C-27/67

In Case 26/67

Reference to theCourt under Article 177ofthe Treatyestablishing the European Economic Community bythe Finanzgericht(Finance Court), Munich, for apre­ liminary ruling in the action pendingbefore thatcourt between

FirmaFink-Frucht GmbH , Frankfurt-am-Main,

and

Hautpzollamt(Principal Customs Office) München-Landsbergerstrasse,

THE COURT

Issues offact andoflaw

I-Facts within the meaning of Article30 of theEEC Treaty? 1.Summary (2) What is the meaning of the phrase 'similar products' as used inthe first Thefacts ofthe case maybe summarizedas paragraph of Article 95, and how are follows: theseto be distinguished from the prod­ On5 July1966 the Fink-Frucht GmbH uctsreferred to in thesecond para­ undertaking cleared through customs acon­ graph? signmentfrom Italyconsisting mainlyof (3) Doesthe second paragraph of Article95 sweetpeppers, on which the appropriate have direct effects and does it create customs officecharged the undertaking individualrights which national courts turnover equalization tax('Umsatzaus­ mustprotect? gleichssteuer—UASt'—hereinafter referred (4) What is the meaning of the legal concept to as 'equalizationtax') at the rate of2.5 % of'taxationof such a nature as toafford in accordance with Germanlaw. indirect protection to other products' Fink-Frucht appealed tothe Finanzgericht usedin the secondparagraph of Article (Finance Court) claiming that the provi­ 95, inparticular: sions ofGerman tax law applied werecon­ trary to Article 95 of theEEC Treaty. (a)Does the expression of such a na­ ture' mean any tax, however small, 2. Subject-matterof the reference:opinion the effect of which is to afford a

of theFinanzgericht measure of protectionto domestic products competing even remotely A— On 12July 1967 the Finanzgericht, with the importedproduct, or does Munich,decided torequest the Court for a it mean a tax which changes the preliminary ruling on the followingques­ price of the importedproduct to tions: such a point that domesticcon­ sumers give preference tothe com­ (1) Does thefirst paragraph of Article95 of peting domestic products? the EEC Treaty (b)What products are covered by the (a) merely prohibitall discrimination as second paragraph of Article 95, and regards taxation of productsfrom what criteria are to be applied in other Member States; or order to determine either that other

Whilst admittedlyfactual circumstances Question 5 mustplay a partin each case inthe applica­ tion ofthe conceptof 'similarproducts', the The wording of thesecond paragraph of absence ofsome generalcriteria tobe ob­ Article 95 appears to prohibit not merely servedby thenationalcourts and, where excessive, butall, internal taxation; some necessary, byexperts, would leadto legal writers indeed support this view, but others uncertainty. believe that this provision is no wider than A definition of therequired characteristics the first paragraph of Article95. oftheproducts referred toin the first and secondparagraphs of Article 95is needed II —Procedure particularly ifthe firstalternative given in Question 5 istobe answered in the affirm­ ative. The order referring the matter was received at theCourt Registry on 24July 1967.

Question 3 The Government ofthe Federal Republic of Germany, theCommission of the European When the Court declared in its judgment in Communities and the Fink-Frucht under­

Case 57/65 (Rec. 1966,p. 295 et seq.) that taking submitted written observations in Article 95creates individualrights it refer­ accordance with Article 20 of the Protocol

FINK-FRUCHTv HAUPTZOLLAMTMUNCHEN

following points: comparabledomestic products. Sincefruit andvegetables areexempt fromturnover The chargeshave the same effect as customs tax in Germany, itis clear from the start duties of a fiscal nature,because their sole that the onlycompensation in question is purposeis to bring revenueto the State. that for indirect taxeslevied at anearlier However, Article 17(3) of the Treaty per stage. However,whenthere is no compar mits Member States to 'substitute for these able product at all,there isno way of duties aninternal tax which complies with justifyingthe equalization tax,because it theprovisions of Article95'; nevertheless, cannothave either the purpose or theeffect it isdoubtful whether Article 17 allows such of 'equalizing' anything.

Another argument ispossible: Article 95 remarksto make: requires thatdomesticand foreign products be placed onthe samefooting; if thereis no Thefirst paragraph of Article 95 contains a competing domesticproduct, the imported clearly-stated prohibition, applicable solely one must be treated inthe same manneras inthe circumstances which it expressly that accorded toa nationalproduct com describes; in addition, the second para parable to it, if such exists; if itisfound (as graphof that article would be pointless if in the present case)that thisnational prod equalization taxes applied to products not uct is not directly subject to turnover tax, incompetitition with domestic products the equalizationtax can, ofcourse, becol wereprohibited by the first paragraph; and lected, butonly up tothe amount of the where Communitylaw has not restricted indirect tax imposed onthe(hypothetical) them, thelegislative powers of national comparable domesticproduct. administrations remainintact. In factboth these theories areopen to Article95 must be consideredin conjunc criticism and thetask of deciding which tionwiththe many other provisions in the prohibitions are applicable, those set out in Treatydesigned to prevent distortion of Article95or those inArticles 12, 13 and17 competition between MemberStates (Ar ofthe Treaty, must accordingly be left to ticles85 et seq., 92 etseq. and 100 et seq.); the Court. since theprinciple of taxation in the country

of destinationis applied by allMember In itsopinion, the activities of Member States, the product whenexported is exempt States can be restricted by the prohibition from turnover tax andother indirect taxes against taxes having an effect equivalent to applicableto it inthe exporting country customs duties, aprohibition which leads (export refunds); Article 96 is intended to one toconclude that the nationallegislature guarantee that such exemptionsdo not isnot entitledto collect 'exorbitant' taxes exceed theamount of thecharge originally evenonthe productsin question. imposed on theproduct.

tionétroite desubstitution'), that is to say, ular case the domestic productsare subject all products which current opinion accepts toa charge to beequalized. without discussion as interchangeable, in These points areconfirmed inArticle 17(3) viewof their objective characteristics and of theTreaty; as a general rule,customs the useswhich they are intended to fulfil. duties of a fiscal natureare imposedon Theequivalence required need by no means products which arenot manufacturedin the beabsolute, for to argue otherwise would be

In order to establish whether theone hand, andquantitative restrictions there isa similarity, one must first of all on theother. Consequently itis impossible enquirewhether, in view oftheir properties, toregard taxes as quantitative restrictions. natureand quality, the products compared Likethe Federal Government,and for afford the same possibilities of utilization. essentially the same reasons,the Commis It israrely possible, however,to answer this sion considersthat Article95 is notappli questionwith a simple yesor no; the de cableto products not competing against cidinginfluence will be current opinion and domestic products and that theequalization theusefor which the productis intended in tax levied on products of this kind is not a the particular case in question. measurehaving an effectequivalent to Noris it possible to applyan abstract quantitative restrictions. distinctionbetween the respective spheres

ofapplication of thefirst andthe second Court's decisionin Case 28/67,in which the paragraphs of Article95; often thediffer Court deliveredjudgment on 3 April 1968. ences are simplydifferences of degree. This apart, it isperfectly possible to inter This problempresents no difficulty because pret the two paragraphs inArticle 95 differ thelegal consequences of the provisions are ently. Thesecond paragraph is 'extremely identical. vague and incomplete' andcannot therefore The principalfunction of the second para have direct effect;the value-judgments graphis to disposeof the objectionwhich which it requires should not beforced on mightotherwise prevent the application of national courts. thefirstparagraph, namely that it doesnot The Commission for its part considers that, apply to 'similar products'. on thebasis of thecase-law of the Court,the questionshould be answered in the affirm

TheFinanzgericht is mistakenin its belief Furthermore, therequirements whichthe that this is a matterof customs policy. TheCommission supports the view that Court has held necessaryfor direct effect apply alsowith regard to theprohibition thereisproof of the fact that the second stated in thesecond paragraph, assuming paragraphofArticle 95 must necessarily that thisprovisioniscomplete and legally have directeffects in the difficulty of de self-sufficient.It does notmatter that it may fining therespective spheres of application not beabsolutely clear because theCourt

The Federal Government believesthat the product, and it matters little how such question should be answered in the negative adverseeffect manifests itself and where in and bases itsopinion onthe following theimporting country it occurs. arguments: A broad capacityfor substitution ('relation Tomaintain that thefirst twoparagraphs of large de substitution') such as that which Article 95 must havethe same effectin law exists, for example, between umbrellasand is merelytogive one more reason for hold raincoats, is enough for thesecond para ing thatthe firstparagraph, too, is not graph of Article 95 to be applicable; it is directly applicable;reference should be possible, onthis principle, that absolutely made to thecriticisms made by the Bundes no product exists which is incapable ofbeing finanzhof (FederalFinance Court)of the substituted by another.

— The essential propertiesof the products Fink-Frucht considers that the question must coincide.In this contextthe aspects should be answered as suggestedin the which are important may beextremely second alternative, in accordancewith the varied: format, efficiency, conservability, general spirit of Article 95. physical appearance, taste,etc. None of TheFederal Government holds the same these propertiescan be judgedexcept in opinion and considers that the sole object conjunction withthe others. ofArticle 95 is to prevent products from —Special importanceshould beattached sufferingfrom a competitive disadvantage. to the function which the products are designed to fulfil;but onlytheprincipal TheCommission is also of the same view, functioncan beincluded in theconsider­ and saysthat: ation. — itis impossibleto hold thatindirect pro­ —Considerable differencesin pricemay be tection canarise from even the lowest a reason for declaring thatthere isno tax; competitionbetween the products. — on thecontrary, it canonly arise as the — In applying thesecriteria, however, itis effectof one which is excessively high; necessary to bear in mindthe diversity —moreover, it would be somewhat sur­ which existsforthe benefit ofthe buyers, prising if the Treaty accorded better and thefact thatin consequence onlythe treatment to products capable of sub­ basic correspondenceshould be taken stitution than to similar products. into account.

Grounds of judgment

By an order of 12July1967 which reachedthe Court on 24 July 1967, the Finanz­ gericht, Munich, asked fora preliminary ruling underArticle 177 of the Treaty establishingthe European Economic Community on a number of questions

The firstand second paragraphs of Article95 prohibit Member States from impos­ ing on importsfrom otherMember States anyinternal taxationinexcess of that imposed onsimilar domestic products,or of sucha nature as to affordindirect protection to otherdomestic products.Article 95is intended to removecertain restrictions on the free movement ofgoods. But to conclude that it prohibits the impositionof anyinternal taxation onimported goodswhich do not compete with domestic productswould beto give it a scopeexceeding its purpose. Internal taxes, and turnover taxin particular, areessentially fiscal in purpose. Thereis therefore no reason why certainimported products shouldbegiven privileged treatment becausethey do notcompete with any domesticproducts capable of being pro­ tected. Where sucha taxis imposed atthe import stage,even on products which do not competewith domestic products,its purpose is to put every kind of product, whateverits origin,in acomparable fiscalsituationin the territory of the state im­ posingthe tax. It must therefore beconcluded that Article 95 doesnot prohibit Member States fromimposing internaltaxationonimported products when there is no similardomestic product, orany otherdomestic products capable of being protected.

Nor does internal taxation imposedunder the conditions set out abovecome within theprohibition on quantitative restrictionsandmeasures having equivalent effect, withinthe meaningofArticle 30 of theTreaty. Such restrictions,which are intended tolimit the quantitiesimported, are in factdifferent both in their purposeand the way in whichthey operate frommeasures of afiscal nature. Furthermore, since Article 30 et seq.,on the onehand, and Article95, on the other, lay down different periodsof time and different procedures for the elimination of the restrictions to which theyrefer, itwould be difficult to concede thatone and the sametax could be both ameasure havinganeffect equivalentto a quantitative restrictionand internal taxation.

Theobjectof Questions2, 4and 5 is, insubstance, to establish the conditions under which an imported product, ascompared witha domestic product, comes within one orother ofthe situationsreferredto inthe first twoparagraphsof Article 95, and alsoto have the conditions underwhich thesecond paragraph applies andits effects defined.

Under theterms of Article 95 no MemberState shall impose, directly or indirectly, on the productsof otherMember Statesinternaltaxation of anykind in excess o f that imposed directly or indirectly on 'similar domestic products'. Similarity between products within themeaningof the first paragraphof Article 95 exists when theproductsin question are normallytobe considered as coming within the samefiscal, customs orstatistical classification,as the case may be.

In addition tothe prohibition imposed inthe first paragraph of Article 95, the secondparagraph of the same articleforbid the imposition on imported products of any form of taxation 'of sucha natureas toafford indirect protection to other products'. Suchprotection wouldoccur inparticular if internal taxation were to impose aheavier burden on an importedproduct than on a domestic product with whichthe imported productis, by raeson ofone or more economic uses to whichit may be put, in competition, even thoughthe condition of similarity forthe pur­ poses of the firstparagraph ofArticle95 isnot fulfilled. Even if there is no direct

FINK-FRUCHT vHAUPTZOLLAMTMÜNCHEN

competition of any sortwith adomestic product,such protection would still exist if itwere established that theimported productbore a specific fiscal charge because ofits stateofmanufacture or distribution or because of anyother economic circum­ stancein sucha wayas toprotect certain activitiesdistinct from those used in the manufactureof theimported product.In theinterests of legal certainty, however, itis necessary for the various economicrelationships covered by the second para­ graph ofArticle 95 to benot merelyfortuitous, but lasting and characteristic.

JUDGMENT OF 4.4. 1968 —CASE27/67

THE COURT

in answer tothe questions referredto it by theFinanzgericht, Munich, by anorder of thatcourt of12 July1967 herebyrules:

1. Neither Article 95 nor Article30 ofthe Treaty establishing the European Economic Communityprohibits Member States from imposing internal taxationon products imported from other Member States when there are no similardomestic products orother domestic products capable of being protected;

2.The secondparagraph of Article 95of the Treaty is capable of producing direct effectsand creating individual rightswhich national courts must protect;

3. (a) Similarlybetween products within the meaning of the first paragraph of Article 95exists when theproductsin question are normally to be con­ sidered ascoming withinthe samefiscal, customs or statistical classifica­ tion,as the case may be; (b)The second paragraph of Article95 is complementary to the first. It prohibits the imposition ofanyinternal taxation which imposes a higher charge onan importedthan on adomestic product which competes with the imported product, although it isnot similarto it within the meaning of the first paragraph ofArticle 95. The prohibition also applies in the absence of direct competition where the internaltaxation subjects the imported product toa specificfiscal charge in such a way asto protect certain activities distinct from those used in the manufacture of the

A. Van Houtte R.Lecourt

Registrar President

OPINION OFMR ADVOCATE-GENERALGAND

(SeeCase28/67, p.159)