties on

Commission cannot refer directly to the production costs. The arguments of the

ment an opportunity to submit its ob­ an incorrect interpretation of the first servations on the set out in paragraph of Article 169. Such an in­ reasoning the reasoned opinion and, even less, on terpretation enables the Commission to

those set out in support of the appli­ criticize a Member State for an alleged

cation. After stating that certain indirect infringement of an obligation arising out taxes (registration, stamp and mortgage of a certain rule of the Treaty on the duties and charges on licences and con­ basis of reasoning x, to issue a reasoned cessions, motor vehicles and advertising) opinion on the basis of reasony and are not covered by Article 96 as they to refer the matter to the Court on the must be regarded as direct taxes, the basis for example of reason z. Accord­

Commission maintained in the reasoned ing to the defendant, such an argument opinion that these same taxes cannot be is inadmissible.

JUDGMENT OF 1. 12. 1965 — CASE 45/64

B — The substance of the case altered as a result of further reductions

are of a purely fiscal nature and thus sertion:

contravene Article 96. It puts forward (a) The phrase 'internal taxation . . .

the following points: imposed on them whether directly or

The Italian Government has ex­ indirectly', which appears in Article 96, (a) must be interpreted in the light of the pressly acknowledged that one element

in the amount of the refund concerns system of the Treaty and its aims. It is 'dir­ impossible to identify the adverbs indirect taxes other than customs duties 'indirectly' ectly'

or with the concept and turnover tax (I.G.E.). of direct and indirect taxes. (b) The Italian Government has never

other than I.G.E. These repayments are, of which is criticized in this case, are

however, perfectly legal as regards not imposed on the finished product or

Article 96. on the raw materials and semi-finished

(b) The opinion of the Commission that products involved in the process of

the Italian Government had acknowl­ manufacture, but on the undertaking edged the illegality of the repayment of and its production as a whole. A uni­

such indirect taxes only be based can form assessment of the tax burden can

sion has not criticized their repayment. December 1963 and the additional re­

The duties in question, whose structure ductions (65% at 1 July 1964, 75% and methods of levy prevent a precise at 1 January 1965) is to keep the re­

determination of their effect on the cost imbursements at issue largely within the of the products, thus clash with the limits allowed by Article 96. basic principle of Article 96 according To this statement by the Italian Govern­

to which the amount of the repayment ment the applicant replies that the suc­

must not exceed the taxes actually paid. cessive reductions in the rate of repay­

They cannot therefore be the subject ments were not made on the basis of

2. The method of repayment and the cessions, motor vehicles and advertising constitute indirect taxes which legality of the system of average rates clearly fall within the provisions of Article 96. The applicant maintains that all the re­

That this Article imposes no limit as payments are made in the form of a

regards indirect taxation is confirmed sum calculated according to the weight

by Article 98. The duties and charges in kilogrammes of the products which

criticized, like the other indirect taxes benefit from them and that they are

on which the Commission allows a re­ fixed without reference to the various

direct taxes has no legal value; more­ making flat rate repayments on the basis over, it is incorrect to state that such of average rates is that the amount of

taxes are applied by virtue of legal pro­ certain repayments exceeds that of the

visions and thus by virtue of unques­ actual tax burdens. tionable authorities. Be that as it may, Although the special provisions or

it is for the Commission to bring evid­ Article 97 provide for the fixing of

ence of the infringement of the Treaty average rates, this only applies to one

to which it refers. tax and to one method of levy which is The defendant also observes that the in no way involved in this case.

ing to their legal system, appears most course. Judge- to the their power On of the suited exercise of hearing the report

under Article 96; a review by the Com­ Rapporteur and the opinion of the

mission can only concern the final result. Advocate-General the Court decided The defendant points out that many that there was no need to hold any provisions of the Treaty (in particular preparatory inquiry. Article 97) allow the use of flat rate Before the opening or the oral procedure docu­ systems; the Commission cannot criti­ the applicant produced certain

cize the Italian Government for em­ ments at the request of the Court.

ploying such a system once it is not The parties presented oral argument

excluded by Article 96. and their replies to the questions of the

The defendant claims that the application is inadmissible on the ground

that it concerns Law No 639 of 5 July 1964 and that, in breach of the first paragraph of Article 169 of the Treaty, this Law was not the subject of

observations by the Italian Republic or of a reasoned opinion by the

Commission.

Thus there is no identity of subject-matter between the administrative stage, which concerned Law No 133 of 10 March 1955, and the stage before the Court which concerns Law No 639 which is fundamentally different from the former.

It emerges from the documents in the file that in both the administrative

The purpose of the reasoned opinion was therefore, first, to establish that the Italian Government had failed to fulfil an obligation under the Treaty and secondly, to warn the defendant not to continue such alleged infringement beyond the date indicated, either by a measure continuing the existing legis­ lation or by similar future legislation.

This objection must therefore be rejected.

The second objection

The defendant maintains that the application is inadmissible because of a

second infringement of Article 169, consisting in the fact that it was not

given an opportunity to present its observations on the true nature of the

The reasoned opinion and the application made by the Commission are based on the same grounds and issues.

The Commission has thus given the Italian Republic an opportunity to submit its observations and has fairly and correctly applied the first paragraph of Article 169 of the Treaty.

This objection, therefore, must also be rejected.

JUDGMENT OF 1. 12. 1965 — CASE 45/64

B — The substance of the case

The first submission

Article 96 authorizes Member States to make repayment of internal taxation on products exported to the territory of another Member State, provided

that the amount of such repayment does not exceed the internal taxation im­ posed directly or indirectly on those products. 'directly' As used in Article 96, the expression must be understood to refer 'indirectly' to taxation imposed on the finished product, whilst the expression refers to taxation imposed during the various stages of production on the raw materials or semi-finished products used in the manufacture of the product.

It is clear from the legal measure which introduces them and from the subject-matter and nature of the registration, stamp and mortgage duties and the charges on licences and concessions, cars and advertising that they are

imposed upon the producer undertaking in the very varied aspects of its general commercial or financial activity rather than on the products as such,

either at the various stages of their manufacture or at the final stage.

As they are not imposed directly or indirectly on the exported products, the

The Italian Republic is further accused of having infringed Article 96 of the

Treaty by introducing a system of flat rate repayments.

COMMISSION v ITALY

The defendant considers that it is entitled to employ such a procedure, which is not prohibited by Article 96, and to choose the methods of repayment most suited to its legal system, as only the final result is open to review by the Commission.

It follows from Article 96 that the power of a State to resort to repayments

of internal taxation is subject to the condition, on the one hand, that such repayments are imposed on the product itself and, on the other hand, that the repayment remains lower than or equal to the said taxation.

which constitutes a true repayment of taxation and which is only justified on this ground and provided that this condition is fulfilled.

Further, since the Italian Republic introduced a flat rate system of its own free will, it is for that party to show that the system always remains within

the mandatory limits of Article 96.

Therefore, as regards the various products in question, the Italian Republic should be asked to supply this information in writing to the Court, supported

by figures.

C — Costs

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to Articles 96 and 169 of the Treaty establishing the European Economic Community;

Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community;

Having regard to the Rules of Procedure of the Court of Justice of the

European Communities;

THE COURT

3. Orders that on the expiry of this period the oral procedure on the

second submission of the application shall be reopened at the

request of the party which first requests it;

4. Orders the defendant to bear half the costs, the remainder of which are reserved.

Hammes Delvaux

Donner Trabucchi Lecourt