C-54/72

2. Taxation provisions — Internal taxation by one Member State on products coming from other Member States — Principle of non-discrimination — Application to the basis of assessment of taxation — Double taxation — Prohibition (EEC Treaty, Art. 95)

1. The Court does not have jurisdiction prohibiting as fiscal system under under Article 177 to settle a dispute which imported goods are charged relating to the interpretation of a twice with turnover tax, thus being national law. treated as the object of two distinct 2. The prohibition of discrimination as transactions during the course of one laid down by Article 95 relates not operation which, for the same only to the rate but also to the basis national product at the same of taxation. Article 95 of the Treaty marketing stage, would constitute must therefore be interpreted as only one chargeable operation.

In Case 54/72

Reference to the Court of Justice, under Article 177 of the EEC Treaty, by the Tribunale at Biella for a preliminary ruling in the action pending before that Court between

FONDERIE OFFICINE RIUNITE, FOR, Biella, plaintiff, and

VEREINIGTE KAMMGARN-SPINNEREIEN VKS, Delmenhorst, defendant,

gives the following

JUDGMENT

Issues of fact and of law

I — Facts and procedure their intention to recover turnover tax (Umsatzsteuer) for the years 1963 to The facts and procedure may be 1968 amounting to DM 537 319.10. This summarized as follows: tax was claimed under the heading of supply of goods and provision of 1. Fonderie Officine Riunite (herein­ services (Werklieferung) at the rate of after called 'FOR') manufactures 4 %, calculated, as laid down in respect machinery for use in the textile of Werklieferung, on the aggregate value industry. When selling this machinery in of the services provided and the material the Federal Republic of Germany, supplied, in this case on the value of the delivery was made free-at-factory in erected installation. When FOR disputed Biella and the duties and taxes relating' its liability for the amount claimed, the to importation into Germany were, Bentheim taxation office attached a according to the invoices, to be settled certain number of debts owed to the by the purchases. company by its German customers. On importation into Germany, the Vereinigte Kammgarn-Spinnereien (here­ purchasers paid turnover equalization inafter called 'VKS') of Delmenhorst tax at the rate of 6 % and thereafter the was thereby induced to pay to the machinery was installed and put into German taxation authorities the sum of service with the assistance of the DM 5 723 which it owed to FOR and technicians of FOR. which it refused to pay a second time When it learnt of this, the German when FOR called for payment of it. taxation authorities, and in particular the taxation office at Bentheim, notified 2. Following this refusal, FOR applied FOR, by letter of 21 December 1970, of to the Tribunale at Biella for an order

installation), has already been paid at Government and M. Maestripieri, the the time of importation on the Commission's legal Adviser, for the various items forming the said Commission. installation? The Advocate-General presented his 2. In the case of importation of an opinion at the hearing on 24 January 1973. industrial installation made up of different machines on which the importing undertaking has already paid value added tax at the time of importation, is it possible, on the II — Observations submit­ basis of Articles 2, 5, 7, 8 and 10 of ted under Article 20 Council Directive 67/228/EEC of 11 of the Statute April 1967, to consider as the chargeable event not the introduction The observations submitted to the Court of the various machines into the State, but rather their installation on the may be summarized as follows: territory of the importing country, thus rendering the Community undertaking liable to value added tax, A — Observations of the Commission assessed on the value of the erected installation? of the European Communities

3. If the reply to question 2 is in the After observing that, in its opinion, it is affirmative, does the subjection of an superfluous to reply to the second and exporting undertaking (which by third questions, as all the operations in contract is limited to exporting question were carried out under the free-at-frontier) to the taxation system established by the German law of measures of the importing State 1951 on turnover tax (Umsatz­ constitute an infringement of the steuergesetz), and therefore prior to the prohibition contained in Articles 30 introduction of value added tax in the

rungen) constituted chargeable deliveries. both the imported products and the domestic products can still pass through In the case of supply of goods and provision of services (Werklieferung) — other stages in the marketing process. which is distinguished from hire of Consequently there would be discrimina­ services in that, in the first case, the tory taxation of the imported installation contractor supplies the material which if, after erection, it was again subjected he fashions and transforms while, in the to a turnover tax in respect of 'supply of second case, he does not supply the goods and provision of services'. The materials, except incidentally — the installation imported by FOR was chargeable basis is as much the value of taxed twice, as the normal rate of 4 % the objects supplied as the provision of was already comprised in the labour. Under paragraph 1 (3) of the equalization tax without the necessity law, goods imported into the Federal for taking into consideration the Republic were subject, at the time of application of the tax on the supply of crossing the frontier, to a turnover goods and the provision of services. equalization tax on deliveries in the The Commission then examines four territory of the country. The rate of this possible objections to its position and tax was 6 % for the products which are states in the first place that one cannot the subject of the main action and, give too literal an interpretation to the according to the Commission, is made German word 'Waren' appearing in up of two elements, the one Article 95 of the Treaty. It is not corresponding to the rate of the general necessary, further, to compare the total turnover tax in force at the time (4 %) fiscal charges imposed on imported while the other constitutes the standard products and domestic products. Both equalization of taxes levied previously the equalization tax and the turnover tax on goods manufactured inside the must be considered as 'internal taxation' country (2 %). within the meaning of Article 95. The Turning to an examination of the theory of multiple taxation being questions raised, the Commission makes imposed on the domestic product is the following observations: entirely unwonted and cannot be supported by the fact that, in applying Article 95, account must be taken of the On the first question usual marketing process. Therefore, the Commission suggests the On recalling the previous decisions of following answer to the first question: the Court of Justice in connection with Article 95 of the Treaty, and in Article 95 of the EEC Treaty, which is particular the recognized direct effect of concerned with guaranteeing that the that provision, the Commission infers imposition of internal taxation in a that it falls to the national court to Member State does not result in the examine in each case whether the products of other Member States being taxation of imported goods is in excess taxed more heavily than similar domestic of that of similar domestic products. products, must be interpreted as

The second question, concerning the interpretation of certain provisions of On the first question the Second Directive concerning value added tax (Directive 67/228/EEC of 11 The German Government points out April 1967, OJ No 71, 14. 4. 1967, p. that the deliveries of industrial 1303/67), was, according to the machinery followed by installation Commission, referred in error by the which the plaintiff carried out in the Tribunale at Biella, since the taxation in Federal Republic of Germany constituted question was concerned solely with a doubly chargeable operation within operations subject to turnover tax prior the meaning of the Umsatzsteuergesetz to the entry into force of the Law then applicable. There was, on the one establishing value added tax. Following hand, the importation of parts which the case-law of the Court, it is were to be installed and therefore liable superfluous to examine this question as such to an equalization tax of 6 % (Judgments 13/68, Salgoil, Rec. 1968, p. (Umsatzausgleichsteuer, Clause 1 (3) of 672, and 51-54/71, International Fruit the German law of 1951) and, on the Company, Rec. 1971, p. 1107 and 1108). other hand, the supply of goods and The same applies in respect of the third provision of services (Werklieferung) question which is only asked in the event subject, under Clause 1 (1) of the the of an affirmative answer to the second same law, to the actual turnover tax, the question. rate of which amounted to 4 % of the total value of the installation. To allow the equalization tax against the turnover tax levied on installation would be B — Observations of the Government contrary to the cumulativemulti-stage of the Federal Republic of tax system and to the objectives of the Germany equalization tax. It is an incorrect interpretation of the system in force in The German Government is of the the Federal Republic of Germany to opinion that, despite their wording, the consider that the 6 % charged under the questions referred to the Court are heading of equalization tax at the time of concerned with the interpretation of importation of the machinery to be Articles 30, 31 and 95 of the Treaty and installed already includes the 4 % of the of certain Articles of Directive turnover tax, which is calculated after 67/228/EEC of 11 April 1967 and not deduction of the costs of installation.

In order to judge whether the services That the average rate of fiscal charges supplied by the plaintiff in the main previously imposed amounts to at least action, that is the importation of the 6 % is confirmed by the fact that the machines, on the one hand, and new rate of taxation fixed at the installation, on the other hand, were beginning of 1968 on the introduction of subjected to taxation compatible with value added tax was set at 10 %, and the principle laid down by Article 95, that by reference to the charges actually one must establish whether the supply imposed on domestic consumer goods and erection of similar industrial under the heading of turnover tax. installations carried out by a national The Federal Government observes manufacturer would be subject to secondly that the provisions of the equivalent global taxation.

Treaty. One is concerned here with an Federal Republic of Germany which are equalization tax the rate of which has bound up with installation operations been established according to the are charged with the equalization tax average rates method referred to in alone, particularly in respect of deliveries Article 97, which tax has not been of durable goods which have only been contested by the Commission, a fact dismantled in the exporting country for which, following the decisions of the transportation and which have therefore Court, is already sufficient to establish to be reinstalled in the Federal Republic

machinery before installation. The exact exclusion of the rules of Community amount of these prior charges could be law. The plaintiff should therefore have estimated, according to the Government had recourse to the competent German of the Federal Republic, at 5.7 % in a court, in this case the Finanzgericht. case comparable to the one in dispute. The German Government submits that The machinery in question is in fact the question referred should be answered carding and card assembly machinery as follows: which is liable to a charge of 4.71 % on standard models and 5.71 % on special 'Articles 95 and 97 of the Treaty of

FOR v VKS

installation. However, such equalization (Einfuhrumsatzsteuer) since the supply tax shall not exceed the. amount of the of goods and provision of services which fiscal charge which, by reference to the he effects on erecting the installation cumulative multi-stage tax system in enjoys, as a supply on the German mar­ force within its territory, the State ket, the benefit of this deduction, which concerned has fixed under the heading is inherent in the VAT system, under of the said average rates in accordance Clause 15 (1) (2) of the Law of 29 May with the terms of Article 97, first 1967. The foreign contractor could also paragraph, of the EEC Treaty, in order issue a diversified invoice under a sep­ to compensate for the fiscal charges arate tax heading (Clause 14 (1)) to previously imposed on domestic allow the German client the benefit of products under the heading of turnover the tax deduction (Clause 15 (1) (1)). tax.' The supply by a foreign contractor of parts to be installed for a German con­ tractor could therefore, under the system On the second question set up by the Law, be subject to a tax deduction which in the end would be The German Government states that the balanced by the absence of any charge tax assessment for the year 1968, which under the heading of turnover tax. was sent to the plaintiff, was issued The German Government submits that under the new law on turnover tax the reply to the second question should dated 29 May 1967, enacted in be that both importation and supply implementation of the Second Council after installation constitute chargeable Directive of 11 April 1967 laying down events.

The exporter has the right, however, to deduct from this second assessment the The Italian Government considers that value added tax paid at importation in the case submitted by the Tribunal at

JUDGMENT OF 20. 2. 1973 — CASE 54/72

The second assessment at the time of installation of 31 of the Treaty insofar as, in the case of free-at-frontier supply, an exporting the imported machines can only be held to be lawful on the condition that it Community undertaking is subject to unjustified charges and administrative relates only to the service representing formalities, because it is considered as the act of installation iteself. If, on the being liable to the charge imposed on other hand, it also relates to the value of the installation of the dispatched the machines, it follows indisputably that there is double taxation while machines in the territory of the importing country. Such a process creates domestic products are taxed but once, a real restriction on the freedom of that is at the time the machines are installed. trade, forms an obstacle to commerce and provokes distortions in the free Another infringement of Article 95 can transfer of goods within the Community. be found in the fact that the double taxation constitutes an indirect measure The replies to the second and third questions, therefore, should also be in of protection in favour of domestic

Article 30 of the Treaty. the importing undertaking has already paid value added tax at importation, a Member State considers as the 1. On the infringement of Article 95 chargeable event not the introduction of As the objective of Article 95 — a the various machines into the State but provision having direct effect — is to rather their installation on the territory avoid discrimination against imported of the importing country. products leading to an unjustified The Italian Government considers it advantage being accorded to similar contrary to the Community rules for a domestic products, it is sufficient, Member State to determine chargeable according to the plaintiff in the main an event from which there results not action, to compare the present case with only an unjustified increase in the fiscal the fiscal charge imposed on an

installation supplied under the same the tax paid on the installation when conditions by a German undertaking to completed and in service highlights the see immediately where the discrimina discrimination resulting from the law of tion lies. 1951, as this does not allow such a deduction. (1) As equalization tax is paid at the frontier, the Italian machines bear a 2. On the infringement of Articles 30 fiscal tax equal to that imposed on et seq. of the Treaty corresponding German machines, bought by the same purchaser. The plaintiff contends that, in the view taken by the German revenue authorities (b) Therefore the imposition of turnover tax on the erected installation whereby the installation forms a new and different entity from the goods in working order results in discrimina which are comprised in it, the contract tion, as the German supplier of of sale is divided first into a contract competing machinery, when selling the concluded in Italy by the Italian exporter installation, could be subject at most to with itself to allow for importation of the that turnover tax, but could certainly various machines, which are thus not have imposed on him the same tax on the value of the different machines introduced into Germany in its name and on its behalf, and secondly at the comprising the installation. time of erection, into a contract for the (c) While the German supplier is supply of the finished and functioning therefore only charged once with installation, concluded in Germany by turnover tax under the heading of the 'Italian manufacturer — exporter — 'Werklieferung', from the sole fact that it importer' with its German customer.

obtain. tax and would not have been charged further with turnover tax. To consider an operator of another Member State as being subject to (d) It must be concluded therefore that taxation in Germany constitutes a the legal artifice whereby the installation measure having equivalent to a resulting from the erection of the quantitiave restriction, as that operator machines is deemed to be a new is induced by the technical and chargeable product leads to discrimina administrative difficulties to reduce his tion contrary to Article 95 of the Treaty. exports to West Germany or to restrict Finally, the fact that the new German himself to effecting exports assuring a Law on value added tax allows the greater profit, thereby compensating for deduction of the taxes paid at the said difficulties. With a view to imporation of the various machines from proving that the difficulties raised by the

In this case, the restrictive effect on the laid down for all other goods. free movement of goods does not arise Secondly, the claims of the German so much from the double imposition of revenue authorities are also incompatible with Article 7 of that Directive under the same tax as from the fact that, by an interpretation of a domestic German rule which the chargeable event in respect of and by the administative practice value added tax at importation of the followed by the German revenue goods is the entry of those goods into authorities, the competitive capacity of the territory of the country. To wish to an eceonomic operator living in Italy establish this event as coming after who restricts himself to concluding an erection, which is necessary solely for international sale with his German the installation to function, is illegal. customer is particularly endangered. At the very most the Federal Republic of Germany could, in accordance with While admitting that the provisions of Article 8 of the Directive, have added to Directive 70/32/EEC are not directly the basis of assessment the incidental applicable in this case, the plaintiff expenses arising up to the place of considers, however, that the Directive destination. This option, however, provides all the necessary elements to absolutely excludes the possibility of yet allow for an exact interpretation of the again charging the erected installation concept of a measure having equivalent with the same value added tax, as being effect to a quantitative restriction on a new and separate entity. It would be imports. legal at most to charge the tax on the possible difference between the total price of the machines and the final value II - Examination of the case in relation of the installation. This difference is, to the situation obtaining in Germany however, identical to the value of the after 1 January 1968 service rendered, i.e. installation. Even in this case, one could not consider the After detailing the formalities to be assessment of the Italian exporter to the completed by the Italian exporter and tax to be legal, given the incidental the German buyer within the framework nature of erection in relation to the of the system of value added tax, the supply of the machine for which the plaintiff examines their compatibility German importer must be charged. It is with the Community rules. not right that exporters, as suppliers of It detects first an infringement of both services, should be charged in the the objectives and the rules of the country of destination with a tax from Second Council Directive 67/228/EEC of which they are exempted in the country 11 April 1967. The objective of that of origin under Article 10 (1) of the Directive is the most neutral application Directive.

not provide for in his case. Further, this The plaintiff concludes by pointing out taxation practice distorts the legal the effect of the distortion arising from relationship arising from the contract for the claim of the German revenue the supply of the installation which, by authorities which makes the export of virtue of the convention of 1955 relating products to Germany more onerous. to international sales, should remain Exporters of installations to do not subject solely to Italian law. benefit from the practical advantages Moreover, to consider the place of resulting from the provisions of the installation in Germany as the place of Community Directive which include the supply of the goods and not the place of exemption from administrative practices delivery of the goods in Italy, is contrary in a country of different language and to Article 5 (4) of the Second Directive. traditions employing other tax systems Finally, there is a contradiction between and methods of application. the assertion by the German revenue authorities that the place where the There is an infringement, therefore, of installation is erected should be deemed Articles 30 et seq. of the Treaty to be the place where the goods are prohibiting Member States from placed at the disposal of the German maintaining measures having equivalent buyer and Article 7 (2) and 5 (4) of the effect to quantitative restrictions in their same Directive. relations with each other.

Grounds of judgment

1 By order dated 27 July 1972, received at the Court Registry on 31 July 1972, the President of the Tribunale at Biella, referred, under Article 177 of the Treaty establishing the European Economic Community, three questions relating to the interpretation of Articles 30, 31, and 95 of the Treaty and of Articles 2, 5, 7, 8 and 10 of Council Directive 228/67 of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes.

4 As the benefits taxed had arisen during the period from 1962 to 1967, it follows that the questions of interpretation raised were done so in relation to the turnover tax, as provided for by the German Law of 1 September 1951.

5 The first two paragraphs of Article 95 prohibit any Member State from imposing on the products of other Member States any internal taxation in excess of that imposed on similar domestic products or of such a nature as to afford indirect protection to other domestic products.

Such a system is intended to ensure equality of treatment in internal taxation.

The prohibition of discrimination laid down by Article 95, therefore, concerns not only the rate but also the basis of taxation.

6 Although it is in the nature of the cumulative multi-stage tax to charge successively and without any deduction the different transactions to which a product is subject, Article 95 prohibits the breaking down into two distinct and, therefore separately taxable, operations concerning imported goods an operation which, in regard to a domestic product, would constitute a single transaction.

This would be the case if, having at the frontier borne turnover tax by reason of delivery, the foreign product, when installed, was charged not only on the value of the supply of the services involving installation, but again on the value of the goods supplied, while the domestic product delivered and installed under the same conditions would only be charged with one tax, supply and installation being deemed to be a single operation.

As to the second and third questions

9 It appears from the documents in the file of the main action that the proceedings before the national court are concerned solely with transactions prior to 1 January 1968 and, consequently, only subject to turnover tax, as laid down by the German Law of 1951, before the entry into force of the German value added tax.

Thus the reply given to the first question makes it superfluous to reply to the other questions.

Costs

10 The costs incurred by the Commission of the European Communities and by the German and Italian Governments, all of which have submitted obser­ vations to the Court, are not recoverable.

As these proceedings are, insofar as the parties to the main action are concerned, a step in the action pending before the Tribunale at Biella, the decision as to costs is a matter for that court.

Article 95 of the Treaty must be interpreted as prohibiting a taxation system under which imported goods are charged twice with turnover tax, on the footing that they have been the subject of two distinct transactions, on the basis of an operation which, in respect of a similiar domestic product at the same marketing stage, would constitute only one chargeable operation.

Lecourt Monaco Pescatore

Donner Mertens de Wilmars

Delivered in open court in Luxembourg on 20 February 1973.

A. Van Houtte R. Lecourt

Registrar President