C-26/80

JUDGMENT OF 30. 10. 1980 — CASE 26/80

it possible to apply to imports of which is imposed upon producers of products from other Member States other Member States as a condition arrangements the practical effect of for qualifying for a reduction in the which may be considered as rate of tax conforms to the equivalent to the arrangements requirements of Article 95 where that applied to domestic products so that limit corresponds in general to the imported products may in fact enjoy upper limit to which national the same advantages as comparable producers are subject in order to national products. qualify for the same tax advantage. As regards, in particular, the tax Article 95 does not require the advantages reserved by national Member State to extend the same legislation to certain categories of advantage to imported products small-scale producers of spirits, the coming from undertakings whose fixing by the legislation of a Member production exceeds the production State of an upper limit for production limit thus fixed.

REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht Rheinland-Pfalz [Finance Court of Rhineland-Palatinate], for a preliminary ruling in the action pending before that court between

SCHNEIDER-IMPORT G M B H & Co. KG, Bingen,

and

HAUPTZOLLAMT [Principal Customs Office] MAINZ,

JUDGMENT

Facts

JUDGMENT OF 30. 10. 1980 — CASE 26/80

spirits by Article 79 (2) of the Law on The Law on the Monopoly in Spirits was the Monopoly in Spirits, qualify for a further amended by the Law of correspondingly reduced rate of 13 November 1979 (Bundesgesetzblatt I, monopoly equalization duty only if p. 1937); that amendment did not relate the imported spirits come from a to Article 79 (2) and did not affect the distillery with a small annual substance of Article 151 (1) as amended production (small distillery) within the by the Law of 13 July 1978. meaning of Article 79 (2) of the Law In accordance with the legislation on the Monopoly in Spirits (see applicable the Zollamt [Customs Office] Article 151 (1), third sentence, of that Bingen claimed from Schneider in Law)? respect of the quantities of cognac 2.

Mainz of 22 June 1979. (a) that the reduction in the Schneider appealed against that decision monopoly equalization duty before the Finanzgericht Rheinland- should be limited to the rates of Pfalz [Finance Court of the Land of reduction laid down in Article 79 Rhineland-Palatinate]. The principal (2) of the Law on the Monopoly point which it put forward in support of in Spirits (21% or 30.5%) or its appeal was that the tax burden must the reduction exceed those imposed upon imported cognac was rates, and higher than that charged on domestic spirits made from fruit produced in an (b) that the upper limit for the Abfindungsbrennerei. application of the reduced rate of monopoly equalization duty

Court Register on 17 January 1980.

This question must be considered in the The Court, having heard the report of light of the case-law of the Court of the Judge-Rapporteur and the views of Justice, in particular of the judgments of the Advocate General, decided to open 10 October 1978 (Case 148/77 Hansen, the oral procedure without any [1978] ECR 1787), 8 January 1980 (Case preparatory inquiry. It nevertheless 21/79, Commission v Italian Republic) requested the plaintiff in the main action, and 27 February 1980 (Case 171/78, the Government of the Federal Republic Commission v Kingdom of Denmark). of Germany and the Commission to That case-law shows that tax advantages reply to some questions in writing before granted at national level must, within the the opening of the oral procedure. Those framework of Article 95, be extended requests were complied with within the without discrimination to imported time-limits laid down. products without regard to the reasons for such advantages, social or other; from the point of view of comparability, By an order of 21 May 1980 the Court that extension may only be limited if the decided to assign the case to the Second reasons for the tax advantages are Chamber under Article 95 (1) and (2) of objectively justified; limited extension of the Rules of Procedure. the tax advantages is precluded if the abolition of the preferential system constitutes the sole means of avoiding direct or indirect discrimination against imported products. II — Written observations lodged with the Court

Schneider-Import GmbH & Co. KG, the (b) The rule is that within the plaintiff in the main action, first recalled framework of Article 95 of the EEC the principal details of the German Treaty national tax relief must be applied monopoly in spirits which are in dispute without restrictions to products imported and then submitted observations, the from other Member States. Cognac, a basic points of which are as follows: spirit for which fruit is the raw material,

is a product similar to German spirits conditions of law and of fact on which produced from fruit. The nature of the that provision is based. Article 151 raw materials, the size of the under- applies to imported products limits which taking and the volume of production are much narrower than those which may indeed influence the price of a apply to the German "small distilleries". product but such economic factors may not be taken into consideration for the The annual production of Abfindungs- purposes of comparing the tax burden brennereien and Verschlußkleinbren- within the framework of Article 95. nereien may be considerably in excess of 4 hectolitres and a considerable part of (c) In any case, such factors must be their production may be marketed tax- objectively justified. free. This possibility is made available to

set out in Article 37 of the EEC Treaty, maintains or indeed promotes discrimi- With regard to the economic justification nation regarding the conditions under of the tax advantages granted to which goods are produced and Abfindungsbrennereien and Stoßbesitzer, marketed. they no longer serve proper social and economic purposes within the meaning According to the case-law of the Court, of the case-law of the Court of Justice, at the end of the transitional period at least on their present scale. Article 37 (1) of the EEC Treaty no

What occurs is less the

(d) In any case the different taxation The first and second paragraphs of on imported spirits fails in that exporting Article 95 of the EEC Treaty must be undertakings in other Member States interpreted to mean that the tax cannot subsequently comply with the advantages granted in pursuance of conditions laid down in Article 79 (2) of Article 79 (2) of the Law on the the Law on the Monopoly in Spirits and Monopoly in Spirits in respect of with the provision of the monopoly domestic spirits produced from fruit must system on which they are based. The be granted in respect of spirits imported identical treatment of all imported from the Community. products in respect of the level of taxation laid down in Article 79 (2), that is, the abolition of that provision in the The second question future, is the sole means of avoiding discrimination, direct or indirect, against imported spirits. This question concerns the "additional" tax advantages which do not follow from the letter of Article 79' (2) of the Law on The tax advantages are not only granted the Monopolyin Spirits but which follow in respect of certain volumes of from the special legal institutions of production; Article 79 (2) of the Law on Abfindungsbrennereien and Stoßbesitzer. the Monopoly in Spirits refers to specific raw materials, fixes different rates of tax and is based essentially on the special legal institutions of Abfindungsbren- (a) According to the settled case-law of nereien and Stoßbesitzer. These are the Court tax advantages, even if they specifically national characteristics, benefit only a > small proportion of related to the production of spirits domestic production, must be extended qualifying for tax advantages. These to imported Community spirits under conditions cannot be fulfilled in foreign Article 95 of the EEC Treaty. In no case countries and consequently they may not may an imported product be made

subject to higher taxation than that of the EEC Treaty if a Member State imposed on similar domestic products. applies to a specific product on the Within the framework of Article 95 national territory graduated rates of tax social or other reasons cannot justify and does not grant similar imported different taxation. products a reduced rate of tax unless they fulfil the same conditions as those prescribed for domestic products in order (b) It does not suffice that the rate of to qualify for the correspondingly the monopoly equalization duty on reduced rate of tax. imported cognac is reduced to 30.5% in accordance with Article 79 (2) of the Law on the Monopoly in Spirits; the tax- (b) None of the categories of free production surplus must also be producers qualifying for tax advantages taken into account, at any rate as a under Article 79 (2) of the Law on the proportion and a percentage. Monopoly in Spirits can exceed the auth- orized annual production quantity of 4 hectolitres of ethyl alcohol since that (c) The upper limit for the application upper limit is even appreciably lower in of the reduced rate of the monopoly the case of Abfindungsbrennereien and equalization duty must be considerably Stoffbesitzer. The third sentence of raised. The criterion is constituted on the Article 151 (1) of the Law permits small one hand by the distillation right of a distillers of other Member States with an former Abfindungsbrennerei for the annual production not exceeding 4 duration of the fixed period (30 hectolitres of ethyl alcohol to qualify for hectolitres) increased by the average the same tax advantage as the production surplus assessed at 50% (15 comparatively small group of domestic hectolitres). To this must be added, distilleries which comply with the taking that period into account, the conditions laid down by Article 79 (2). annual quantity which an Abfindungs- brennerei is authorized to distil and may distil for a number, to be determined, of (c) The extension to all imported Stoffbesitzer, in addition to the spirits, even if they do not come from production surplus also deriving from small distilleries, of the lowest rate of 'tax such distillation. in the Federal Republic far exceeds the contents of the prohibition against discrimination in tax matters laid down The Government of the Federal Republic in Article 95 of the EEC Treaty. of Germany submits observations, the main points of which are as follows: Such a measure would place 95% of the German production of spirits at a severe disadvantage from the point of view of Thefirstquestion taxation in relation to similar imported products and would entail for the (a) The court making the reference Federal Republic an annual loss of tax- raises the question whether imported revenue of between DM 300 and 350 spirits must qualify for a reduced rate of millions. monopoly equalization duty even though they do not satisfy the conditions which are prescribed for a corresponding (d) The first question submitted in this reduction in tax for domestic spirits. case has already been covered by the According to the case-law of the Court detailed reply in the judgment of the of Justice there is no breach of Article 95 Court of 10 October 1978 (Hansen), in

conjunction with the judgment of 22 advantage and which foreign producers June 1976 (Bobie). The Court ruled that cannot normally fulfil. That question at the stage of development at which falls within the exclusive jurisdiction of Community law was at the time it did the court dealing with the main action. not prohibit Member States from granting tax advantages to certain types of spirits or to certain classes of producers since tax advantages of that kind might serve legitimate social or economic purposes; in stating that such In the alternative, it may be found that in preferential systems must be extended this connexion it has been laid down without discrimination to spirits coming very clearly in the case-law of the Court from other Member States the Court of Justice that the criteria to which the referred, with regard to the treatment of tax advantage is subject under national imported spirits, not only to the amount law must not be designed in such a way entailed under such preferential systems that they can be satisfied without but also to the conditions to which they bydifficulty by domestic producers but not foreign producers. were subject. Imported products cannot in principle qualify for the tax advantage prescribed by the national system unless they satisfy the same conditions as competing domestic products. According to the Court, Article 95 requires that tax In the present case the three categories advantages granted in respect of which qualify for preferential treatment domestic products must be extended are subject to a maximum limit on their without discrimination to spirits coming annual production of 4 hectolitres of from other Member States. In a situation ethyl alcohol. In the case of Abfindungs- where a Member State lawfully applies brennereien the tax-free production different rates of tax to similar products surplus arising from certain inaccuracies the application of the lowest rate of tax in the assessment of the rates of yield are to all similar imported products alone not in fact included in the calculation of necessarily results in discrimination at the maximum quantity; with regard to the expense of products which do not the annual maximum limit of qualify for that advantage under national 4 hectolitres this fact is of little law and which are nevertheless in importance since, when there are competition with the imported products differences of 20%, the Law requires the in a similar fashion to the products rate of yield to be corrected. qualifying for the advantage in question.

production of less than 4 hectolitres of The second question ethyl alcohol must be manufactured under bond. (a) This question concerns two sets of detailed rules on methods of collecting The condition which the third sentence tax and the procedures for taxing given of Article 151 (1) of the Law on the categories of domestic distilleries. Since Monopoly in Spirits lays down for these rules are in the nature of technical extending the tax advantage provided for procedures they do not come within the in Article 79 (2) to foreign distilleries is scope of Article 95. The reply to the two thus not more stringent than the parts of this question can thus only be in conditions laid down in Article 79 (2) for the affirmative. domestic distilleries; likewise it does not constitute a specific national requirement (b) Abfindungsbrennereien make the which can only be satisfied by foreign methods of collection of tax easier; distilleries on conditions which have been social considerations and considerations made more difficult. of agricultural policy are also involved.

The granting in a Member State of an (c) The arrangements whereby dis- advantage in the form of a tax exemption tilleries are assessed over a fixed period or a tax reduction in respect of certain do not come within the scope of Article types of spirits or of certain categories of 95: they do not constitute a tax producers when, having regard to the advantage. The mere procedure whereby criteria set out in Article 95 of the it is possible to distil on favourable tax Treaty, they satisfy the same conditions, conditions a larger quantity of spirits is compatible with Article 95 of the EEC in certain years, that quantity being Treaty. reduced by as much in other years, does

SCHNEIDER-IMPORT v HAUPTZOLLAMT MAINZ

Thefirstquestion (d) With regard to the economic and social objectives which might be invoked (a) Under the arrangements in dispute in defence of the tax reductions in the Federal Republic of Germany is question it must be recalled that

JUDGMENT OF 30. 10. 1980 — CASE 26/80

intervention measures for the benefit of Despite the correctives and restrictions certain fruit used as raw materials for the applied by German legislation to the spirits in question are laid down by the arrangements for taxation at a standard common organization of the market in level an "excess yield" resulting in total fruit and vegetables. exemption from taxation on the portion of production in excess of the "normal" yield nevertheless necessarily favours at least some domestic distilleries in relation (e) The following reply should be given to the distilleries of other Member States. to the first question: Accordingly such arrangements applied to domestic distilleries alone discriminate against imported spirits and accordingly prove to be incompatible with the Article 95 of the EEC Treaty requires requirements of Article 95. that the tax advantages reserved by national legislation exclusively to under- takings whose annual production is This finding also applies to Stoffbesitzer. limited to a certain quantity of spirits must be extended to cover all similar or competing imported spirits. (b) The right of domestic Abfindungs- brennereien to carry forward and aggregate production rights limited The second question annually to 4 hectolitres of ethyl alcohol over a period of ten years constitutes an advantage which is not enjoyed by In view of the fact that the reply to the imported spirits manufactured by their first question must be in the negative it is counterparts in other Member States: for superfluous to consider this question. the latter the limit of 4 hectolitres of Nevertheless in order to take care of all ethyl alcohol is assessed annually, which eventualities the following considerations means that they lose the benefit of the should be borne in mind : tax relief for the proportion below that limit if the harvest is poor.

exemption from taxation of the I l l — Oral procedure production surplus following from the application of a system of standard At the hearing on 10 July 1980 taxation or the overstepping of maximum Schneider-Import GmbH & Co., the production limits in distilling over a plaintiff in the main action, represented certain period, must be extended to by Dietrich Ehle, Advocate, the imported spirits in order to meet the Government of the Federal Republic of requirements of Article 95 of the EEC Germany, represented by Jochim Treaty. Sedemund, Advocate, assisted by Jörn- Arne Jarsombeck, Chief Executive Officer at the Federal Ministry of Finance, and the Commission, If such advantages, though formally represented by Rolf Wägenbaur, extended to imported spirits, cannot be delivered oral argument and answered applied to them in practice they must be questions asked by the Court. granted in respect of all imported spirits in order to meet the requirements of The Advocate General delivered his Article 95. opinion at the sitting on 2 October 1980.

Decision

1 By order of 20 December 1979 which was received at the Court on 17 January 1980 the Finanzgericht Rheinland-Pfalz [Finance Court of Rhineland-Palatinate] referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions as to the interpretation of Article 95 of the EEC Treaty in order to enable it to appraise the compatibility with the EEC Treaty of certain provisions of national legislation on the taxation of spirits concerning the application of reduced rates of tax to various categories of producers.

— Stoßbesitzer ["owners of the raw materials", that is the producers of fruit used for distilling] and

— Verschlußkleinbrennereien [small bonded distilleries].

The reduced rate of tax is reserved to those producers up to the limits of an annual production quota of between 50 litres and 3 hectolitres of ethyl alcohol per annum for the undertakings in the first category, a maximum of 50 litres of ethyl alcohol for those in the second category and a maximum of 4 hectolitres of ethyl alcohol for those in the third.

6 In this connexion the plaintiff objects that the production limit of 4 hectolitres applicable to imported spirits under Article 151 of the Law on the Monopoly in Spirits does not really constitute an equivalent of the tax measures applicable to national production. Since these measures are neither objective nor clear they cannot be transferred as such to the imported products. In this connexion the plaintiff relies more particularly on the following circumstances: with regard to the Abfindungsbrennereien, the fact that the production limits fixed on the basis of a tax on the must may be exceeded by means of a "production surplus", which is exempt from all tax and varies between 20 % and 50 % depending on the year; the procedure known as "Brennen im Abschnitt" whereby the distiller may freely use his distillation right within ten-year periods makes it possible to improve even more on that result; finally, the aggregation of the distilling rights of Stoffbesitzer in the hands of certain distilleries which enables the latter considerably to exceed the limit of 4 hectolitres.

7 In order to settle this dispute the Finanzgericht submitted two questions which are worded as follows:

1. Must the first and second paragraphs of Article 95 of the EEC Treaty be interpreted as meaning that spirits imported from the Community which are comparable ("similar" within the meaning of the first paragraph of Article 95 of the EEC Treaty) with domestic spirits made from fruit (Law on the Monopoly in Spirits, Article 27 (1)), may, with regard to the tax advantages granted to domestic fruit spirits by Article 79 (2) of the Law on the Monopoly in Spirits, qualify for a correspondingly reduced rate of monopoly equalization duty only if the imported spirits come from a distillery with a small annual production (small distillery) within the meaning of Article 79 (2) of the Law on the Monopoly in Spirits (see Article 151 (1), third sentence, of that Law)?

9 In this connexion it must be recalled first of all that the Court, in its judgment of 10 October 1978 in Case 148/77 Hansen and Balk [1978] ECR 1787, stated that "at the present stage of its development and in the absence of any unification or harmonization of the relevant provisions, Community law does not prohibit Member States from granting tax advantages, in the form of exemption from or reduction of duties, to certain types of spirits or to certain classes of producers". It added that "tax advantages of this kind may serve legitimate economic or social purposes, such as the use of certain raw materials by the distilling industry, the continued production of particular spirits of high quality, or the continuance of certain classes of undertakings such as agricultural distilleries" to which it added that, "according to the requirements of Article 95, such preferential systems must be extended without discrimination to spirits coming from other Member States". That opinion was confirmed in a series of judgments of 27 February 1980 in which the Court remarked that "although it acknowledged in the judgment in the Hansen and Balle case, taking into account the state of development of Community law, that certain tax exemptions or tax concessions are lawful, this is on condition that the Member States using those powers extend the benefit thereof without discrimination to imported products in the same conditions" (see in particular the judgment in Case 168/78 Commissions French Republic, paragraph 16 of the decision).

10 The difficulties of interpretation expressed in the question from the national court are caused by the close link existing between the tax advantages provided for by Article 79 of the Law on the Monopoly in Spirits and the

1 3 The plaintiff is again unsuccessful in the criticisms which it makes to the Court when it claims that the provisions of Article 151 do not constitute an exact transposition to the imported products of the conditions applicable to the various methods of production which qualify for preferential tax treatment under the German Law. In this connexion it must be observed that the German legislature, by retaining as the sole criterion for the granting of the tax advantages in question the volume of the annual production of

JUDGMENT OF 30. 10. 1980 — CASE 26/80

distilleries in other Member States, has avoided transferring to imported spirits a series of technical procedures peculiar to German legislation which in fact cannot be fulfilled by producers of Member States whose legal systems do not contain the equivalent of the provisions the essential points of which have been recalled above.

1 4 Finally, it is also necessary to dismiss the argument put forward by the plaintiff to the effect that, having regard to the large number of persons who benefit from the provisions laid down in Article 79 of the Law on the Monopoly in Spirits, the proportion of production obtaining preferential tax treatment appreciably affects competition on the market in alcoholic products. In fact the information supplied in the course of the procedure by the German Government, which the plaintiff did not seriously challenge, shows that the quantities obtaining preferential tax treatment in reality constitute only an insignificant proportion (5 °/o) of total domestic production.

On those grounds,

THE COURT (Second Chamber)

in answer to the questions referred to it by the Finanzgericht Rheinland- Pfalz by order of 20 December 1979, hereby rules:

1. Article 95 of the EEC Treaty, in its application to the tax advantages reserved by national legislation to certain categories of small-scale producers of spirits, must be interpreted as meaning that the requirement of non-discrimination laid down in that provision of the Treaty is fulfilled where the arrangements applicable to spirits imported from other Member States may be considered as equivalent to the arrangements applicable to national production so that imported products may in fact enjoy the same advantages as comparable national products.

2. The fixing by the legislation of a Member State of an upper limit for production which is imposed upon producers of other Member States as a condition for qualifying for a reduction in the rate of tax conforms to the requirements of Article 95 of the EEC Treaty where that limit corresponds in general to the upper limit to which national producers are subject in order to qualify for the same tax advantage.

OPINION OF MR REISCHL — CASE 26/80