C-297/82

defendant,

on the interpretation of Title II of the EEC Treaty ("Agriculture"), especially Articles 39 and 40 and the measures adopted in pursuance of the Treaty, so that it may decide whether the Loven om Grundskyld til Staten af Landbrugsejendomme [Law on the land tax payable to the State in respect of agricultural property] is compatible with Community law,

THE COURT (Fifth Chamber),

composed of: Y. Galmot, President of Chamber, Lord Mackenzie Stuart, O. Due, U. Everling and C. Kakouris, Judges,

Advocate General: P. VerLoren van Themaat Registrar: H . A. Rühl, Principal Administrator

gives the following

The outlines of that plan were defined in Against that background and at the a statement issued on 3 December 1979. request of the Danish Government, on 3 December 1979 the Council devalued The statement emphasized that an by 4.63% the representative rate of the attempt had to be made to bring about a Danish krone against the ECU, thus progressive reduction in the adverse bringing about a "green devaluation", balance of payments and to improve the by means of Council Regulation (EEC) employment position. No 2717/79 (Official Journal L 309, of 5 December 1979, p. 1). A further objective of the plan was that In the recitals in the preamble to that growth in income for all sectors of regulation it is stated inter alia that the society should be checked and that the regulation is intended to avoid the burdens thereby imposed upon the popu­ introduction of monetary compensatory lation should be fairly apportioned. amounts in Denmark.

2. Most of the measures proposed in 4. The devaluation ought in normal the statement were implemented in the circumstances to have brought about form of laws in the course of December a significant increase in income for 1979 (a freeze on prices, profit margins, the Danish agricultural sector (DKR fees, dividends, rents and so forth and 800 000 000 before deduction of income restrictions on increases in salaries). At tax). the same time a series of tax laws was amended in order to ensure that the 5. In order to offset that increase in necessary sacrifices were apportioned income the Government, within the equitably (wealth tax and a reduction in framework of the above-mentioned gen-

6. The tax, which entered into force 2. By order of 19 November 1982 the only in the course of 1980, was assessed Fourth Chamber of the Østre Landsret on the following basis: the value of stayed the proceedings and decided to property determined on the basis of a refer to the Court of Justice the general appraisal of the commercial value following preliminary question : of the land, without taking into account the amount or nature of the agricultural "Must the EEC Treaty, in particular production actually obtained from it. Part Two , Title II, 'Agriculture', especially Articles 39 and 40 and the measures adopted in pursuance of the The Land-tax Law entailed, with regard Treaty, be interpreted as preventing a to land and buildings, a temporary Member State from effecting a increase in the land tax already existing temporary increase in taxation based on for the benefit of the local authorities, the value of agricultural property when the increase being for the benefit of the that increase is directly linked to a de­ State. valuation of the Member State's 'green currency' effected by the Council and when the purpose of the increase in taxation is to appropriate for the benefit B — Procedure of the Treasury a considerable portion of the increase in income which the devalu­ ation brings to agricultural producers as 1. On 21 December 1979 the Land­ part of a general plan for the economy brugsråd [Agricultural Council] referred which affects most sectors of the popu­ the matter to the Commission of the lation?" European Communities, which replied by letter of 13 June 1980 that it was of the opinion that the Land-tax Law was The order making the reference was not incompatible with Community law; received at the Court Registry on 24 proceedings were then instituted before November 1982. the Østre Landsret by the Samvirkende Danske Landboforeninger [Federation of In accordance with Article 20 of the Danish Farmer's Associations, herein­ Protocol on the Statute of the Court of

1. It concedes that the right to impose taxation falls within the powers of the Upon hearing the report of the Judge- Member States. Nevertheless it claims Rapporteur and the views of the that, since the power to deal with Advocate General the Court decided to essential matters relating to agriculture open the oral procedure without any has been transferred to the European preparatory inquiry. Community, this case is concerned with delimiting the powers of the Member States and those of the Community, and that the power of the Member States Pursuant to Article 95 (1) and (2) of the must be exercised in general, and in Rules of Procedure the Court, by order particular in matters of taxation, in such dated 18 May 1983, decided to assign a way that the effects of Community the case to the Fifth Chamber. measures are not substantially reduced, or indeed entirely neutralized, by the decisions of the Member States.

II — Written observations lodged with the Court 2. The Federation claims that the circumstances to which the judgment of the Court of 10 March 1981 in Joined Cases 36 and 71/80 Irish Creamery Milk A — Observations of the Federation Suppliers Association v Ireland [1981] ECR 735 are entirely different from those in this case, which concerns a tax to be borne by the agricultural sector the The plaintiff in the main proceedings avowed aim of which at the outset was summarized, on the one hand, its to eliminate entirely, and subsequently

JUDGMENT OF 26. 10. 1983 — CASE 297/82

The Federation deduces from the foregoing that, after the devaluation of 3. The plaintiff in the main proceedings the "green krone" and the introduction states that even though it is impossible to of the tax on agricultural property, prove that the land tax has affected Danish agriculture has remained in production, it is certain that that tax, approximately the same position as it was which led in 1980 to a reduction of 10% before the devaluation, that consumers in income in the agricultural sector, has have been obliged to pay higher prices affected production in that State and the for foodstuffs and that the income of the operation of the common organizations European Community has been reduced. of the agricultural markets. Such a tax in fact affects the liquidity position of farmers, the use of their resources and their ability to compete and also the distribution of production areas within the common market. The reduction in The sole beneficiary of the devaluation income in the agricultural sector must be has been the Danish Treasury. The regarded as affecting the objectives and Federation concludes from this that the functioning of the market organizations. Danish State has improperly changed the Although the tax was charged for one effect of one of the legal instruments, year only it had an adverse effect on the employed by the Community in order to decisions taken by farmers and, in attain the objectives of the common agri­ particular, has lowered the level of cultural policy and its decision to do so investment to improve the operation of is vitiated by reason of its lack of powers farms in Denmark. and its misure of powers.

6. In the sixth place, the plaintiff in the Furthermore, in order to be compatible main proceedings seeks to refute the with Community law, that measure argument of the Danish Government should have been strictly proportionate that the tax in question constituted a to the objective in view, the circum­ stage in the implementation of a general stances being such that it could not be economic plan in which all sectors of attained by measures less harmful to the society, including farmers, were invited Community legal order. to participate.

The Federation claims that the Danish In that connection, the lack of powers by Government has not been able at any which the decision of the Danish time in the proceedings to establish that Government is vitiated is not in any way these requirements were met. On the remedied by that fact, as is shown by contrary, the tax on agricultural property previous decisions of the Court of Justice was in fact only a fairly modest part of (Case 51/74 Van der Hulst's Zonen v the plan as a whole and it would have

JUDGMENT OF 26. 10. 1983 — CASE 297/82

SAMVIRKENDE DANSKE LANDBOFORENINGER v MINISTRY OF FISCAL AFFAIRS

the Danish Government, that the B — Observations of the Danish question submitted to the Court of Government and of the Minister for Justice has already been settled in Joined Fiscal Affairs, the defendant in the Cases 36 and 71/80 of 10 March 1981, main proceedings cited above. It claims that, even though in this case the Danish land tax has not had a direct effect on the formation of prices or the operation of the markets, it The Danish Government first analyses has encroached upon the very legislative the origins of the case and examines the activity of the Community and accord­ legislative background to the Land-tax ingly it must be regarded as contrary to Law, and then submits the following Community law, without the need to observations. ascertain wehther or not it has affected the machinery of the market. 1. Initial remarks

JUDGMENT OF 26. 10. 1983 — CASE 297/82

secondary legislation adopted in relation cases, the legislation at issue was to agriculture intended to remove by means of taxation the advantages obtained by farmers through the organizations of the 2. Observations on the substance of the markets, the taxes in question formed case part of a general incomes policy and it was also -submitted that, when common rules have been established in a given 1. The Danish Government claims in agricultural sector, the Member States the first place that none of the provisions are obliged to refrain from any measure of the Treaty concerning agriculture, in which might adversely affect those rules. particular Articles 39, 40 and 41, provides grounds for concluding that the Member States do not have power to 4. The Danish Government claims in decide to what extent they may tax agri­ the fourth place that it is impossible to cultural property or whether farmers, as deduce from the fact that the devaluation opposed to other social groups, should of the "green" krone and the intro­ be exempt from changes in their tax duction of the land tax occurred at the position. same time and were in fact related that the land tax is contrary to Community law. On the contrary Article 39 (2) (c) provides that ". . . agriculture constitutes a sector closely linked with the economy The Danish Government describes how as a whole". the system of monetary compensatory amounts operates and emphasizes that, in its opinion, such a system is not 2. In the second place the Danish desirable in itself. Consequently the Government is of the opinion that it is constant endeavour of Denmark to unnecessary to consider the position of ensure that the central rate of the Danish each of the organizations of the market krone corresponds to the agricultural if, as it has stated above, the parties conversion rate against the European concur in the view that the State land tax currency unit is strictly in accordance does not in any way affect the formation with the principle underlying the of prices or other market conditions. common agricultural policy.

The Danish Government adds that both 1. With regard to the limits of the the devaluation and the introduction of a powers conferred upon the Community land tax constituted measures which institutions, the French Government were justified in themselves and that no emphasizes that the general scheme of legal significance may be attached to the the Treaty is based on the transfer of fact that they occurred at the same time. powers by the Member States, that the powers of the Community must not be presumed and that they may not exceed the limits placed upon them by the In conclusion, the Danish Government Member States in the Treaties. suggests that the Court should give the following reply to the question: "The provisions of Community law, and in particular the provisions of the Treaty According to the French Government, concerning agriculture, do not prevent a within the framework of the common Member State from introducing a tax policies the same principle must apply to such as that provided for in law No 541 fields covered by such policies for which of 28 December 1979 even if the intro­ common rules have not been adopted duction of that law, which forms part of and which must consequently be a general economic plan, was directly governed by national provisions. related to a devaluation of the 'green' currency effected by the Council and even if the objective of that tax is to deprive farmers of a considerable portion In this case it is clear that powers of the increase in income which they concerning land taxes continue to be derive from the devaluation". exercised by the Member States and that there are no legal grounds for prohibiting a Member State from intro­ ducing a tax assessed on the value of agricultural land in the absence of any C — Observations of the French Govern- express provisions or appropriate har­ ment monization.

If these two criteria are applied to the land tax introduced by the Danish State it may be inferred that the measure at 1. Apart from obligations flowing from issue is lawful. certain unequivocal provisions of Com­ munity law, the sovereignty of the Member States in tax matters is undeniable and they have power to As regards the background to the tax at introduce internal taxation, whether issue, it is clear in this case that it forms direct or indirect, on agricultural part of a general economic-policy products or the income of farmers. programme, that agriculture constitutes a sector closely linked to the economy as a whole and that, as the Court has already The common agricultural policy and the stated, "the common agricultural policy common organizations of the markets do is not intended, therefore, to shield those not preclude the adoption of national engaged in agriculture from the effects incomes policies intended to share the of a national incomes policy." burden of taxation amongst the various sectors of the working population, including farmers.

It is thus evident that the tax at issue was not intended to thwart the Community 2. The wording of Article 39 of the measures devaluing the "green" krone EEC Treaty provides no basis for any but formed part of a set of tax measures other conclusion since it shows that, affecting all social groups. within the framework of the common agricultural policy, an increase in the individual incomes of farmers must be For these reasons the French Govern­ brought about by structural reforms ment is of the opinion that the reply intended to increase agricultural to the question submitted should be productivity. as follows: "Community regulations adopted within the framework of common policies cannot restrict the 3. The judgment of the Court of power of the Member States to adopt Justice of 10 March 1981 cited above measures, in particular tax provisions, provides support for that view, primarily

The reply can only be in the negative Likewise it does not seem appropriate to since measures which fix or adjust the consider whether the tax at issue representative rates of the various constituted an isolated case or was currencies within the framework of the imposed within the framework of a common agricultural policy are adopted general economic policy concerning in order to ensure the proper functioning categories of persons other than farmers. of the common organizations of the markets, which is of overriding import­ ance, and not in order to protect the In fact in every case direct taxation of individual interests of persons engaged in incomes is by its nature a means of agriculture. implementing a national incomes policy intended to share the tax burden amongst the various social groups in the manner considered most appropriate, Thus, having regard to the statement of the reasons on which Regulation No 2717/79 is based and to the case-law of the Court of Justice (judgment of 8 June 6. The Italian Government also adds 1977 in Case 97/76 Merkur Außenhandel that the inclusion of the Law in question GmbH v Commission [1977] ECR 1063) in a general medium-term economic- it is clear that Regulation No 2717/79 policy plan shows even more clearly did not confer upon farmers an that it is impossible for the national inviolable right to an increase in their legislature to take the view that the income and did not intend to exclude increase in income obtained by farmers that increase in income from the proper through the devaluation of the "green" scope of national tax measures intended currency constitutes an inviolable right. to ensure that the burden of taxation was That is not the aim pursued by the shared equitably amongst all sectors of common agricultural policy, which is not society. concerned to exclude incomes in the

E — Observations submitted by the Commission 2. Nevertheless the Commission con­ siders that the question submitted by the court making the reference concerns a The Commission describes the pricing specific problem which does not appear system in the common organizations of previously to have been submitted to the the market and the agri-monetary Court: the problem arises where, provisions as in force at the time of the immediately after a devaluation by the introduction and application in Denmark Council of the "green" currency, and in of the tax at issue and then analyses relation to that devaluation, a State the legislative provisions and case-law temporarily increases a tax on agri­ concerning the relation between national cultural property with the aim of appro­ taxation and the common agricultural priating to the national Treasury a sub­ policy; its conclusions are as follows. stantial part of the increase in incomes in the agricultural sector deriving from the devaluation, within the framework of a In general national taxation is in­ general economic plan affecting most compatible with the provisions of the social groups. Treaty concerning agriculture, and in particular with the provisions relating to the common organizations of the (a) The Commission considers in markets, if it is contrary to the objectives general that such a temporary increase in of the common agricultural policy or a land tax, which is effected within the interferes with the machinery employed framework of a general economic policy, in order to attain those objectives. is not in itself incompatible with the common agricultural policy.

The Commission considers that the 3. With regard to the arguments Member States may not enact measures advanced by the plaintiff in the main introducing special taxes or increasing proceedings to the effect that the existing taxes which have as their express purpose of the national Law was to object or effect the absorption of the neutralize the effects of a Community increase in income of agricultural measure, the Commission replies that producers resulting from a decision there could be no question of a adopted by the Community. measure's being neutralized unless agri­ cultural producers had been deprived, to Nevertheless the Commission has arrived a greater or lesser degree, of any net at the conclusion that a tax on the advantage resulting from the devaluation income of agricultural producers, such as of the "green" rate, that is to say of the that with which the main proceedings are increase in terms of Danish kroner in the concerned, is not incompatible with the prices fixed by the Community. common agricultural policy.

In this case, the land tax in question did In fact the common organizations of the not prevent the variation of prices markets are not intended to guarantee to according to supply and demand, within agricultural producers a net price which the limits fixed by the Community and is free of any taxation imposed by the its effects, linked with the partial national authorities, or a fortiori to absorption of earnings obtained by agri­ guarantee them a specific net income. cultural producers from the sale of their products, did not come into play until Furthermore the Council regulations on after the law of supply and demand and the adjustment of the "green" rates of the common price system had produced exchange are likewise not intended to their effects. protect the interests of agricultural producers.

That conclusion is not incompatible with lation, a substantial part of the increase the judgment of the Court of 25 May in income from agriculture resulting 1977 in Case 77/76 Cucchi v Avez, cited from a change in the rate of exchange above, since a land tax, such as that with used for implementation of the common which the main proceedings are agricultural policy is not in principle concerned, in fact has no effect on the incompatible either with the provisions machinery of price formation. of the EEC Treaty concerning agri­ cultural policy or with the provisions Furthermore, according to the Com­ concerning the common organizations of mission, various characteristics of the the markets. It would, however, be contested tax indicate that it should be necessary to adjudge the increase in the regarded as compatible with the common land tax in question to be incompatible agricultural policy: its temporary nature, with the above-mentioned provisions if the absence of any direct link between its effect was to hinder the functioning the amount of the tax and the increase in of the machinery of the common organ­ the income of each producer resulting izations of the markets and if it involved from the devaluation, and so forth. On changes, in particular in the structure of the other hand an increase in a tax agricultural production, of such a nature on agricultural property might be as to cause distortion of the markets." incompatible with the common agri­ cultural policy if its extent and duration brought about changes in the structure III — Oral procedure of agricultural production or distorted several markets. At the sitting on 6 July 1983 oral However, since that is not the position in argument was presented by the follow­ this case the Commission proposes that ing: A. Philip, for the Samvirkende the reply to the question submitted by Danske Landboforeninger; M. Gregers the court making the reference should be Larsen, for the Danish Ministry of Fiscal as follows: "A temporary increase in a Affairs and the Danish Government; tax on agricultural property which is B. Botte, for the French Government; intended to appropriate for the benefit M. Conti, for the Italian Government; of the national Treasury, within the and H . P. Hartvig, for the Commission. framework of a general economic plan The Advocate General delivered his which affects most sectors of the popu­ opinion at the sitting on 5 October 1983.

2 The tax measure in question was adopted in the following circumstances: at the end of 1979, the Danish Government adopted an economic programme which, in order to reduce the adverse balance of payments and to improve the employment situation, provided in particular for the growth in income for all sectors of society to be checked and for the burdens thereby imposed upon the population to be fairly shared. Since the devaluation of the Danish krone formed an essential part of that plan, devaluation was effected on 30 November 1979 to the extent of 4.76% against the other currencies in the European Monetaiy Systems. However, the Danish Government wished the central rate for the Danish krone to correspond to the agricultural conversion rate in relation to the European currency unit [ECU], in order to avoid the introduction of monetary compensatory amounts. Therefore on 3 December 1979 the Council, at the request of the Danish Government, devalued the representative rate of the Danish krone by 4.63% against the ECU in the agricultural sector (Council Regulation No 2717/79, Official Journal, L 309, p. 1).

3 That devaluation resulted in an increase in agricultural prices expressed in Danish kroner, which ought under normal circumstances to have brought about a significant increase in income for Danish agriculture. In order to offset that increase in income, which was regarded as inconsistent with the provisions of the above-mentioned programme, the Danish Government submitted on 4 December 1979 a draft Law concerning land tax on agri­ cultural property. The Law was adopted by the Folketing [Danish Par­ liament] on 21 December 1979, confirmed on 28 December 1979 and promulgated as Law No 541.

7 It is clear from the order for reference that the proceeds of the tax were paid into the Treasury without being assigned to any specific purpose, and it is common ground between the parties that the tax did not affect price formation, the free movement of goods or indeed the quantity of products available on the market and that it did not have the effect of a customs duty or a charge having equivalent effect. It follows that the compatibility with Community law of the tax measure in question must be assessed solely by reference to Articles 39 to 43 of the Treaty and to the common general principles which govern the organization of the markets.

8 Although the parties to the main action express different opinions as to the precise reasons for which the Danish Government introduced the tax measure in question and as to the exact effects of that measure, they are agreed that it is part of an income policy intended to apportion the tax

SAMVIRKENDE DANSKE LANDBOFORENINGER v MINISTRY OF FISCAL AFFAIRS

10 That argument cannot be accepted. Indeed it is clear from the preamble to the Council regulation of 3 December 1979 that it was adopted not in order to ensure higher net income for Danish farmers, but solely in order to avoid the introduction in Denmark of monetary compensatory amounts. That aim was in no way affected by the introduction of the contested land tax.

JUDGMENT OF 26. 10. 1983 — CASE 297/82

Moreover, as the Commission correctly observes, there could be no real neutralization of the effect of the Council regulation unless the increase in agricultural prices expressed in Danish kroner and resulting from that regu­ lation could not be achieved. The land tax introduced by Law No 541 clearly did not have that result: its effect was solely to absorb part of the revenue obtained by agricultural producers from the sale of their products, after the law of supply and demand and the common price system had taken normal effect.

11 Nevertheless, the methods used to implement a national incomes policy which includes, among other persons, agricultural producers would be incompatible with the Treaty and with the rules on the common organization of markets if those methods interfered with the functioning of the machinery employed by those organizations in order to achieve their ends. The real problem posed by the land tax in question in relation to those rules is therefore whether that land tax produced such effect.

12 As the Court ruled in its judgment of 10 March 1981, cited above, it is for the national court to decide whether the tax of which it is required to take cognizance has in fact had effects which obstruct the working of the machinery established by the common organizations of markets. With a view to the decision which has to be made in that respect by the national court it is, however, possible to identify certain features of Community law and to deduce certain criteria for assessment.

17 On those grounds, the question should be answered as follows:

A temporary increase in the land tax in respect of agricultural property, which is intended to appropriate to the national Treasury, in the framework of a general programme for the economy affecting most sectors of the popu­ lation, a considerable portion of the increase in agricultural income resulting from a change in the rate of exchange used for the implementation of the common agricultural policy, is not in itself incompatible either with the provisions of the EEC Treaty on agricultural policy or with the provisions on the common organization of the markets, even if the introduction of the tax is closely linked to that change in the rate of exchange.

Such incompatibility would, however, exist to the extent to which the increase in the land tax had the effect in particular, either as a result of its influence on price formation or through the change in the structure of agri­ cultural holdings which might result therefrom, in particular of impeding the functioning of the machinery provided for under the common organization of the market.

JUDGMENT OF 26. 10. 1983 — CASE 297/82

It is for the national court to decide whether, and if so to what extent, the tax of which it is required to take cognizance did in fact have such effects.

Costs

SAMVIRKENDE DANSKE LANDBOFORENINGER v MINISTRY OF FISCAL AFFAIRS

3. It is for the national court to decide whether, and if so to what extent, the tax of which it is required to take cognizance did in fact have such effects.

Galmot Mackenzie Stuart

Due Everling Kakouris

Delivered in open court in Luxembourg on 26 October 1983.

For the Registrar