C-153/80

on the interpretation of Article 95 of the EEC Treaty in relation to the application of the German Gesetz über das Branntweinmonopol [Law on the Monopoly in Spirits] of 8 April 1922,

T H E C O U R T (Second Chamber)

composed of: P. Pescatore, President of Chamber, A. Touffait and O. Due, Judges,

Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

human consumption. For this purpose it effected by the Federal Monopoly uses spirits of very varied origin which it Administration through not having taken stores and blends in its own warehouse. such spirits over; according to the second During the period from 17 April to sentence of Article 79 (1) of the former 12 October 1973 Hansen declared to the version the last-mentioned amount was Hauptzollamt Flensburg for entry into fixed annually by order of the Federal free circulation and release from bond Minister of Finance or by the Federal several consignments of light rum from Monopoly Administration.

be delivered to the Bundesmonopol DM 1 537 and subsequently to verwaltung [the Federal Monopoly DM 1 526 per hectolitre of wine-spirit. Administration] at a price (the Brannt The first sentence of Article 79 (2) of the weinübernahmepreis [delivery price for Law on the Monopoly in Spirits spirits]) calculated from tne Brannt provided for a reduction in the spirits weingrundpreis [basic price for spirits] surcharge in the case of spirits produced fixed by the administration; these spirits, either in an Abfindungsbrennerei which are marketed by the Federal [distillery for which production is Monopoly Administration, are liable to estimated at a standard level for tax the Branntweinsteuer [tax on spirits] in purposes] or by a Stoffbesitzer [owner of

schaftsbrennerei [cooperative fruit-farm istration or which, in breach of that distillery]. That reduction in the spirits obligation, are not so delivered, are surcharge (DM 203 and subsequently liable to a Branntweinaufschlag [spirits DM 214) which gave a surcharge surcharge] under Article 78. Until the amounting to DM 1 334 and sub entry into force of the Law of 2 May sequently DM 1 312 per hectolitre of 1976 amending the Law on the wine-spirit. Monopoly in Spirits (Bundesgesetzblatt I, p. 1145), enacted following the In the case of spirits manufactured judgments of the Court of 17 February exclusively from stone-fruit, berries or 1976 (Rewe, Case 45/75, [1976] ECR gentian roots the spirits surcharge was 181 and Mińtz, Case 91/75, [1976] ECR further reduced by an amount 217), the spirits surcharge amounted, corresponding to 60 % of the basic price according to the first sentence of Article of the spirits, DM 121.80 and sub 79 (1) of the Law on the Monopoly in sequently DM 128.40.

JUDGMENT OF 7. 5. 1981 — CASE 153/80

That duty, which from Guadeloupe. corresponds to the difference between the normal selling price of the spirits The Finanzgericht Hamburg, by an (DM 1 763 at the time) and the basic order of its IVth Senate of 12 June 1980, price of the spirits (DM 203 and sub- decided to stay the proceedings and to sequently D M 214), amounted in the refer to the Court of Justice for a pre- period relevant to the main action to liminary ruling under Article 177 of the D M 1 560 and subsequently D M 1 549 EEC Treaty the following question : per hectolitre of wine-spirit. The difference between the monopoly "Must the first and second paragraphs of equalization duty (DM 1 560 or D M Article 95 of the EEC Treaty be 1 549) and the duty on spirits (DM understood to apply only where the 1 500), representing the Monopol- similar (first paragraph) domestic goods ausgleichspitze [marginal rate of or domestic goods otherwise competing monopoly equalization duty], was (second paragraph) with imported goods deemed to correspond to the marketing are subject to similar conditions of expenses borne by the Federal Monopoly production to those which apply to the Administration and charged against the imported goods or is the determining domestic products sold by the Monopoly factor solely the similarity of the goods Administration. or the fact that they are in competition or may the extension of the tax advan- When the rum imported by Hansen was tages for domestic goods to imported released for free circulation the marginal goods be made additionally dependent rate of monopoly equalization duty was upon the volume of production of each charged. manufacturing concern recognized as a The Hauptzollamt Flensburg, by 71 tax legal or economic unit?"

spirit. Justice of the EEC written observations Hansen challenged that assessment and were lodged on 28 August by the the Hauptzollamt Flensburg altered the Commission of the European Communi- 71 notices by a corrective assessment of ties, represented by its Legal Adviser, 20 September 1974. However, the Rolf Wägenbaur, on 17 September by correction did not affect the rate of tax Rumhaus Hansen GmbH & Co., the of D M 1 500 per hectolitre of wine- plaintiff in the main action, represented spirit. by Dietrich Ehle, of the Cologne Bar,

Comparison of the undertakings and of the conditions of production II — W r i t t e n o b s e r v a t i o n s sub- m i t t e d to t h e C o u r t

(a) The criteria for appraising conditions of production may be of a Rumbaus Hansen GmbH & Co., the very different nature and relate not only plaintiff in the main action, states that in to economic, social or climatic proceedings parallel to the main action conditions but also to the legal and the Finanzgericht Hamburg declared in a administrative conditions for production judgment of 15 February 1977 that the and to quantitative conditions. The imposition of the Monopolausgleich- Bundesfinanzhof even invokes the spitze was contrary to Articles 37 and 95 concept of "circumstances of pro- of the EEC Treaty and that when an duction" based on Article 79 (2) to (6) appeal was made on a point of law to of the Federal Law on the Monopoly in

JUDGMENT OF 7. 5. 1981 — CASE 153/80

Such an interpretation would distilleries and bonded fruit distilleries; rapidly bring about the creation of these forms are described in detail in the "separate tax markets"; the essential Law on the Monopoly in Spirits and in objective of Article 95, namely ensuring the provisions in implementation thereof; the complete neutrality of internal certain of them require official author- taxation as regards competition between ization; furthermore, they enjoy other domestic products and imported privileges which are not formally laid products, would very quickly be disre- down in Article 79, such as the exercise garded. of distilling rights in ten-year periods (Brennen im Abschnitt) and the right to a tax-free surplus yield (Überausbeute). (d) In deciding in its judgment in Hansen & Balle that, according to the According to the Bundesfinanzhof the requirements of Article 95, preferential comparison with foreign manufacturing tax systems must be extended without undertakings must thus be made with a discrimination to spirits coming from large number of German undertakings other Member States and that Article 95 displaying widely differing charac- does not allow any distinction to be drawn either according to the reasons, teristics, certain of which owe their very whether social or otherwise, on which existence to the monopoly in spirits and such special systems are based, or which would be established in an entirely according to the relative importance of different form in conditions of free such systems as compared with the market competition. ordinary taxation system, the Court intended to indicate that the advantage (b) From the substantive point of view must be accorded as widely as possible. similar conditions for the production of It gave a very wide interpretation to the alcoholic beverages cannot be envisaged word "similarity". in regions as different as Guadeloupe, the Federal Republic of Germany or In its judgment of 27 February 1980

conceivable in fact. That is clearly not so in this case. (e) Article 79 (2) of the Law on the Monopoly in Spirits is based on (c) In any case such a comparison considerations peculiar to monopoly of undertakings or of conditions of systems; it concerns undertakings which production would in practice be contrary are bound within the framework of that

Law and of its implementing provisions (b) The extension of a tax advantage by numerous legal and administrative based on a given volume of production conditions; it constitutes a system to imported products cannot in any case intended to promote the sale and main- be envisaged unless three conditions are tenance of price-levels of agricultural fulfilled: the volume of production must products within the framework of a State be attained in a competitive situation; it monopoly of á commercial character. must be fixed in accordance with clear and objective criteria; it must be justified under national law and Community law The question submitted to the Court of and thus be appropriate, necessary and Justice concerns the wider prohibition of proportionate to the attainment of a discrimination contained in Article 37 legitimate objective.

A volume exclusively on legal relationships; it must of production which is not attained in a have regard above all to actual economic competitive situation cannot be extended circumstances which ultimately deter- to other Member States within the mine the market and thereby compe- framework of the prohibition on discrimi- tition. nation; such an extension leads auto- matically to fresh discrimination. It is precisely the elimination of such dis- (g) In its judgment in the Schneider- crimination which forms the objective of Import case, the Court answered in the Article 37 of the Treaty.

assessment. Monopoly in Spirits are not objective and transparent in nature. They are based on several different types of distilleries whose establishment and The factor of the volume of production method of operating are determined by the specifically national requirements of the Monopoly in Spirits and of the Bren- (a) The only relevant factor for Article nereiverordnung [Distilleries Order]. 95 of the Treaty is the similar nature Furthermore, the various types of of the products; the prohibition on dis- distillery are determined by the basic crimination in taxation does not resort to price of spirits which is related to the other restrictive criteria. monopoly arrangements and is fixed

The volume of production fixed in Article 79 is completely unjustified and It is this economic unit which operates can only promote objectives which are on the market in spirits and whicn plays exclusively monopolistic in nature. a part in determining competition: the spirits are supplied for marketing by the cooperative fruit distillery as such and not by its members. The legal form (c) With regard to rum produced in (cooperative or association) which Guadeloupe it must be found that in this underlies that economic unit is irrelevant French overseas department cooperative within the framework of Article 95. In fruit distilleries are large distilleries and fact cooperative fruit distilleries are large that it is absolutely impossible to distilleries. transpose to rum the tax advantages accorded in the Federal Republic of Germany to small distilleries. A factual matter, which in itself is objective, like (b) The same considerations apply to the volume of production, has a discrim- distilleries for which production is inatory effect if it can only be attained in estimated at a standard level, which, by the exporting territory by being adjusted reason of their own distilling rights and to the economic structures of another of the rights of the owners of raw Member State. The volume of materials who are associated with them, production, a fact which may be also constitute large economic units. established objectively, leads in this case to discrimination.

The Hauptzollamt Flensburg, the environment, nor the climate or the defendant in the main action, observes quality of the soil constitute tax criteria that the Court has recognized, in its under the national law in force at the judgment in the Schneider-Import case, material time. that the tax advantages enjoyed by distilleries for which production is estimated at a standard level for tax The Government of the Federal Republic purposes, owners of raw materials used of Germany refers to the observations for distilling and small bonded distilleries which it submitted in Case 26/80 are lawful under Article 95 of the (Schneider-Import) and which in this case Treaty; to that extent the question relate essentially to the following points: whether the sole determining factor is the similarity of the goods should be answered in the negative. The same applies in the case of the cooperative (a) According to the case-law of the form of small-scale production in Court of Justice there is no breach of cooperative fruit distilleries. Article 95 of the EEC Treaty if a Member State applies to a specific product on the national territory The main action differs from the graduated rates of tax and does not Schneider case principally inasmuch as in grant similar imported products a 1973 the Federal Law on the Monopoly reduced rate of tax unless they fulfil the in Spirits did not make express provision same conditions as those prescribed for for a reduction in tax in the case of domestic products in order to qualify for imported spirits coming from distilleries the correspondingly reduced rate of tax. similar to the national distilleries which qualified for that reduction. Nevertheless it does not follow from the foregoing that all imported spirits, regardless of their origin, qualify for domestic tax (b) The extension to all imported spirits advantages. Only foreign producers who of the lowest rate of tax in the Federal correspond to the national categories Republic far exceeds the content of the obtaining preferential treatment may prohibition against discrimination in tax claim the same tax advantages under matters laid down in Article 95 of the Article 95; any other interpretation EEC Treaty. would lead to discrimination against 95 % of the domestic production of spirits which is liable to taxes up to and exceeding D M 1 500 and would be (c) The case-law of the Court shows entirely unrelated to the attainment of that at the present stage of its Community objectives prescribed by the development Community law does not Treaty. prohibit Member States from granting tax advantages to certain types of spirits or to certain classes of producers since tax advantages of that kind may serve The rum distilleries in Guadeloupe are legitimate social or economic purposes; not comparable, even approximately, to in stating that such preferential systems the small distilleries or national coop- must be extended without discrimination eratives. to spirits coming from other Member States the Court refers, with regard to The concept of "conditions of pro- the treatment of imported spirits, not duction" is extremely vague; neither the only to the amount entailed under such level of wages and prices, nor the social preferential systems but also to the

conditions to which they are subject. (e) Distilleries whose production is Imported products cannot in principle estimated at a standard level constitute a qualify for the tax advantage prescribed means for facilitating the collection of by the national system unless they satisfy revenue and social considerations and the same conditions as competing considerations of agricultural policy are domestic products. According to the also involved. Court, Article 95 requires that tax advantages granted in respect of domestic products be extended without The system of distilleries whose discrimination to spirits coming from production is estimated at a standard

Any qualify for that advantage under national reduction in tax for such distilleries is law and which are nevertheless in essentially a side-effect of the only competition with the imported products practicable arrangements for the in a similar fashion to the products collection of taxes on a national scale qualifying for the advantage in question. from very small distilleries. As a technical rule for the collection of taxes the system of such distilleries does not fall within the prohibition on tax discrimination contained in Article 95 of the Treaty; from the point of view of tax procedures (d) The question whether indirect it forms the most suitable means of discrimination may arise from the fact collecting taxes and any subsidiary that the importation at the reduced rate advantages which it may bring have of tax is linked exclusively to an annual positive effects as regards social and production limit, whilst, with regard to agricultural policy. domestic products, Article 79 (2) of the Law prescribes a number of other conditions which may be laid for the grant of the fiscal advantage and which (f) The system whereby distilleries are foreign producers cannot normally fulfil assessed over a fixed period does not falls within the exclusive jurisdiction of come within the scope of Article 95: it the court dealing with the main action. does not constitute a tax advantage.

difficulty by domestic producers but not system in question is compatible with the by foreign producers. principles laid down by Article 95: an

extension to foreign producers of spirits elimination of all forms of protection of the right to distil a certain quantity which may result from the application of over a fixed period would not mean internal taxation which discriminates equality of treatment in tax matters but against products from other Member rather the granting of a considerable States; Article 95 is intended to guaran- advantage in favour of imported spirits. tee the complete neutrality of national taxation as regards competition between domestic products and imported The Commission states that the Finanz- products. gericht Hamburg is requesting the Court

Treaty. Since the Court has already the point of view of consumers, they delivered a number of rulings on this have similar characteristics or meet the problem the question of the Finanz- same needs; the scope of the first gericht is thus also intended to obtain paragraph of Article 95 is therefore to be clarification of the scope of such rulings. determined not on the basis of the criterion of the strictly identical nature of the products but on that of their identical or comparable use.

JUDGMENT OF 7. 5. 1981 — CASE 153/80

"which fulfil the same conditions, taking Member State in question, accord tax into account the criteria which underlie advantages to certain types of products the first and second paragraphs of Article or to certain categories of producers. 95". These "conditions" must be Nevertheless it is not compatible with distinguished from the "similar con- Article 95 unless the advantages extend, ditions of production" as understood by or may be extended, without discrimi- the court making the reference, which nation, to similar products from other include "the most diverse circumstances" Member States. such as the level of wages and prices, the social environment or, in the case of agricultural products, climate and the quality of the soil. The case-law of the Court of Justice does not provide any grounds for considering that the (b) Such an extension to imported application of the prohibition on tax products of tax advantages granted at discrimination contained in Article 95 national level on very precise conditions may depend upon the existence of such give rise to difficulties; these difficulties an implied additional criterion. The are due to the fact that that "extension" Court has always upheld a strict in- ultimately signifies that a domestic tax terpretation of Article 95; if the system is "exported", inasmuch as it is application of the principle of non- applied to a factual situation in a foreign discrimination in tax matters were to be country for which it was not originally made conditional on imported products designed. The Court itself has and similar domestic products being in recognized the existence of these additional produced under similar troublesome problems of assimilation and conditions this would amount to comparison. The essential point is, depriving Article 95, by means of in- however, that the extension of tax terpretation, of all practical effect. advantages to imported products must be effected without discrimination; differences in taxation of a discrimi- natory or protectionist nature cannot be justified.

exporting State. In such conditions the to grant tax advantages to certain tax advantage granted at national level is national producers or to certain not "exportable" for substantive or legal products on condition that such reasons; it therefore constitutes dis- advantages may be extended to crimination against imported products imported products without any and comes under Article 95. discrimination against them or any indirect protection of domestic products. The replies to be given to the questions 3. The limit thus drawn to the freedom submitted of action of the Member States would in particular be exceeded, and Article 95 infringed, if technical barriers were The Commission suggests that the replies to prevent any extension or if the tax to the questions submitted by the Finanz- advantages granted at national level gericht Hamburg should be as follows : were to be linked to special features of national law unknown to the law of the exporting State. 1. The decisive criterion for the application of Article 95 is whether the products in question are "similar" (first paragraph) or whether the Ill — Oral procedure taxation is of such a kind as to afford indirect protection to other products (second paragraph). If these material Rumhaus Hansen GmbH & Co., the conditions are fulfilled it is of little plaintiff in the main action, represented relevance that the imported products by Dietrich Ehle, Rechtsanwalt, and and domestic products are subject to the Commission, represented by Rolf similar conditions of production. Wagenbaur, presented oral argument at the sitting on 19 February 1981.

3 It is clear from the file and from the explanations provided by the plaintiff in the course of the proceedings that it is not in dispute that the rate of tax applied in this matter by the customs authorities in fact corresponds to the general rate of tax applicable to domestic spirits. The plaintiff's objection is based on the fact that national legislation makes provision for certain exceptions from that general rate for various categories of small producers who benefit from a reduced rate of tax. It claims the application to the products which it imported of the most favourable rate of tax applied to domestic spirits made from fruit and refers more particularly to the tax arrangements laid down at the time by the Law for spirits from cooperative fruit-farm distilleries (Obstgemeinschafisbrennereien). It considers that, as a result of the combination of the individual distillation rights enjoyed by such distilleries, they in fact constitute industrial undertakings so that it is possible to compare them with producers of rum.

4 In its order making the reference the Finanzgericht finds that there is a state of uncertainty arising from the recent case-law of the Bundesfinanzhof [Federal Finance Court] following a preliminary decision [Vorbescheid] of 6 November 1979 delivered in another case concerning the same plaintiff in which the Bundesfinanzhof ruled that the prohibition of tax discrimination under Article 95 of the EEC Treaty applied only to such foreign products as fulfil the same conditions of production as domestic products obtaining pre- ferential treatment. It should be noted that, as is established by a document lodged by the plaintiff in the course of the proceedings, that preliminary decision was confirmed on 16 July 1980 by a judgment of the Bundes- finanzhof.

7 The problems thus raised by the national court have been largely resolved in a case which was pending before the Court of Justice at the time when the Finanzgericht made its order of reference for a preliminary ruling, and to which the Finanzgericht has furthermore referred. That case gave rise to the judgment of 30 October 1980 (Case 26/80, Schneider-Import v Hauptzollamt Mainz).

8 It is clear from the consistent case-law of the Court, which is recalled in that judgment, that in the present state of Community law Member States are not prohibited from granting tax advantages, in the form of exemptions from or reduction of taxes, to certain types of spirits or to certain classes of producers. Nevertheless, according to the requirements of Article 95 such preferential systems must be extended without discrimination to imported products conforming to the same conditions as preferred domestic products.

JUDGMENT OF 7. 5. 1981 — CASE 153/80

9 It is nevertheless impossible to disregard the fact that the application of the criteria of Article 95 gives rise to particular difficulties by reason, on the one hand, of the fact that the granting of certain tax exemptions may be related to the technical procedures prescribed by the legislation of the various Member States concerning the manufacture and taxation of spirits and, on the other, of natural phenomena of production, which pose particular problems in a case such as the present one, which concerns a product which comes from outside the European climatic zone.

RUMHAUS HANSEN v HAUPTZOLLAMT FLENSBURG

comparable domestic products must fulfil as a condition of obtaining a tax exemption or a reduced rate of tax.

13 It is for the national court to examine, in the light of these considerations, the argument advanced by the plaintiff with regard to cooperative distilleries and, more particularly, the quantitative limits which are a condition of the application of the preferential rates reserved, at the material time, to spirits produced in that type of undertaking in comparison with the production capacity of undertakings with which the rum imported by the plaintiff orig- inates.

1 4 The reply to the question submitted must accordingly be that Article 95 of the EEC Treaty must be interpreted as meaning that tax advantages granted under the legislation of a Member State in favour of certain alcoholic products must be extended to similar products originating in other Member States which fulfil both the criterion of similarity which forms the basis of Article 95 and the conditions laid down under its national legislation for qualifying for the tax advantage in question.

15 If the tax advantage for domestic products is granted in terms of the quantities produced in each production undertaking the same advantage must be granted in favour of products from production units situated in other Member States which fulfil the same quantitative criteria. If that condition is fulfilled a Member State may not refuse that tax advantage on the basis of supplementary conditions derived from its legislation which a production unit situated in another Member State cannot fulfil by reason of its geographical situation or of the legislation on the production of spirits in force in that State.

1. Article 95 of the EEC Treaty must be interpreted as meaning that tax advantages granted under the legislation of a Member State in favour of certain alcoholic products must be extended to similar products originating in other Member States which fulfil both the criterion of similarity which forms the basis of Article 95 and the conditions laid down under its national legislation for qualifying for the tax advantage in question.

2. If the tax advantage for domestic products is granted in terms of the quantities produced in each production undertaking the same advantage must be granted in favour of products from production units situated in other Member States which fulfil the same quantitative criteria. If that condition is fulfilled a Member State may not refuse that tax advantage on the basis of supplementary conditions derived from its legislation which a production unit situated in another Member State cannot fulfil by reason of its geographical situation or of the legislation on the production of spirits in force in that State.

Pescatore Touffait Due

Delivered in open court in Luxembourg on 7 May 1981.

For the Registrar H. A. Rühl P. Pescatore Principal Administrator President of the Second Chamber