C-356/85

OPINION OF MR DA CRUZ VILAÇA —CASE 356/85

O P I N I O N OF M R ADVOCATE GENERAL DA C R U Z VILAÇA delivered on 26 February 1987 *

Mr President, application of a lower rate to beer than to Members of the Court, wine made from fresh grapes infringed the second paragraph of Article 95 of the Treaty. 1. A — In these proceedings, the Commission asks the Court to declare that 5. There was no reaction from the Belgian the Kingdom of Belgium has not fulfilled its Government and on 20 June 1984 the obligations under Article 95 of the EEC Commission sent it a letter calling on it to Treaty, in so far as it applies a higher rate submit its observations. of VAT to wines made from fresh grapes, which are imported, than to beer, which is for the most part produced in Belgium. 6. In its reply, the Belgian Government put forward a number of reasons to support its view that it was not in breach of the second 2. The Belgian legislation at issue is Arrêté paragraph of Article 95, claiming that there royal (Royal Decree) No 20 of 20 July was no proof that the difference in 1970, ' as amended by the Arretes royaux of rates — which did not reflect any wish to 25 March 1977 2 and 16 November 1982, 3 favour a domestic product at the expense of which laid down the rates of VAT and the an imported product — had in practice had manner in which such rates apply to any protective effect. products and services. 7. The Commission was not convinced by the arguments put forward by Belgium and 3. Under that legislation, beer is subject to therefore sent it a reasoned opinion, tax at the rate of 19%, whereas a rate of reiterating its view that Belgium was in 25% is applied to various beverages breach of the second paragraph of Article intended for domestic consumption, 95 of the Treaty and inviting it to take the including wine made from fresh grapes. necessary measures to comply with the opinion within one month.

10. At this stage, it should merely be function of that article, and its relationship pointed out that the Commission bases its with the provisions of the first paragraph. arguments on the view — which it derives from previous decisions of the Court — 16. For its part, Article 95, in its entirety, that, once it has been established that there cannot be viewed otherwise than in the is a competitive relationship between two context of the chapter in which it products, any difference in the rates of tax appears — specifically in relation to Article applied to the same taxable base (in this 99 — and indeed in the light of the general case, the value added) is contrary to the objectives of the Treaty. second paragraph of Article 95. 17. E — The Court has already made it 11. In the Commission's view, as a result of clear 6 that the first and second paragraphs the Court's earlier finding that there is a of Article 95 'supplement the provisions on competitive relationship between wine and the abolition of customs duties and charges beer, 5 for further evidence, that the having equivalent effect', since their aim is difference in the rates applied to the two 'to ensure free movement of goods between products in Belgium infringes the second Member States in normal conditions of paragraph of Article 95, and the extent competition by the elimination of all forms of the difference merely provides a basis of protection which may result from the for assessing the seriousness of the application of internal taxation which infringement. discriminates against products from other Member States'. 12. In Belgium's view, on the other hand, if the second paragraph of Article 95, as 18. Summarizing, the Court stated that opposed to the first paragraph thereof, is to Article 95 is intended to 'guarantee the be applied, a further condition must be complete neutrality of internal taxation as fulfilled, namely that the difference in tax regards competition between domestic must be likely to afford protection to products and imported products'. domestically produced products which are in competition with the imported products. 19. There is no doubt of course, at the present stage of development of Community 13. However, in this case, the difference law, as to 'the freedom of each Member in VAT rates as between wine and State to lay down tax arrangements which beer — which affects only a proportion of differentiate between certain products on the quantity of those products consumed — the basis of objective criteria, such as the is not likely significantly to influence the nature of the raw materials used or the sale price or, therefore, consumers' choices. production processes employed'. 7

20. In fact, such differentiation 'is prohibition on customs duties and charges compatible with Community law if it having an equivalent effect between the pursues objectives of economic policy which Member States in that it intends to eliminate are themselves compatible with the before any harmonization all national tax requirements of the Treaty and its practices which are likely to create discrimi- secondary legislation and if the detailed nation against imported products or to rules are such as to avoid any form of afford protection to certain domestic" discrimination, direct or indirect, in regard products'. Hence, the Court took the view to imports from other Member States or any that Articles 95 and 99 pursue different form of protection of competing domestic objectives: 'Article 95 aims to eliminate in products'. the immediate future discriminatory or protective tax practices, whilst Article 99 aims to reduce trade barriers arising from

22. As regards the relationship between first and second paragraphs respectively. Article 95 and Article 99, the Court has also already indicated the precise difference between the aims of those two provisions. 25. The first paragraph applies to similar Finding that the differences between the products, that is to say, to those which, in various national laws 'constitute an obstacle the Court's definition,12 have 'similar to the free movement of goods and to the characteristics and meet the same needs development of trade between the Member from the point of view of the consumers'. States', it considered, however, that the The Court has thus adopted a broad inter- implementation of the programme of pretation of the concept of similarity, harmonization provided for in Article 99 could not in any way constitute a 10 — Judgment of 27 February 1980 in Case 171/78 Commission preliminary to the application of Article 95 : v Denmark, supra, at p. 447, paragraph 20. that provision 'lays down a basic 11 — Judgment of 4 April 1968 in Case 27/67 Fink-Frucht v requirement which is directly linked to the Hauptzollamt München [1968] ECR 223, at p. 232. 12 —• Judgment of 17 February 1976 in Case 45/75 Rewe v Hauptzollamt Landau [1976] ECR 181, at p. 194, paragraph 12; judgments of 27 February 1980, supra; 8 — Commission v Italian Republic, supra, pp. 620-621. judgment of 4 March 1986 in Case 106/84, supra, 9 — Case 243/84 [1986] ECR 875. paragraph 12.

whereby the similarity of products is to be 30. In that connection, the Court went out assessed 'not according to whether they of its way to emphasize that 'even if there is were strictly identical, but according to no direct competition of any sort with a whether their use was similar and domestic product, such protection would comparable'. 13 still exist if it were established that the imported product bore a specific fiscal charge because of its state of manufacture 26. With regard to such products, the or distribution or because of any other conditions laid down in the first paragraph economic circumstance in such a way as to prohibit the imposition, directly or indi- protect certain activities distinct from those rectly, on the products of other Member used in the manufacture of the imported States of any internal taxation of any kind product' {Fink-Frucht [1968] ECR 232 and in excess of that imposed directly or indi-

28. For such products, that provision been established, the applicability of the prohibits any Member State from applying provision will follow from a mere arith- internal taxes to the products of other metical operation comparing the tax Member States in such a way as indirectly burdens 'whether in terms of the rate, the to protect other products. mode of assessment or other detailed rules for the application thereof'. 16 29. In other words, the second paragraph of Article 95 applies to products which, even 33. 'The prohibition applies where a tax if not similar to imported products, are mechanism is of such a nature as to impose likely to be indirectly protected by higher taxation on imported products than differential taxes, to the extent to which the on domestic products' (judgment of 27 former are in competition with the latter 'by February 1980 Commission v United reason of one or more economic uses' Kingdom supra, [1980] ECR 433, paragraph (judgment in Fink-Frucht, supra, [1968] 9)· ECR 232).

OPINION OF MR DA CRUZ VILAÇA —CASE 356/85

criterion is necessarily 'a more general the highest rate of taxation is conceived so criterion', in other words the protective as to apply only to imported products and is nature of the system of internal taxation. 17 intended to protect the corresponding It is therefore necessary to determine that a domestic products by applying appreciably particular kind of tax burden 'is capable of lower rates of tax to them'. having the effect referred to above' (judgment in Fink-Frucbt [1968] ECR 233) in order to be considered incompatible with the Treaty. 37. But these, in my opinion, are excep- tional cases in which discriminatory intent and effects are clearly in evidence.

40. The Court went on to say 21 that, in 36. In the same way, without it being order to determine the existence of a necessary to consider whether the first or competitive relationship, 'it is necessary to the second paragraph was applicable, the consider not only the present state of the Court concluded in its judgment of 11 July market but also the possibilities for devel- 1985 in Case 278/83 Commission v Italy19 opment within the context of free movement in connection with the rates of VAT of goods at the Community level and the applicable to domestic and imported further potential for the substitution of sparkling wines (in particular champagne), products for one another which may be that there was 'a manifest breach of the rule revealed by intensification of trade, so as laid down in Article 95 prohibiting tax fully to develop the complementary features discrimination', since it was 'obvious that of the economies of the Member States in the definition given by Italian legislation of accordance with the objectives laid down by the category of sparkling wines subject to Article 2 of the Treaty'.

17 — Commission v Denmark [1980], supra, paragraph 7; 20 •— Judgment of 27 February 1980 Commission v United Commission v United Kingdom [1980), supra, paragraph 9. Kingdom, supra, at p. 432, paragraph 5. 18 — Case 319/81 Commission v Italy, supra, at p. 621. 2J — Commission v United Kingdom [1980], supra, paragraph 6; 19 — Case 278/83 [1985] ECR 2503. Commission v United Kingdom [1983], supra, paragraph 7.

COMMISSION v BELGIUM

42. That is why the Court emphasized in its characteristics, to bring about the protective judgment of 12 July 1983 Commission v effect referred to by the Treaty. Withoul United Kingdom, at p. 2287, paragraph 8, therefore disregarding the importance of the that 'for the purpose of measuring the criteria which may be deduced from stat- possible degree of substitution, attention istics from which the effects of a given tax should not be confined to existing consumer system may be measured, it is impossible to habits in a Member State or in a given require the Commission to supply statistical region.

43. H — A competitive relationship having effect which is appreciable, or of a given been established between two products, it is extent, becomes irrelevant. In other words, then necessary to resolve a second problem. that does not appear to me to be a further precondition for the application of the second paragraph of Article 95, in such a 44. The second paragraph of Article 95 way that 'minor' tax differences would prohibits tax practices 'of such a nature as automatically be excluded. to afford indirect protection' to products of the importing Member State.

46. However, it must be emphasized — as the range of products covered, the compo- the Court has done 2 3 that 'the abovemen- sition thereof and their relationship with consumer habits, price differences, the 22 — See judgment of 27 February 1980 Commission v United Kingdom, stipru, at p. 433, paragraph 9. intensity of the competitive relationship, 23 — Sec judgment of 27 February 1980, supra, paragraph 10. trends in consumption and imports, and so

52. Be that as it may, the Court stated 57. I — Let us see how these conclusions expressis verbis15 with regard to the first apply to the present case. paragraph of Article 95 that the criterion 'consists in the comparison of tax burdens, whether in terms of the rate, the mode of 58. In the first place, let us examine the assessment or other detailed rules for the competitive relationship between the two application thereof'. products at issue, wine and beer.

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OPINION OF MR DA CRUZ VILAÇA —CASE 356/85

70. It would not seem to be correct to 78. However, that does not exclude the compare such beers with ordinary cheap possibility that in certain countries, as a wines, with which they are not in any result of particular consumer habits, there obvious competitive relationship — the may be a competitive relationship between difference in prices is great, but so are the products of this kind. methods by which they are produced, their gastronomic qualities, the tastes which they satisfy, the occasions on which they are 79. In any event, it is preferable, as both drunk and the classes of people by whom parties suggest ultimately, to disregard such they are consumed. qualities for the purposes of this discussion.

75. In each wine, the aroma, the colour, the 83. Belgium supports this view, stating taste and the body distinguish one year that — according to statistics provided by a from another. company which is regarded as represen- tative — sales of wines priced in excess of BFR 1 000 represent no more than 2.8% of 76. In each bottle, the temperature, light, the total value of sales (27% being position and cork are of importance. accounted for by wines costing more than BFR 200). 77. In the case of beers, the conditions for achieving excellence and the combination of 84. Moreover, as is suggested by the such conditions are very different. Belgian Government, that approach seems

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86. As far as the other wines and beers are 90. It is in that sector that most of the 'light concerned, Belgium suggests that the wines made from fresh grapes' for everyday comparison should be made essentially consumption are doubtless to be found. between Ordinary beers' and 'ordinary wines' which, in its opinion, are those whose price is between BFR 80 and 91. It does not however seem to me, as BFR 200 per litre, and which, on the basis Belgium itself concedes, that no competitive of the sample taken, account for 57.17% of relationship exists in the lower part of the the total value of sales. range. It will however be more tenuous and less well defined, particularly in view of the diversity of possible uses (as a beverage or 87. As regards wines priced at less than for culinary purposes) and the differences of BFR 80 per litre, according to the infor- presentation and packaging (for example the mation provided by the Belgian Govern- use of 5-litre plastic containers). ment, they account for 15.59% of sales, 2.28% being wines priced at less than BFR 60 and the remaining 13.31% being 92. J — Having established the competitive wines priced at between BFR 60 and 80. relationship between wine and beer, I shall now consider whether the second condition laid down in the second paragraph of 88. The wines priced at less than BFR 80 Article 95 is fulfilled. The question is (which, it appears, include wines sold in whether or not the difference in taxation is 5-litre plastic containers and wines used likely to have a protective effect favouring only for cooking) should, in the opinion of domestically produced beer. the Belgian Government, be compared with table beer (BFR 17 per litre and above) or with lager-type beers sold under 93. For that purpose, it is necessary to distributors' trade-marks (for example analyse the other relevant information Carapils, at BFR 21.5 per litre) and not with furnished during the proceedings.

94. The fact that the tax in this instance is products are most clearly in competition, an ad valorem tax makes the analysis simpler that is to say wines and beers other than than was the case in Commission v United those classified as 'luxury* products), it is Kingdom. The difference in tax derives necessary to consider those price differences simply, in this case, from the application of to determine what influence the difference different rates to the price of each of the in tax is likely to exert on the market. products. 102. In that respect, the Belgian 95. That fact does not however — contrary Government states that, on average, the to the Commission's view — make it price of a litre of ordinary wine, including unnecessary to consider the protective effect tax, is around BFR 125 (which corresponds of that system of taxation. to BFR 87.5 for a 70-cl bottle) whilst the corresponding price for a litre of beer is BFR 29.75 (BFR 178.5 for a crate of 96. The starting point for such an exam- 24 25-cl bottles). After deduction of VAT, ination is of course the difference in rates. those .amounts are BFR 100 and BFR 25 respectively. 97. That difference is at present six percentage points, since wine is subject to a 103. Thus, if a commonly consumed wine tax at the rate of 25%, as opposed to only and a commonly consumed beer of average 19% for beer. price and quality are adopted as a reference point, the price of wine exclusive of VAT will be four times that of beer (4.2 times if 98. The Belgian Government also makes it VAT is included). clear that the difference in rates affects only retail sales of wine and beer, since in the 104. These are values which are not catering sector (hotels, restaurants and bars) contested by the Commission. a uniform rate of 17% is applied. 105. If the tax structure for the two 99. However, in order to analyse the beverages were standardized, the prices protective effect it does not seem to me to would — as the Belgian Government be correct to adopt the macroeconomic states — become, respectively: approach — adopted by Belgium — of reducing the difference in rates to four 106. With a rate of 19%: percentage points. The fact that the difference in rates relates only to BFR 119 per litre of wine; consumption in the home does not mean that, in this context, the difference is not six BFR 29.75 per litre of beer; percentage points. 107. With a rate of 2 5 % : 100. It should, however, be acknowledged that that fact limits the scope of any BFR 125 per litre of wine; protective effect; it is the same as saying that the investigation of that effect does not BFR 31.25 per litre of beer. extend to the whole wine and beer market, but covers only part of it. 108. In other words, standardization of the rate at 2 5 % would reduce the difference in 101. Since the respective prices of wine and prices by only BFR 1.5 (from BFR 95.25 to beer are different (even where the two BFR 93.75); standardization at 19% would

113. And that, together with the difference 109. The difference is not very great in of six percentage points in the applicable either case. However, it is less where a rate rates, does not seem to make any decisive of 25% is applied, and the Belgian contribution towards showing that the tax Government was careful to point out that, system at issue is likely to bring about a for budgetary reasons, it is more probable protective effect. In any event, the pointers that any equalization would involve an which can be derived from a price upward rather than a downward relationship of that kind for the purpose of adjustment. forming an opinion are very different from those which would result from a comparison of competing products with equivalent 110. If the comparison were made on the prices. However, if other factors were basis not of average-priced products but of conclusive in that respect, one might the cheapest products (in respect of which it possibly be persuaded to acknowledge that may presumed, for reasons specific to them, the system is more protectionist in character that the competitive relationship is less well than is apparent from the difference of rates defined), we should find that the price and the difference of prices. relationship between wine and beer does not change substantially, being around 3: 1 or 4 : 1 , account being taken of the existence of 114. However, that is not the case. On the beers priced at BFR 17 per litre (table beer) one hand, it appears that the pattern of and BFR 21.5 per litre (Carapils) and of consumption of the two products shows an wines priced between BFR 60 and BFR 80 increase in the average consumption of wine per litre. from 14.9 litres per inhabitant in 1976 to 16.7 litres in 1977 (the year in which the 25% rate was introduced) and 20.2 in 1982 111. In other words, the difference in the and 1983; at the same time, beer prices of these two beverages — which, of consumption fell from 137.6 litres per course, reflects their different characteristics inhabitant in 1976 to 125 litres in 1978 and and production costs — whilst itself consti- 1981 and 128 litres in 1983. tuting a factor liable to attenuate the competitive relationship between them is 115. The conclusions which can be drawn nevertheless something which must be taken from those statistics must be considered very into account in assessing to what extent the carefully, in so far as the difference of tax difference in rates distorts consumer pref- rates is far from being the only factor likely erences. to influence the pattern of consumption.

122. The effect on competition of an 118. However, it must be stated that increase in the price of one of two products, precisely in 1978 the rate of VAT on beer resulting from a rise in the rate of taxation, was increased from 14 to 16%. There were without any accompanying equivalent further increases in '1981 (to 17%) and in increase in the rate applied to the other 1983 (to 19%); and each time that the rate product depends, moreover, on the cross- of tax on beer increased a reduction was elasticity of demand for the two products noted in consumption per inhabitant, with a which, in turn, (if it is assumed that recovery in the following years (particularly consumers' incomes and other prices remain in 1979 and 1980, when it rose to 126 and constant) depends in particular upon the 131 litres and in 1982 when it rose to 133 greater or lesser extent to which the litres). products are substitutable for each other.

COMMISSION v BELGIUM

OPINION OF MR DA CRUZ VILAÇA —CASE 356/85

135. It is not incumbent upon the any way preclude a finding that it would be Commission to furnish 'statistical proof of a appropriate to harmonize the rates of tax on protective effect', that is to say proof that wine and beer in the various Member States, the tax system in question actually under Article 99 of the Treaty, as is discriminates against an imported product to proposed by the Commission. the advantage of its domestically produced competitor. 138. But that is a decision which can be taken only by the Member States within the competent institution and which, as things 136. All that is necessary, as we have seen, stand at the moment, does not take away is that it should be shown that such a tax the freedom of those States under the system is, by its nature, capable of protecting Treaty regarding tax matters. domestic products; and, in my opinion, that has not been proved in relation to the tax 139. M— Having regard to the foregoing system in force in Belgium under which considerations, I am of the opinion that it different rates of VAT are applied to wine has not been proved that, by applying to and beer. wine, an imported product, a higher rate than that applied to beer, essentially a domestic product, the Belgian VAT legis- 137. L— I should point out that the lation is capable of affording indirect conclusion which I reach here does not in protection to beer.

140. Accordingly, it has not been shown that the Kingdom of Belgium has thereby infringed the second paragraph of Article 95 of the Treaty and I therefore propose that the Court should dismiss the application and order the Commission to pay the costs.