C-73/79

JUDGMENT OF 21. 5. 1980 — CASE 73/79

aids granted by States. It follows that 4. In an interpretation of the concept discriminatory tax practices are not "internal taxation" for the purposes exempted from the application of of Article 95 of the EEC Treaty it Article 95 by reason of the fact that may be necessary to take into account they may at the same time be the purpose to which the revenue described as a means of financing a from the charge is put. In fact, if the State aid. revenue from such a charge is intended to finance activities for the special advantage of the taxed domestic products it may follow that 2. If the Commission charges a Member the charge imposed on the basis of the State with practices which constitute same criteria on domestic and an infringement of Article 95 of the imported products nevertheless EEC Treaty and if on that basis it has constitutes discriminatory taxation in initiated the procedure under Article so far as the fiscal burden on domestic 169 that procedure does not lose its products is neutralized by the purpose because the Commission advantages which the charge is used takes the view that the same practices to finance whilst the charge on the form part of a system of aids imported products constitutes a net incompatible with the common burden. market and initiates the procedure provided for in Article 93. It follows that internal taxation is of such a nature as indirectly to impose a heavier burden on products from 3. Authorization under Article 38 of other Member States than on Regulation (EEC) No 3330/74 to domestic products if it is used grant the aids provided for therein exclusively or principally to finance cannot be taken to mean that any aids for the sole benefit of domestic method of financing such aids, products. whatever its character or conditions, is compatible with Community law. 5. The fact that the financial burdens On the contrary, the financing of the arising from the imposition of a aid granted, the national authorities charge are passed on to the remain in particular subject to the consumers does not alter the legal obligations arising under the EEC nature of the charge in question as Treaty. regards Article 95 of the EEC Treaty.

APPLICATION under Article 169 of the EEC Treaty for a declaration that the Italian Republic, by imposing a special charge, which is not uniform, on domestically-produced sugar and sugar imported from other Member States, has failed to fulfil its obligations under Article 95 of the EEC Treaty,

T H E COURT,

composed of: H. Kutscher, President, A. O'Keeffe and A. Touffait (Presidents of Chambers), J. Mertens de Wilmars, P. Pescatore, Lord Mackenzie Stuart, G. Bosco, T. Koopmans and O. Due, Judges,

Advocate General: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

The Italian Government, by a letter of The revenue from the surcharge is 21 March 1975, recalled the reasons and intended to finance the aids authorized legal considerations which had led to the by Article 34 of Regulation No 1009/67, setting up of the Fund and to the which was replaced by Article 38 of imposition of a surcharge on sugar and Regulation No 3330/74, which in its then conceded that "the surcharge in turn was supplemented by Article 5 of question, which was introduced in order Regulation No 1110/77 (Official to permit the price equalization measures Journal, English Special Edition 1967, authorized in Article 34 of Regulation p. 304; Official Journal 1974, L 359 and No 1009/67 must be considered in all Official Journal 1977, L 134). respects as internal taxation"; however, the Government contested the argument of the Commission that the surcharge on imported sugar has a protectionist effect When the Commission examined that which goes beyond aid properly so- system it considered it incompatible with called. The special measures referred to the provisions of the EEC Treaty. The in Article 34 of Regulation No 1009/67 fact that Article 34 of Regulation No do not come under the category of 1009/67 and Article 38 of Regulation "aids" within the meaning of Articles 92 No 3330/74 permit the Italian State to et seq. of the Treaty but must on the create an exception from the general contrary be considered as arrangements prohibition set out in Article 92 (1) of making it possible to offset the difference the Treaty on the granting by Member between the production cost recorded States of aids which distort or threaten for sugar in Italy and the cost borne by to distort competition does not, in the the producers in the other countries of Commission's view, justify the the Community. establishment of arrangements which, by exceeding the framework of the said Articles 34 and 38, produce an effect Even if the question is considered from which is protectionist, in the proper the point of view of "aids" the protective meaning of the term. effect alleged by the Commission must be excluded in the absence of any corre- lation between the revenue from the The Commission accordingly sent a charge and the amount of the aids — an letter dated 4 December 1974 pointing amount which was expressly established out to the Italian Government that if the by the Council; furthermore, it is not for surcharge is entirely offset, with regard the Commission to appraise the system

The Italian Government finally argued On 27 July 1978 the Commission that the surcharge was not contrary to delivered a reasoned opinion in Article 92 of the Treaty since it was not pursuance of the first paragraph of only intended to finance the adaptation Article 169 of the Treaty, in which it aids but also to effect a series of concluded that "by imposing on the operations within the framework of the sugar of other Member States a special regulation of prices. Likewise it argued charge systematically affecting domestic that it was not incompatible with Article products and imported products 95 of the Treaty since the rate and the according to the same criteria but method of collecting the surcharge are allotted to the financing of aids identical for the domestic product and benefiting domestic products and not the imported product. imported sugar, so that the taxes on domestic products are partially offset, the Republic of Italy has failed to fulfil its obligations under the first paragraph of Article 95 of the Treaty". At the same After considering these observations, the time the Commission requested the Commission confirmed its point of view Italian Republic to abolish within three in a letter of 23 March 1977. It months the discrimination between requested the Italian Government to domestic products and products notify it of its observations concerning imported from other Member States. the fact that — for the 1975/76 and 1976/77 marketing years — sugar imported from other Member States bore the entire burden of the surcharge (Lit 5 600 and 7 000 respectively per 100 kg By a letter of 12 February 1979 the of sugar) whilst sugar of Italian origin Italian Government expressed the view received a reimbursement on those sums that the interpretation placed by the (amounting to Lit 2 156.30 and 2 706.06 Commission upon the first paragraph of respectively per 100 kg up to 1 330 000 Article 95 of the Treaty was too wide tonnes) in addition to the production and was no longer in accordance even levy (up to 100 000 tonnes). with the spirit of the provisions. It emphasized that the amendment of the system adopted would have the effect of eliminating the positive aspects related to the punctuality of payment of the By a letter of 10 June 1977 the Italian adaption aids without producing any Government contested the Commission's benefit whatever. statement that the charge on the domestic product was lower than that on the imported product. Furthermore it remarked that the person liable to the By an application lodged on 2 May 1979 charge was the consumer, not the the Commission instituted proceedings producer or the importer, and that there before the Court of Justice in accordance was no connexion between the payment with the second paragraph of Article 169 — by the producer — of the surcharge of the EEC Treaty.

On hearing the report of the Judge- That principle applies also to the alleged Rapporteur and the views of the infringement of the first paragraph of Advocate General, the Court decided to Article 95 of the Treaty since internal open the oral procedure without a taxation is not considered discriminatory preparatory inquiry. in itself, but only in so far as it is used to finance the domestic product and not the imported product. The application is thus premature and inadmissible. II — C o n c l u s i o n s of t h e p a r t i e s Furthermore, the Commission has in the meantime initiated the procedure The applicant claims -that the Court provided for in Article 93 (2) in order to should: examine the whole system of aids in the sugar sector. Since it has opted for that — Declare that the Italian Republic, by procedure it cannot at the same time imposing a special charge, which is institute proceedings on the basis of not uniform, on domestically- Article 169 without offending against the produced sugar and sugar imported principle nemo debet bis puniri pro uno from other Member States, has failed delicto. to fulfil its obligations under Article 95 of the EEC Treaty; The applicant, in its reply, denies that the lawfulness of the system of financing an — Order the defendant to pay the costs. aid may be appraised only within the framework of the procedure provided for in Article 93 (2) of the Treaty. In fact if The defendant contends that the Court the method of financing an aid infringes should: provisions of the Treaty other than those of Article 92 the procedure based on — Declare that the application is Article 169 is applicable and the inadmissible or in the alternative circumstance that the infringement of a unfounded; provision of Community law other than' Article 92 concerns an aspect of a system — Order the applicant to pay the costs. of aid has no effect on the power of the Commission to institute proceedings for that infringement on the basis of Article III — Submissions and argu­ 169. m e n t s of t h e p a r t i e s The applicant makes two observations on the basis of the case-law of the Court Admissibility (judgment of 22 March 1977 in Case 74/76, Ianelli & Volpi, [1977] ECR 557; The defendant claims that the judgment of 13 March 1979 in Case infringement with which it is charged by 91/78, Hansen, [1979] ECR 935; the Commission relates to the system of judgment of 26 June 1979 in Case financing aids. That infringement must 177/78, Pigs and Bacon Commission ν accordingly be considered in accordance McCarren, [1979] ECR 2161). The first with the procedure laid down in Article is that if the Commission were to 93 (2) of the Treaty (judgment of consider the national measure within the 25 June 1970 in Case 47/69, Government framework of a procedure based on of the French Republic ν Commission of Article 93 it could not declare compatible the European Communities [1970] ECR with the common market a system of 487). aids infringing another provision of the

According to the defendant the rate of the surcharge affecting imported sugar must be equal to that applied to domestic Accordingly, in a situation where a sugar. Any reduction in the surcharge on system of aids infringes other provisions imported sugar would result in practice of the Treaty or of Community law there in granting an improper aid in favour of is no reason to maintain that the two such sugar. procedures are mutually exclusive. In this case the two procedures instituted by the Commission pursue distinct objectives. With the procedure based on Article 169 the Commission intends solely to do It denies that the procedure provided for away with that part of the surcharge in Article 169 and that provided for in which results in an infringement of Article 93 (2) pursue distinct objectives Article 95 of the Treaty, whilst with the in this case. In fact the procedure procedure provided for in Article 93 it initiated in accordance with Article 93 reserves its position regarding the (2) concerns "all the aids granted to compatibility of the means of financing sellers of beet processed into sugar and (for the remaining part which does not to the processing industry", that is all the constitute an infringement of Article 95) aids considered incompatible with the with the provisions of Article 92 in order Treaty "by reason of their financing" (cf. to judge whether the indirect aid which letter of the Commission of 23 March may result from the means of financing 1977, No 3552, p. 5). That procedure is compatible with the common market thus concerns all aids considered from (judgment of 25 June 1970 in Case the point of view of their means of 47/69, Government of the French financing and not "the remaining part Republic ν Commission [1970] ECR at p. which does not constitute an 494, paragraphs 11 to 13, 16 and 17 of infringement of Article 95", as the the decision). applicant now maintains.

Substance It is not disputed that the surcharge constitutes special internal taxation. Furthermore it cannot be contested that that internal taxation imposes on sugar The applicant maintains that the Italian from other Member States a heavier Republic, by applying to sugar from burden than on domestically-produced other Member States special internal sugar. taxation systematically affecting imported products on the basis of identical criteria but intended to finance aids granted in favour of domestic In the course of the 1974/75 marketing products to the exclusion of imported year the surcharge amounted to Lit 24 sugar — thus contributing to a partial per net kilogram on imported sugar and neutralization of the tax burden on the to only Lit 12.3054 per net kilogram on national products — has failed to fulfil domestically-produced sugar since the its obligations under Article 95 of the rules provided for an "aid to the Treaty. processing industry on the basis of Article 34 of Regulation No 1009/67 of Lit 1 169.46 per net quintal of white sugar produced in Italy up to a quantity According to the applicant Decision No not exceeding the basic production quota 1195 of the Price Committee of 1968 or the quota considered as such" (Article Originates in the Community provisions, 5 (b) of Decision No 27/1974 of the in this case basic Regulation No 1009/67 Price Committee). and Regulations Nos 430/68 and 432/68 (Journal Officiel 1968, L 89, pp. 2 and 4 respectively) which fixed prices for the 1968/69 marketing year. In having The same difference in tax treatment regard to those provisions the Price between the domestic product and the Committee proceeded on the basis of the imported product has been established in derived intervention price fixed for Italy the course of the period following the and added the surcharge of Lit 23 per above-mentioned marketing year in kilogram. Decision No 1195 of the Price relation to the arrangements adopted in Committee of 1968, fixing the surcharge order to finance the aids authorized by of Lit 23 per kilogram was the means Article 38 of Regulation No 3330/74. adopted in order to confer upon the sugar industries and producers of beet the aid provided for by Article 34 of Regulation No 1009/67. This was Furthermore the discrimination already confirmed by the Italian Consiglio di in existence is aggravated since the Stato [Council of State] by Decision No revenue from the surcharge is used 433 of 26 May 1970. during each marketing year for financing aids benefiting domestically-produced sugar which is not authorized by the Community provisions. With regard to the procedure for the allocation of the aid the amount of the surcharge is paid by each sugar producer less the aid to which he is entitled, whilst The applicant then disputes the that producer, and not the Fund, awards arguments advanced by the Italian and pays the amount of the aid to the Government before proceedings were beet-producers. instituted.

According to the Italian Government the sugar producers and importers are the special measures provided for by Article only persons who are passively subject to 34 of Regulation No 1009/67 do not fall the charge in question. within the category of "aids" referred to in Articles 92 et seq. of the EEC Treaty but "are rather in the nature of arrangements, intended to equalize the The Commission also challenges the higher production costs recorded in argument of the Italian Government to Italy, which would be such as to allow the effect that there is not a close the establishment of a common organiz­ connexion between "the payment in ation of the market based on common advance by the producer of the criteria and uniform methods of calcu­ surcharge (for the benefit of the lation within the meaning of Article 40 consumer) and the collection of adaption of the Treaty". aids payable to the same producer since a large part of those adaption aids is earmarked for a product other than sugar (sugar beet)". In reality Article 34 of Regulation No 1009/67 and Article 38 of Regulation No 3330/74 are covered by the technical concept of "aids granted by States" The applicant bases its argument on the referred to in Articles 92 and 93 of the fact that the part of the adaptation aid Treaty. This is clear from the wording of earmarked for beet-producers was not Article 41 of Regulation No 3330/74 in taken into consideration for the purposes which express reference is made to the of the present dispute and observes that existence in that regulation of provisions the payment in advance by the producer contrary to Articles 92 and 94 of the is effected in the name and for the Treaty. Furthermore, the Court of account of the latter (there is no relevant Justice itself has already classified such legal relationship between him and the arrangements under the category of consumer) and that it constitutes a "aids" (judgments of 25 May 1977 in "payment in advance" because the Case 77/76, Cucchi ν Avez [1977] ECR amount of the surcharge is calculated on 987 and in Case 105/76, Interzuccheri the quantity of sugar produced (or S.p.A. ν Società Rezzano e Cavana [19771 imported) which gives rise to the need to ECR 1029). effect a set-off against the quantity released for consumption. The Italian Government's objection concerning the absence of a connexion between the payment of the surcharge and the The Commission also disputes the collection of the adaptation aids thus argument that it is the Italian consumer appears unfounded. of sugar rather than the producer or importer who is liable to the surcharge.

represents a claim by the producer show any change as compared with the against the Fund the debt and the claim present situation if the aids were are offset (without prejudice however to financed by the budgetary credits of the the processor's obligation to pay directly State whilst the surcharge was retained to beet-producers their share of the aid). subject to the same conditions for the two products. That finding confirms that the arrangements for financing the aid for domestic sugar do not produce any Finally, the Italian Government considers protectionist effect or adversely affect that the surcharge is not incompatible the imported product. with Article 95 of the Treaty since the amount collected and the method of collection are identical for the domestic product and the imported product. The defendant acknowledges that the surcharge constitutes internal taxation for the purposes of Article 95 of the Treaty. However, within the national However, the parity of the rates is purely legal system the surcharge constitutes a notional since the charge on the measure equalizing the high costs which domestic product is not paid in full and form an integral part of the price of the the reduction available in respect of it product and ultimately constitute a corresponds to the amount of the aid charge on the consumer. granted for that product.

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fifteenth day of the month following the December (and likewise that it pays the month in which they were withdrawn. whole aid to beet-producers) whilst it is only subsequently that it collects part of the surcharge (that on the quantities On the basis of the provisional released for consumption after production, and leaving out of account December). any equalization, the Fund paid to sugar producers by 20 December 1976 at the latest the entire amount of the aid The applicant, in its reply, states that it payable to beet-producers and the does not put forward any claim for the processing industry; it was then for the abolition of an aid authorized by the latter to credit the beet-producers with Council but that it merely requires that the share payable to them by 31 that aid should not be financed by December at the latest. charges imposed wholly or partially on imported products.

These observations show that the Fund makes over the whole aid payable to the The Community authorization granted sugar producers at the latest on 20 to the Italian State relates to the grant of

JUDGMENT OF 21. 5. 1980 — CASE 73/79

aids to domestic producers of sugar and the complaint of infringement of Article not to the institution of a discriminatory 95 is inconsistent. In fact even such a tax on imported products which could change in the system of financing would not have been authorized since Article 95 not modify the position of imported of the Treaty does not permit exceptions sugar and would not benefit. it. The to the rules therein contained. In the absence of any advantage for imported present case the defendant has thus sugar shows that the present system does disregarded the objective of Article 95 not place it at a disadvantage and that which is intended to prevent all tax there is thus no breach of Article 95. discrimination between domestic products and products imported from Member States in order to permit the It considers that the judgments delivered attainment of two fundamental objectives in Cases 77/76, Cucchi, and 105/76, of the Treaty: the neutrality of taxation Interzuccheri (cited above) which merely and the abolition of barriers to the free set out statements of principle cannot movement of goods. establish tax discrimination in this case.

2 The file shows that the national tax, termed "sovrapprezzo" [surcharge], which forms the subject-matter of these proceedings, is a charge on white sugar released for consumption in Italy. It imposes an equal charge per net kilogram of white sugar of any type and quality on both domestically- produced sugar and sugar from other Member States. The charge is paid to the Cassa Conguaglio Zucchero [Sugar Equalization Fund, hereinafter referred to as "the Fund"] which is a public agency set up in order to effect the equalization operations related to the introduction of the Italian sugar industry into the common organization of the market in sugar in the form which it has had since 1968. The revenue from the surcharge is intended principally for the financing of adaptation aids for which the sugar industry and beet-producers in Italy qualify in accordance with the relevant Community rules. The grant of such adaptation aids is at present based on Article 38 of Regulation (EEC) No 3330/74 of the Council of 19 December 1974 on the common organization of the market in sugar (Official Journal 1974, L 359, p. 1).

3 The Commission considers that the imposition of the surcharge is contrary to the first paragraph of Article 95 of the Treaty in so far as it is intended to finance aids granted in favour of domestic products to the exclusion of products from other Member States. Although the charge is applied to domestic sugar and imported sugar on the basis of identical criteria the taxation on domestic sugar is partially neutralized by the granting of the aids thereby financed. That neutralization is alleged to be all the clearer inasmuch as producers of sugar established in Italy may pay the amount of the surcharge due after deduction of the aids to which they are entitled.

6 The Italian Government first recalls that the surcharge is applied uniformly to domestic products and to imported products and states that the Commission does not consider the internal taxation in question discrimi­ natory from the fiscal point of view, but only in so far as it is used for financing domestic products. According to the Italian Government it is however possible to consider the lawfulness of the system of financing an aid only within the framework of the special procedure laid down for that purpose in Article 93 of the Treaty. The case-law of the Court of Justice, as it is illustrated in particular by the judgment of 25 June 1970 (Case 47/69, France ν Commission, [1970] ECR 487), has in fact emphasized that the method of financing an aid cannot be isolated from consideration of the aid properly so-called. Consequently the national measures referred to by the Commission cannot be judged within the framework of an application under Article 169 of the Treaty, but only in accordance with the procedure under Article 93 of the Treaty.

7 The Italian Government further claims that the Commission has already initiated the procedure laid down in Article 93 in order to consider the system of financing all the aids granted to beet-producers and sugar-pro- cessers and that that procedure covers the financing of adaptation aids by means of the imposition of the surcharge. The procedure thus initiated may bring about the modification or abolition of the present system of financing and thus render the application based on Article 169 devoid of purpose; this application is accordingly inadmissible.

10 In those circumstances the second objection of inadmissibility must also be overruled. If the Commission charges a Member State with practices which constitute an infringement of Article 95 and if on that basis it has initiated the procedure under Article 169 that procedure does not lose its purpose because the Commission takes the view that the same practices form part of a system of aids incompatible with the common market and initiates the procedure provided for in Articles 92 and 93.

1 1 It must further be observed that whilst the procedure provided for in Articles 92 and 93 leaves a wide discretion to the Commission, and in certain conditions to the Council, to come to a decision regarding the compatibility of a system of aids granted by States with the requirements of the common market it is clear from the general plan of the Treaty that that procedure must never produce a result which is contrary to the specific provisions of the Treaty concerning, for example, internal taxation. If the Court is led to declare the imposition of the surcharge to the provisions of Article 95 the procedure which the Commission has initiated under Articles 92 und 93

JUDGMENT OF 21. 5. 1980 — CASE 73/79

cannot in consequence lead to maintaining that charge in its present form. Consequently the proceedings instituted under Article 169 against a Member State cannot be such as to jeopardize the interest which the Member State may have in maintaining a system of aids held compatible with the requirements of the common market as a result of a procedure initiated under Articles 92 and 93.

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ation of the concept "internal taxation" for the purposes of Article 95 it may be necessary to take into account the purpose to which the revenue from the charge is put. In fact, if the revenue from such a charge is intended to finance activities for the special advantage of the taxed domestic products it may follow that the charge imposed on the basis of the same criteria nevertheless constitutes discriminatory taxation in so far as the fiscal burden on domestic products is neutralized by the advantages which the charge is used to finance whilst the charge on the imported products constitutes a net burden.

16 It follows that internal taxation is of such a nature as indirectly to impose a heavier burden on products from other Member States than on domestic products if it is used exclusively or principally to finance aids for the sole benefit of domestic products.

17 The Italian Government objects that such an attitude would lead in this case to adopting a formalistic view of Article 95. It claims that in fact it would be permissible for the Italian Republic to maintain the surcharge as it is at present applied if the revenue from that charge were paid to the Italian treasury and thence into the general budget of the State; the Government could then provide from that budget the funds intended for financing the aids authorized by Article 38 of Regulation No 3330/74. In that case, too, the imported product would be no better off than at present since the surcharge would continue to be imposed on it without benefiting aids granted for the domestic product.

21 It follows from the foregoing that the arguments advanced by the Italian Government cannot be upheld.

22 Consequently the surcharge must be considered as a charge which, although levied at the same rate on sugar produced in Italy and sugar from other Member States, does not constitute a uniform imposition on those products since it constitutes an unequal burden on the domestic products which benefit from its imposition and on the imported products which are liable to the charge but do not derive the benefit.

23 It must thus be declared that the Italian Republic, by imposing internal taxation the burden of which falls unequally on sugar produced in Italy and on that imported from other Member States, has failed to fulfil an obligation under Article 95 of the Treaty.

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Costs

24 Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party's pleading. In this case the defendant has been unsuccessful in its submissions; it must therefore be ordered to pay the costs.

Mackenzie Stuart Bosco Koopmans Due

Delivered in open court in Luxembourg on 21 May 1980.

A. Van Houtte H. Kutscher Registrar President

OPINION OF MR ADVOCATE GENERAL MAYRAS ( s e e Case 72/79, p. 1431)