C-196/85

OPINION OF SIR GORDON SLYNN — CASE 196/85

O P I N I O N OF ADVOCATE GENERAL SIR G O R D O N SLYNN delivered on 27 January 1987

My Lords, the lower tax to quality liqueur wines produced in specified regions of the Community (Article 417 bis of the Code, introduced by Article 37 of the Finance Law In this application the Commission asks the for 1982). The benefit was, however, Court to declare that by establishing and confined to wines, maintaining a system of differential taxation in respect of wines known as 'natural sweet wines' France has failed to fulfil its obli-, gations under Article 95 of the EEC Treaty. 'the production of which is traditional and customary and which, being subject to controls affording guarantees equivalent to those required of natural sweet wines as 'Natural sweet wines', as currently defined regards the conditions of their production in Article 416 of the French General Tax and their marketing, have the following Code, have received a more favourable tax characteristics : treatment in France than other dessert wines (in Regulation No 337/79 called 'liqueur wines' (Official Journal 1979, L 54, p. 1] or similar sweet wines since the enactment of a law of 13 August 1898. The current are produced directly by producer-growers tax differential is substantial — FF 6 795 from their crops, at least 90% of which consumption duty per hectolitre of alcohol consist of aromatic grape varieties; contained in the product plus FF 22 per hectolitre circulation duty on liqueur and other sweet wines (Articles 403 (I) (3) and 438 (1) of the Code); FF 2 545 per are obtained from vineyards whose yield hectolitre of alcohol added in the course of does not exceed 40 hectolitres per hectare preparation by way of consumption duty of vines in production; plus FF 54.80 per hectolitre by way of circulation duty in respect of natural sweet wines (Articles 403 (I) (1) and 438 (1) of the Code). are obtained from must whose initial natural sugar content is at least 252 grams per litre;

(ii) 4 0 % of the total alcoholic strength by In earlier decisions the Court has volume of the finished product, repre- recognized that where harmonization or sented by the aggregate of the actual unification has not taken place, Member alcoholic strength plus the equivalent Sutes are not prohibited from granting tax of the potential alcoholic strength advantages, in the form of exemptions from calculated on the basis that 1% of pure or reduction of duties, to certain types of aleo' i by volume corresponds to 17.5 goods or to certain classes of producers (e. grams of residual sugar per litre; g. Case 148/77 Hansen v Hauptzollamt Flensburg [1978] ECR 1787, a case concerning spirits where the Court said: are transported together with special accom- 'Indeed, tax advantages of this kind may serve legitimate economic or social panying documents.' purposes, such as the use of certain raw materials by the distilling industry, the continued production of particular spirits of As a result the Commission in these high quality, or the continuance of certain proceedings, registered at the Court on 25 classes of undertakings such as agricultural June 1985, did not challenge the principle distilleries' (paragraph 16)). In Case 169/78 that natural sweet wines can receive a pref- Commission v Italy [1980] ECR 385, the erential tax treatment. It contended, Court added: 'It is necessary to emphasize however, that three of the conditions that it was acknowledged that those imposed were restrictive so that dessert practices were lawful in particular so as to wines from other Member States similar to enable productions or undertakings to these natural sweet wines from France, were continue which would no longer be still at a disadvantage. One of the profitable without these special tax benefits conditions challenged was that imported because of the rise in production costs' wines must circulate 'together with special (paragraph 16). (See also Case 26/80 accompanying documents'. In the course of Schneider Import v Hauptzolkmt Mainz the proceedings that requirement was [1980] ECR 3469.) removed by Article 64-VI of the Finance Law for 1986 adopted on 30 December 1985. The Court is thus now concerned only with two matters: On the other hand those cases and the Court's recent judgments of 4 March 1986 in Case 106/84 Commission v Denmark [1986] ECR 833 and Case 243/84 John (i) the requirement that the product should Walker & Sons Limited v Ministeriet for come from a region where its Skatter og Afgifter [1986] ECR 875 stress production 'is traditional and that any preferential treatment must not be customary" ; discriminatory against similar goods from other Member States or protective of local production in such a way as to create (ii) the requirement that such wines are barriers to the free movement of goods 'subject to controls affording guarantees between Member States. Such differen- equivalent to those required of natural tiation 'on the basis of objective criteria

such as the nature of the raw materials used should be admitted on the same tax basis is or the production processes employed' is accepted. In fact sweet wine from Samos is 'compatible with Community law if it imported into France in substantial quan- pursues objectives of economic policy which tities— in 1986 it was estimated that some are themselves compatible with the 38 000 hectolitres would be imported. requirements of the Treaty and its secondary legislation, and if the detailed rules are such as to avoid any form of discrimination, direct or indirect, in regard to imports from other Member States or any form of protection of competing domestic Thus far the arguments of the French products' (paragraph 20 of Case 106/84). Government are to be accepted. Whether it is also justified to require the production of natural sweet wines in other Member States to be 'traditional and customary' raises a more difficult question. This, it is said, is designed to include those areas which The explanation given for the tax satisfy the other conditions laid down in so differential in the present case is that the far as concerns France. It is, however, natural sweet wines in question are made in clearly restrictive and places at a disad- areas of low rainfall and relatively poor soil, vantage natural sweet wines which come where, since other agricultural products from an area where production has recently cannot easily be grown, the local economy begun or, perhaps, which is produced by is heavily dependent on their production. It means of newly-developed techniques, even is said that the restrictions as to yield per if they satisfy all the other conditions laid hectare, minimum sugar content and as to down. Moreover, there is force in the the maximum amount of alcohol which may Commission's argument that 'traditional and be added to the grape must are designed to customary* is not a wholly objective ground include wines from these areas, but to in itself but gives a flexible yardstick capable exclude other wines where the vines have a of being used in a restrictive and discrimi- higher yield and are grown in areas with a natory way. Recognizing these difficulties higher rainfall and better soil, such as the French Government's expert stressed Pineau des Charentes, itself a sweet wine. that the crucial requirements were yield per hectare, sugar and alcohol content rather than 'traditional and customary* production. The fact remains that this requirement is still part of the legislation. • The objective of protecting wine producers in these areas on social and economic grounds seems to me to fall squarely within the principles laid down by the Court and to permit a tax differential between these 'natural sweet wines' and other French The 'traditional and customar/ test is, it wines. seems, perfectly valid for France where the areas which need protection on justifiable social and economic grounds and which make wines which have a high sugar content, and which come from vines with a low yield, have a traditional and customary Moreover, the principle that wines of a production. None the less, why should not similar kind from other Member States wines imported into France which have the

same sugar content, coming from vines with be that the requirement of 'traditional and the same low yield, growing in areas where customary* production was a disguised form production cannot be maintained without of protection or discrimination. That has aid or the benefit of a tax reduction, not not been shown and, despite the difficulties have the same tax advantage in France, even indicated as to the 'traditional and if their production is not traditional and customary" test, it seems to me that the customary? If, in another Member State, arrangements applicable to domestic enterprising people with no other ready production and to imports are in this respect means of income begin to grow vines in an considered as equivalent and the area having similar characteristics to those Commission's first ground should be in the districts of France in question and rejected. produce wines of identical or similar quality, it may be asked why their wine should not be treated in the same way as the French natural sweet wines in question.

It seems, which qualifies so that wine makers in new however, plain that France did require the vine-growing areas and producing wines necessary proof to come from the Greek with comparable physical characteristics national authorities as the administrative would not benefit from the lower tax. The instruction issued within the Direction same is true of producers in other Member générale des impôts on 13 August 1982 States. If it had been shown here that the indicates, namely: 'Sur demande des areas with customary and traditional autorités grecques et après avoir été mis en production in France were the only areas in mesure par celles-ci de réunir tous les the Community which could possibly benefit éléments d'information indispensables, une from the tax advantage, then it might well décision du ministre, prise le 1er juin 1982

Although it js said that once this authori- zation was given, subsequent shipments of identical wine would not require the same procedures, it seems to me that to require It is obviously a matter of administrative proof from national authorities goes too far. convenience to lay down strict and clear Assuming that it is permissible to lay down rules as to national controls and national standards as to sugar content, alcohol level certification. In the ultimate analysis, and yield, both for French and imported however, what matters is that similar wines wines, and to give the tax benefits to from comparable regions should have the regions in need of economic support, the like tax treatment, the object of Article 95 French authorities are entitled to require being to 'guarantee the complete neutrality evidence that such conditions are satisfied, of internal taxation as regards competition 'without being able none the less to set a between domestic products and imported higher standard of proof than is necessary' products' (Case 169/78 Commission v Italy (Case 21/79 supra at paragraph 21). In that [1980] ECR 385 at 399, paragraph 4). More judgment the Court, however, whilst flexible rules may cause difficulties of proof accepting that evidence could be required in (as was recognized in the judgment in Case a form that removes the risk of tax evasion, 21/79) but these must be accepted if the cited 'certificates from the authorities or realities are to be given effect. other appropriate bodies of the exporting Member State' merely as examples of the way in which the fulfilment of the conditions can be proved. The judgment does not say that certification by govern- mental authorities can always be required. In my view, accordingly, the French Accordingly, other methods of proof may requirements of equivalent supervision are be sufficient, and if sufficient, must be capable of being unduly restrictive even if in accepted. If the importer or exporter can fact no comparable wines have so far been produce such evidence, independent of refused the tax benefit. On this point I national certification, that should be consider that the Commission succeeds. enough.

litre'. It seems to me to be legitimate to produces from less land a comparable impose a minimum sugar content for the quality to that produced by the smaller wines qualifying for the tax benefit. The French wine producers. The same economic specific requirement does not, however, protection is needed. If the French legis- exclude wines which have a higher sugar lation gave the tax benefits on the basis of content and which may come from other actual production then it would seem justi- Mediterranean countries with more sun. fiable to apply the same limits to producers The other limitation is that the yield must in other Member States. Member States are not exceed 40 hectolitres per hectare of not required by Article 95 'to extend the vines in production. The reason for this same advantage to imports coming from limitation is said to be that the lower the undertakings whose production exceeds the yield the higher the sugar content. It is, production limit thus fixed' (Case 26/80 however, not improbable that in other supra at p. 3488) so long at any rate as Member States climatic conditions, conditions are not imposed which a particularly the amount of rain and sun, 'production unit situated in another may produce a higher yield per hectare and Member State cannot fulfil by reason of its yet give naturally wines of the same sugar geographical situation or of the legislation content, the same quality and the same on production' in force in the other natural alcohol content. Prima facie, these Member State (Case 26/80 and Case wines are thus objectively the same and 153/80 Rumhaus Hansen v Hauptzollamt should receive the same tax treatment as Flensburg [1981] ECR 1165). To fix the French natural sweet wines. It is said in limits according to yield per hectare seems reply that a high yield means that the to me,Jiowever, to be a different matter and producer is not in the same need of to be capable of producing discrimination protection economically. That seems to me against other Member States since it is to be a non sequitur. It may well be that in geared peculiarly to protect French yields in some countries the normal size of land the relevant areas. I do not, however, read holdings is smaller than in France and that the application (or the reply) as directly the small farmer with a higher yield raising this issue.