C-4/81

JUDGMENT OF 25. 11. 1981 — CASE 4/81

In Case 4/81

REFERENCE to the Court under Article 177 of the EEC Treaty by the Bundesfinanzhof (Federal Finance Court) for a preliminary ruling in the action pending before that court between

HAUPTZOLLAMT (Principal Customs Office) FLENSBURG

and

HERMANN C. ANDRESEN G M B H & Co KG, whose registered office is in Flensburg,

Facts and Issues

The facts of the case, the course of the I — Facts and written procedure procedure and the observations sub- mitted pursuant to Article 20 of the On 12 January 1976 Hermann C. Protocol on the Statute of the Court of Andresen GmbH & Co KG (hereinafter Justice of the EEC may be summarized referred to as "Andresen"), whose as follows: registered office is in Flensburg, applied

HAUPTZOLLAMT FLENSBURG ν ANDRESEN

During the as "the 1922 Law"], as amended on a period in question in the main action, the number of occasions, subjects spirits to a normal selling price of the spirits was tax on consumption which is levied in DM 1 833 per hectolitre of ethyl alcohol, three different forms. the basic price DM 253, the costs saved DM 31 and, consequently, the spirits surcharge was DM 1 549 per hectolitre of ethyl alcohol.

The difference between the spirits is itself fixed by the Administration on surcharge and the tax on spirits the basis of the production costs of a represented the spirits surcharge margin distillery producing spirit from potatoes ("Branntweinaufschlagspitze"). During with an annual output of 500 hectolitres the period in question in the main of ethyl alcohol. Under Article 84 of the proceedings the general rate for the 1922 Law the monopoly spirit is subject spirits surcharge was DM 1 549 per to the tax on spirits ("Branntwein- hectolitre of ethyl alcohol, the tax on steuer"); it is marketed by the spirits DM 1 500 and the surcharge Administration at the normal selling

JUDGMENT OF 25. 11. 1981 — CASE 4/81

following question: On 20 February 1976 Andresen lodged an objection against the assessment at "Does the expression 'taxation imposed the Hauptzollamt Flensburg. The Haupt- on a similar domestic product', within zollamt rejected that objection by the meaning of the first paragraph of decision of 12 November 1976. Article 95 of the Treaty establishing the European Economic Community cover a On 30 November 1976 Andresen charge arising from the selling price brought an action before the Finanz- fixed by the Spirits Monopoly Adminis- gericht (Finance Court) Hamburg.

national law. The order of the Bundesfinanzhof was lodged at the Court Registry on 12 The Hauptzollamt Flensburg appealed January 1981. against the judgment of the Finanz- gericht Hamburg to the Bundes- Pursuant to Article 20 of the Protocol on finanzhof. In support of its appeal it the Statute of the Court of Justice of the pleaded in substance infringement of EEC written observations were submitted Articles 151 (1) and 152 (1) of the 1922 on 17 March 1981 by the Commission of

the European Communities, represented The fiscal function of the monopoly and its by its Legal Adviser, Erich Zimmermann, selling prices on 2 April 1981 by Hermann C. Andresen GmbH & Co KG, respondent (a) As a fiscal monopoly, the purpose in the main proceedings, represented by of the Administration is to raise revenue P. Müller-Kemler, Rechtsanwalt in for the Federal Treasury and primarily to Hannover, and on the same date by the collect the tax on spirits, at the same Hauptzollamt Flensburg, appellant in the time, it pursues economic objectives, and main proceedings, represented by especially those of agricultural policy. Gerhard Schulte, Oberregierungsrat The spirits monopoly derives its revenue [Senior Executive] at the Oberfinanz- from its selling prices, and in particular direktion (Regional Finance Office), from the normal selling price; under

By order of 17 June 1981 the Court matters relating thereto come before the decided, pursuant to Article 95 (1) and courts with jurisdiction in taxation (2) of its Rules of Procedure, to assign matters [Finanzgerichtel; its selling the case to the Second Chamber. prices are fixed by authority and are published in the Bundesanzeiger; in cases of insolvency, its claims rank pari passu with fiscal claims and are recovered in the same manner as taxes; the commission of a fraud causing loss to the Administration (Monopolhinterziehung) II — Written observations sub- gives rise to the same penalties as a tax m i t t e d to the C o u r t fraud.

JUDGMENT OF 25. 11. 1981 — CASE 4/81

formulae. The formula for the margin of an economic nature. The spirit contained in the monopoly equalization acquired under the obligation to sell is to duty is as follows: margin contained in be regarded, even at that point, as the monopoly equalization duty equals revenue in kind of the fiscal monopoly; normal selling price minus basic price of the subsequent sale of the spirit the spirit minus tax on spirits; the constitutes a conversion of the revenue element of a fiscal nature contained in and a further increase therein by an the selling price is calculated by using the amount equal to the sum of the same formula. operating costs and the net profit (an amount covered by the difference between the net selling price and the There is also uniformity of functional acquisition price). It is inherent in the

uniformity. As part of a tax, the margin equivalent to the imposition of taxation contained in the monopoly equalization and must be considered in the light of duty has a fiscal nature; the same is true Article 95 of the EEC Treaty. A

comparison of the margin contained in several products at different prices and the monopoly equalization duty and the combines them in order to manufacture internal charge levied through the other products would calculate in monopoly reveals an equal level of aggregate on the basis of average rates taxation. the costs included in the selling prices which he had to bear. The Hermann C. Andresen GmbH & Co. KG, Administration bought the spirit at many the respondent in the main proceedings, different prices, in some cases blended it, takes the view that the reference for a and then processed and sold it at many preliminary ruling asks in substance different prices. In so doing it took whether or not the element "costs of the particular account of its own costs to an monopoly administration", contained in extent which always allowed it ultimately the Administration's selling price in to realize a profit, albeit a small one, addition to the acquisition price and the which it calculated according to the tax on spirits, must be regarded as principles of commercial accounting taxation within the meaning of the first and paid to the Federal Treasury paragraph of Article 95 of the EEC independently of the tax on spirits.

At the relevant time the to the obligation to sell; that fact is clear intervention of the monopoly was from Article 79 of the 1922 Law which undeniably based on "commercial provides that in calculating the spirits principles" under Article 5 of the 1922 surcharge a deduction is to be made in Law; notwithstanding the fact that its respect of the average amount of the organization was governed by public costs which the Administration saves by law, in exercising the powers conferred not acquiring the spirit. upon it by the 1922 Law the monopoly had to apply within the confines of the law, commercial and not fiscal principles. (c) The Administration certainly does That rule found specific application in not have complete freedom of action; it the fixing of the selling prices and the is bound in connexion with the distilling spirits surcharge applicable to spirits rights, which it fixes annually on the exempt from the obligation to sell. basis of foreseeable demand, to contract at prices which will ensure that its costs are covered; the same requirement exists In fixing the normal selling price the for purchases.

JUDGMENT OF 25. 11. 1981 — CASE 4/81

Comparison of the charges sought through the civil courts, whether or not the part of the price which remains unpaid represents the amount of (a) No part of the normal selling price the taxes alone. asked by the Administration is of a fiscal nature. Nevertheless, it is necessary to compare the charges in the context of (e) The Administration's position is in the application of the first paragraph of no way different from that of the Article 95 of the EEC Treaty, since such proprietor of a distillery which is not a comparison must cover not only taxes subject to the obligation to sell and borne directly but also those borne which, having acquired the raw indirectly. materials, produces a distillate under its distilling right and subject to the control (b) A German importer of blended of the customs authorities, is taxed spirit, which is similar to the imported thereon and then calculates the selling product, buys monopoly spirit from the price taking account of the purchase Administration at the normal selling price of the raw materials, the taxes and price; that price includes the tax on its own costs in accordance with spirits payable by the Administration "commercial principles". with the result that the buyer suffers the tax indirectly through the relevant part of the normal selling price (where the (f) The fact that the Administration is purchase is made under an accompany- not a private undertaking but a Federal ing document or for storage in a bonded

discriminated against. That is also true of the normal selling price of the Administration. On selling (c) The question put concerns only the monopoly spirit, the Administration discrimination against an imported incurs liability for the tax on spirits; it product. There can, in any case, be no passes the tax for which it is liable on to discrimination against a national product the purchaser by including it in the where the commercial principles laid selling price. Consequently, the pur- down by law are properly applied: in

calculating his price the importer's The Commission points out in relation to supplier too must not only take account the facts that since the entry into force of the prime cost but, like the monopoly, of the Law of 2 May 1976 amending the must include his own costs in accordance 1922 Law, which was enacted following with commercial principles; the mon­ the judgments of the Court of Justice of opoly's costs included in the contested 17 February 1975 (Case 45/75 Rewe price margin pursuant to commercial [1976] ECR 181 and Case 91/75 Miritz principles find their counterpart in the [1976] ECR 217), the spirits surcharge portion of the importer's purchase price levied on spirits exempt from the which reflects his supplier's own costs obligation to sell to the monopoly and which have been calculated in accor­ the monopoly equalization duty imposed dance with the same principles and on imported spirits have been equal to added to the prime cost. the amount of the tax on spirits charged on spirits sold by the Administration; following the restructuring of the monopoly the question raised in this case (d) The imported product would in fact could therefore no longer arise. bear the commercial margin equal to the price margin twice if, being included first in the selling price of the importer's The legal point at issue is whether a supplier, it had to be paid a second time charge arising from the selling price in the form of a tax in order to offset the fixed by the Administration for commercial margin included in the monopoly spirit must be regarded as monopoly's selling price. In that regard it taxation imposed on a similar domestic is not relevant that the portion covering product within the meaning of the first costs included both in the monopoly's paragraph of Article 95 of the EEC selling price and in the selling price of Treaty; more particularly, the issue is the importer's supplier is computed on whether the imposition of the margin an aggregate basis. contained in the monopoly equalization duty (DM 80) on imported ethyl alcohol is compatible with the first paragraph of Article 95. The reply to be given to the question put There can be no doubt that a domestic product similar to the blended spirit The question put by the Bundesfinanzhof imported by Andresen exists in should be answered as follows: Germany; the tax charge imposed on similar domestic blended spirit is made up of the tax charged on each of its two A charge arising from the selling price constitutents, that is to say of 90% spirit fixed by the Spirits Monopoly Adminis­ purchased from the Administration and tration for monopoly products is not to 10% brandy. be regarded as taxation imposed on similar domestic products within the meaning of the first paragraph of Article The normal selling price 95 of the EEC Treaty. In particular, the part of the selling price intended to cover the monopoly's costs does not constitute The selling price fixed by the taxation within the meaning of the first Administration cannot in itself be paragraph of Article 95 of the EEC regarded as a tax. Admittedly it cannot Treaty. be said that the selling price contains no

The elements making up the normal selling (b) In any event, it would not be price. justified to tax imported spirit to the same extent as domestic products marketed by the Administration. The Administration incurs costs in connection (a) As far as the various elements with the monopoly spirit which are making up the normal selling price of the unrelated to the imported products, monopoly spirit are concerned, the only particular, the costs of transporting, question to be settled is whether the purifying, denaturing and storing the price margin can be considered as a tax. monopoly spirit. Those costs arise neither for imported ethyl alcohol nor for spirit produced by German distilleries In that connection account must be which are not subject to the obligation to taken of the fact that the acquisition sell to the Administration. For the latter price is determined by the basic price as type of spirit the German legislature varied by the increases and reductions reduced the spirits surcharge margin by provided for, consequently, it is not fixed an amount equal to the costs saved by at a constand level. The fixed acquisition the Administration. The margin con- price, for its part, does not necessarily tained in the monopoly equalization duty correspond to reality and is merely used levied on imported ethyl alcohol should as a book figure for the purposes of be reduced by the same amount. calculation. For that reason the price margin contained in an element of the selling price of the monopoly spirit is not a fixed amount which is payable in all (c) In reply to the argument that if, in the Administration's transactions and is making the comparison of charges fixed at a level allowing its administrative required by the first paragraph of Article and operating costs to be covered. 95, the imposition of monopoly costs on the similar domestic product were ignored, the result would be discrimina- tion against domestic products, it may be According to the case-law of the Court, pointed out that Article 95 does not only a charge "which is introduced and prohibit the Member States from quantified by the public administration" imposing on their domestic products

taxation in excess of that borne by may not be regarded as covering a imported products. charge arising from the selling price fixed by the Spirits Monopoly Administration for monopoly spirit used In that connection it should not be in the manufacture of such a product, forgotten that the spirits sold by the where that charge is not precisely Administration which are used in the quantified. manufacture of blended spirit contribute by means of the margin contained in the selling price to the Administration's costs Such a charge is to be regarded as to an extent which is not precisely ascer­ taxation within the meaning aforesaid in tained. The spirit which is not subject so far as concerns that part of the selling to the obligation to sell to the price which the Spirits Monopoly Administration, for its part, is exempt Administration is bound under statutory from part of the costs contained in the provisions to remit to the State Treasury price margin since it is not marketed by as a tax on spirits. The part of the selling the Administration. Imported ethyl price which is retained by the Spirits alcohol is in the same situation since it is Monopoly Administration to cover its neither purchased nor sold by the costs is not to be regarded as such monopoly. Consequently it seems justi­ taxation, in so far as that part is not fiable only to impose a level of taxation precisely quantified. on imported ethyl alcohol equivalent to the spirits surcharge margin imposed on spirit which is not subject to the If the legislative provisions on the obligation to sell; it seems appropriate taxation of domestic products provide that a Member State which operates a that products which are not purchased spirits monopoly and in so doing does and sold by the Spirits Monopoly not clearly disclose in the monopoly's Administration are subject to a tax which selling prices the charge for the costs of is precisely quantified and is intended to operating the monopoly, should apply in cover the costs of the Spirits Monopoly the case of imported products the rules Administration, taxation of an equivalent which it laid down for the other category amount may be imposed on an imported of spirit not sold by the monopoly product. administration. The comparison of charges required by the first paragraph of Article 95 must in this case be made between the tax imposed on imported III — Oral procedure spirit and that borne by spirit which is not subject to the obligation to sell to the monopoly. At the sitting on 17 September 1982 oral arguments were presented and answers to questions asked by the Court were given by the following: Mr Miiller- The reply to the question put Kemler, for Hermann C. Andresen GmbH & Co KG, the respondent in the main proceedings, and Mr Zimmermann, The question raised by the Bundes­ for the Commission. finanzhof should be answered as follows:

2 It emerges from the order for reference and from the documents before the Court that on 12 January 1976 the respondent in the main proceedings requested customs clearance for home use for a consignment of blended spirit from Belgium consisting of 90% neutral spirit, comparable to German monopoly spirit, and 10% spirit derived from wine. It should be noted that at the present stage of the proceedings the tax imposed on the latter constituent is not at issue and that the dispute is confined to the tax charged on the constituent corresponding to domestic monopoly spirit.

HAUPTZOLLAMT FLENSBURG ν ANDRESEN

3 It must be recalled that at the time when the product in question was imported, imported spirits were subject to a tax referred to as the "Monopolausgleich" [monopoly equalization duty], which was composed of two elements, namely, the equivalent of the tax on spirits amounting to DM 1 500 per hectolitre and the Monopolausgleichspitze amounting to DM 80 per hectolitre. The latter element of the tax charge was the equivalent, in the calculation of the selling price of monopoly spirit, of the Preisspitze [price margin], which was obtained by deducting from the monopoly's selling price of D M 1 833 per hectolitre the amount of the tax on spirits and the "basic price" of the spirit fixed by the Administration at DM 253 per hectolitre.

4 Andresen contests the compatibility with Article 95 of the Treaty of levying the Monopolausgleichspitze on imported spirits on the ground that that charge was the equivalent of an element included in the calculation of the monopoly's selling price, namely the Preisspitze, which in fact was not of a fiscal nature but represented the monopoly's administrative costs and other economic charges.

8 The Bundesfinanzhof draws attention to the fact that under the system applicable to domestic spirit which is not sold to the monopoly and is subject to a charge referred to as the "Branntweinaufschlag" [spirits surcharge], that charge is reduced by a fixed rate deduction, amounting at the time to DM 31 per hectolitre, in order to take account of the costs which the monopoly saves in the case of spirits exempt from the requirement to deliver to it. The Bundesfinanzhof does not rule out the possibility that that system may possibly serve as a basis for determining the system applicable to imported spirits.

9 In order to resolve those problems, the Bundesfinanzhof referred to the Court the following two questions :

"Does the expression 'taxation imposed on a similar domestic product', within the meaning of the first paragraph of Article 95 of the Treaty establishing the European Economic Community cover a charge arising from the selling price fixed by the Spirits Monopoly Administration for monopoly spirit used in the manufacture of such a product?

Is such a charge to be regarded as taxation within that meaning only in so far as concerns that part of the selling price which the Spirits Monopoly Administration is bound under statutory provisions to remit to the State Treasury as a tax on spirits, or does that part of the selling price which is retained by the Spirits Monopoly Administration to cover its cost also constitute such taxation?"

10 During the procedure before the Court the respondent in the main proceedings maintained that since the Preisspitze included in the calculation

1 1 The respondent's view was initially supported by the Commission, which stated that only elements which were unquestionably of a fiscal nature could be taken into account for the purpose of comparing the taxation imposed respectively on the national and imported products. Whereas the fiscal nature of the Monopolausgleich, including the Monopolausgleichspitze, is undeniable, the composition of the monopoly's total selling price is difficult to analyse. Of the elements making up that price, only the tax itself is undoubtedly of a fiscal nature. In the case of the Preisspitze, however, any fiscal components are intermingled with those arising from the commercial administration of the monopoly. At that stage the Commission took the view that, in the interest of the clarity required for the application of the provisions of the Treaty, a fiscal charge might not be equated for the purpose of the comparison of charges under Article 95 with a component of the monopoly's selling price whose nature, fiscal or other, could not be determined with certainty.

15 In order to make that comparison, it is necessary to analyse the structure of the monopoly's selling price as based on the scheme of the German legislation. It is clear from that legislation that in the computation of that price only the tax on spirits itself is unquestionably of a fiscal nature. The other two elements making up the price, namely the basic price and the Preisspitze, are fixed at the discretion of the Administration; under that method of calculation, the basic figure is constituted by the total selling price, so that the element referred to as the "Preisspitze" is determined by deducting from that total price the sum of the tax on spirits and the basic price. It thus becomes evident that the Preisspitze is in fact merely a residual amount which is inextricably involved in the determination by the monopoly of the total selling price and the basic price. The basic price is in turn an average price based on a fixed estimate.

16 It follows that the Preisspitze is necessarily a varying amount of indeterminate composition covering all aspects of the monopoly's commercial administration; however, it is not possible to determine the extent to which it is an element equalizing the prices paid to producers, what proportion thereof covers the administrative, management and marketing costs of the monopoly and what proportion represents a possible profit, which alone may be of a fiscal nature since it is remitted to the State Treasury.

HAUPTZOLLAMT FLENSBURG ν ANDRESEN

19 In view of the monopoly's discretion in fixing its prices, that is the only solution which will guarantee that the comparison of fiscal charges which is central to Article 95 is not distorted to the detriment of imported products by the impact on the level of taxation imposed on those products of non-fiscal charges, particularly economic charges, borne by the monopoly.

20 Consequently, the reply which must be given to the questions raised by the Bundesfinanzhof is that the term "taxation", contained in Article 95 of the Treaty, must be regarded as covering, in so far as the selling price for spirits fixed by a national monopoly is concerned, only that part of the price which the monopoly is required by law to remit to the State Treasury as a tax on

JUDGMENT OF 25. 11. 1981 — CASE 4/81

spirits, determined as to amount, to the exclusion of all other elements or charges, economic or other, included in the calculation of the monopoly selling price.

Costs

21 The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

A. Van Houtte O. Due Registrar President of the Second Chamber