C-152/89

COMMISSION v LUXEMBOURG

O P I N I O N OF MR A D V O C A T E GENERAL JACOBS delivered on 28 February 1991 *

My Lords, States maintain that the amount may be in excess of 10%.

1. In these cases, Cases C-152 and 3. In such a system the amount of duty C-153/89, the Commission has brought borne by each litre of beer will depend on proceedings under Article 169 of the EEC the efficiency of the brewery. A brewery Treaty for declarations that Luxembourg that obtains 98 litres of beer from 100 litres and Belgium respectively have failed to fulfil of hot wort will pay less duty per litre of their obligations under Articles 95 and 96 of beer than a brewery that obtains only 90 the Treaty as a result of certain features of litres of beer from 100 litres of hot wort. the system by which excise duties are charged on beer in those countries. I will briefly describe the impugned system.

* Original language: English.

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difficulty of evaluating that factor, the legis- result is that, if there are breweries in lation in force in Belgium and Luxembourg Belgium and Luxembourg with a wastage has recourse to a flat-rate method of calcu- factor of less than 4.7619%, the amount of lation, under which it is assumed that it duty charged on each litre of beer brewed takes 100 litres of hot wort to make 90 litres by them will be less than the amount of beer of the same density. In other words, charged on each litre of imported beer. The allowance is made for a wastage factor of Commission maintains that that is contrary 10%. If 90 litres of beer are exported, the to the first paragraph of Article 95 of the amount of duty reimbursed is the amount Treaty, which provides that: that would have been charged on 100 litres of hot wort. That means of course that in the case of a particularly efficient brewery, with a wastage factor of less than 10%, the amount of duty reimbursed may exceed the 'No Member State shall impose, directly or amount that was charged. The Commission indirectly, on the products of other Member maintains that that is contrary to Article 96 States any internal taxation of any kind in of the Treaty, which provides that: excess of that imposed directly or indirectly on similar domestic products.'

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10. Luxembourg is right to draw the Court's attention to the above discrepancies and it cannot be denied that the Commission has caused considerable 12. The position is less clear-cut in relation confusion by its inconsistency as regards the to the second discrepancy mentioned above, relevant criteria. The question whether that namely the reference in the application to renders the application inadmissible should the wastage factor of certain Luxembourg in my view be approached in the following breweries, which was not contained in the way. reasoned opinion. Here the Commission

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appears to have introduced a stricter There is room for argument, as is shown by criterion in the application than was the submissions of the parties on the contained in the reasoned opinion, which substance of the case, about the appropriate referred only to the average wastage factor criterion to be used in assessing the wastage in Luxembourg. Despite the Commission's factor, but that does not affect the essential contention to the contrary, I think it is issue, which is whether the wastage rate impossible to read the reasoned opinion as used is too high. referring to anything other than average rates.

18. Secondly, I do not think that the 15. Although the matter is not free from procedural rights of Luxembourg have been doubt, I am of the opinion that the prejudiced. Throughout the protracted objection should not be allowed. I say so for pre-litigation procedure — the first letter two reasons. from the Commission to the Luxembourg authorities was sent on 9 February 1982 — the parties were able to address all the issues exhaustively. The reference to the 16. First, the substance of the infringement average rate arose from the fact that that alleged is that Luxembourg makes was the basis on which Luxembourg allowance for too high a wastage factor defended the rate which it used — as also when reimbursing duty on exported beer did Belgium. Although the debate focused and when charging duty on imported beer. on the average rate, there was debate also

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19. In any event I consider for the reasons set out above that Luxembourg's objection 21. It is true that Article 95 leaves Member to the admissibility of the action must be States free to choose the system of taxation rejected. So I turn to the substance, and first that they consider most suitable. However, to Article 95. that freedom must be subject to certain limits. In particular, the system of taxation used in each Member State must be trans- parent, at least to the extent that it must be possible to determine objectively whether the tax burden falling on imported products The compatibility of the Belgian and exceeds that falling on similar domestic Luxembourg tax system with Article 95 products. Moreover, the system must be capable of even-handed application to domestic and imported products. There must be some doubt whether those criteria are fulfilled by the system in use in Belgium and Luxembourg. 20. The disparities between national systems for charging excise duties on beer and other alcoholic beverages have long been a matter of concern to the Commission. As early as 1972 it proposed a Council Directive on the 22. Even if it is not objectionable in harmonization of excise duty on beer principle, the element giving rise to diffi- (Journal Officiel 1972 C 43, p. 37). Under culties in the impugned system, from the

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'The levying by a Member State of a tax on a product imported from another Member 23. The question then is whether the above State in accordance with a method of calcu- situation can be reconciled with the Court's lation or rules which differ from those used case-law on Article 95. In Case 45/75 for the taxation of the similar domestic REWE v Hauptzollamt Landau [1976] ECR product, for example a flat-rate amount in 181 the Court held that: one case and a graduated amount in another would be incompatible with the first paragraph of Article 95 of the EEC Treaty if the latter product were subject, even if only in certain cases, by reason of ' . . . the first paragraph of Article 95 is graduated taxation, to a charge to tax lower infringed where the taxation on the than that on the imported product.' imported product and that on the similar domestic product are calculated in a different manner on the basis of different criteria which lead, if only in certain cases, to higher taxation being imposed on the 25. Both those cases resembled the present imported product. cases inasmuch as domestic products were taxed according to a graduated system, while imported products were taxed according to a flat-rate system. The Bobie case concerned excise duties on beer. Under This finding cannot be refuted by the claim the legislation then in force in Germany a that although the imported product is taxed graduated system was applied to domestic

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28. Belgium agrees that the relevant of beer produced by a domestic brewer with criterion is the wastage factor achieved by a wastage factor of 3 % would not be brewers in the importing State, though it contrary to Article 95. Further support for does not admit that the figure of 4.7619% is Luxembourg's argument may be derived excessive, having regard to the particular from the Bobie judgment (cited above), characteristics of the Belgian brewing where the Court held that the 'point of industry. Luxembourg, on the other hand, reference' for determining whether the contends that the relevant criterion is the discrimination prohibited by Article 95 wastage factor obtaining in the exporting exists is 'the system of taxation chosen by country. It suggests that the legislation of each Member State in relation to a specific Belgium and Luxembourg proceeds on the domestic product'. same assumption, inasmuch as it allows for a wastage factor of 4.7619% when taxing imported beer as against the 10% that is allowed for when repaying internal tax on exported beer. According to Luxembourg, the difference between the two rates is 30. However attractive the solution intended to take into account the greater described above might be in theory, there is efficiency of some brewers established in clearly no possibility of it being applied in other Member States. As I have already practice, because there is no reliable means pointed out, although the Commission now of establishing the wastage factor to be maintains that the wastage factor in the taken into account in respect of each exporting State is irrelevant, it created the consignment of beer that is imported into opposite impression in the operative part of Belgium and Luxembourg. Moreover — and the reasoned opinion delivered to this is plainly the decisive Luxembourg (though not in the reasoned consideration — the method of taxation opinion delivered to Belgium). actually used does not attempt to establish the actual wastage factor for imported beer; instead, it takes a notional figure, which is applied to all imports.

product and on the domestic product being taxed at a lower rate than beer respectively, it is necessary to take the imported from other Member States. It is lowest rate borne by any p a r t of the sufficient for the Commission to establish domestic production: in the present case, by that the system is liable to have that result. beer with the lowest wastage rate. Neither If the Commission succeeds in establishing Belgium nor Luxembourg accepts that that, then it becomes incumbent on the approach; they continue to rely on the defendant Member States to show that in average rate. But the approach which I no case does the system actually have that adopt follows, in my view, from the Court's result. That transfer of the burden of proof case-law as set out above. I mention, in is necessary, in my view, because of the lack passing, that average rates were expressly of transparency of the system of taxation authorized by Article 97 of the Treaty in used in Belgium and Luxembourg. Where a relation to the turnover taxes which were Member State uses a system of taxation that widely used in the Member States before the makes it impossible to compare precisely the entry into force of the Community fiscal burden falling respectively on provisions on value added tax. However, domestic and imported products, the onus is Article97, in authorizing the use of average on that Member State to show that the rates for products or groups of products, system cannot result in a breach of Article both in the case of internal taxation on 95. Support for that view may be found in imported products and in the case of the judgment in Case 45/64 Commission v repayments on exported products, expressly Italy [1965] ECR 857, in which the Court requires that there must be no infringement held that, where a Member State introduces of the principles laid down by Article 95 and 96. a flat-rate system for determining the amount of internal taxation repayable upon exportation to another Member State, it is for the Member State to show that the system always remains within the mandatory limits of Article 96. Although that case was concerned with Article 96, the same rule must also apply in the context of Article 95.

minimum wastage rate which might be beer. As for ascertaining the average attained by the most efficient brewery; that wastage factor, the evidence shows that might show that no brewery could have a there are very wide variations depending on lower wastage rate than that assumed in such factors as the type of beer in question, taxing imported beer, and hence that no the age and condition of the plant, oper- domestic brewery is likely to be advantaged. ational and management efficiency, the size Neither of these methods really involves of the brewery and the range of beers proving a negative proposition, since produced. although the final result may be framed in negative terms, the evidence would lead to affirmative findings. Nor does either method impose an intolerable burden on the defendant Governments. 37. In the circumstances, the question may even arise whether the system of taxation in force in Belgium and Luxembourg is contrary to Article 95 simply because it does not possess sufficient transparency to permit a comparison to be made between the respective tax burdens falling on domestic and imported products. By choosing to tax domestic products on the basis of the hot wort and imported products on the basis of the end-product, Belgium and Luxembourg 36. I turn then to the evidence. This have made it so difficult to compare the consists of four experts' reports — two incidence of taxation that even a plethora of submitted by the Commission (drawn up by experts' reports have not been able to Dr C. E. Dalgliesh and by Professor L. resolve the problem. That alone might be Narziss) and two by Belgium (drawn up by regarded as sufficient to constitute a breach the Centre Technique et Scientifique de la of Article 95. However, I think it is Brasserie, de la Malterie et des Industries preferable to try to reach a view on the Connexes — C. B. M. and by Dr Wittmann evidence before the Court, and to do so, for of the Versuchs- und Lehranstalt für the reasons I have given, on the basis of the Brauerei in Berlin). In addition, lowest rate likely to be attained in Belgium supplementary reports were produced by and Luxembourg. Professor Narziss and Dr Wittmann. All the reports address the issue of a normal wastage factor, and I therefore consider the evidence first in that context. Perhaps only one thing is established clearly by the reports — namely, that it is extremely difficult to say categorically what can be 38. I think it is clear from the experts' regarded as a normal wastage factor. There reports that the figure of 4.7619%, though are too many variables and there is insuf- perhaps not unreasonable as an average ficient clear information in the public figure if the notion of an average can domain. Indeed, the difficulty of estab- sensibly be used, does not represent the limit lishing any average rate was repeatedly of technical achievement in the brewing stressed by Belgium at the hearing. industry and can be bettered by certain Moreover, there are considerable difficulties breweries producing certain types of beer. in determining the quantity of hot wort used Thus Dr Dalgliesh states that 'If adminis- even in relation to a specific quantity of trative convenience demands a single value

40. I conclude, on the balance of prob- abilities, that the amount of tax charged on imported beer is likely to be greater than the 39. The two experts' reports submitted by amount of tax charged on some part of the the Belgian Government do not, in my view, domestic production, and therefore that the prove the contrary. The report drawn up by system of taxation must be held to infringe the Centre Technique et Scientifique de la Article 95. Brasserie, de la Malterie et des Industries Connexes focuses on the Belgian brewing industry and emphasizes the special features that tend to lead to a higher wastage factor. It concludes, not surprisingly, that a minimum figure of 10% would be 'more than reasonable'. However, the objectivity 41. The survey of the evidence also leads to of that report must be doubtful in view of a further conclusion, which is that the the obvious interest of the authors in defendant Governments' case has not in fact demonstrating that the 10% export refund been prejudiced by the emphasis earlier accorded to Belgian brewers is justifiable. placed by the Commission on average Moreover, the report is concerned primarily wastage rates. Since the average figure with the general situation of the Belgian appears to be close to the flat-rate figure, brewing industry: it does not address the and since there are acknowledged to be question what the minimum levels of wide differences for different breweries and wastage are that can be attained by a for different types of beer, it is abundantly particularly efficient brewery either in clear that the Governments would not have Belgium or elsewhere. The last point applies been able to establish that the amount of equally to Dr Wittmann's report, which duty imposed on imported beer is no higher

than the amount imposed on any part of Once the Commission has discharged that domestic production. The same holds good, burden, for example by showing that it is mutatis mutandis, for Article 96. technically possible to attain a wastage factor of less than 10%, it is then for the Member State to show that no brewer in its territory actually achieves such efficiency and that as a result the repayment of tax The compatibility of the Belgian and never in fact exceeds the amount imposed. Luxembourg tax system with Article 96 Again the justification for taking a strict view lies in the lack of transparency of the tax system used in Belgium and Luxembourg; the same considerations apply as under Article 95. (In one respect the issues under Article 96 might differ from 42. Article 96 provides that, where products those under Article 95: the wastage rates are exported to another Member State, any are, as I have mentioned, different for repayment of internal taxation must not different types of beer, and not all types of exceed the internal taxation imposed on beer are exported. So the wastage rates them, whether directly or indirectly. A might be higher on exported beers. But as comparison must therefore be made the defendant Member States have not between the internal taxation charged on proved the point, it can in my view be dis- beer produced in Belgium and Luxembourg regarded.) and the amount that is reimbursed upon exportation. Whenever the latter amount exceeds the former, there is a breach of Article 96. That is so even though it is only in a limited number of cases that the repayment exceeds the taxation imposed. That is clear from the judgment in Case 45/64 (already cited), in which the Court 44. It is clear from what I have said in held that the Member State that introduces relation to Article 95 that the figure of 10% a flat-rate system must 'show that the greatly exceeds the minimum wastage factor system always remains within the mandatory that is capable of being attained by a limits of Article 96' (emphasis added). The particularly efficient brewery. Neither of the point is confirmed by the REWE and Bobie defendant Member States has succeeded in cases cited above. proving that no brewer in its territory attains a wastage factor of less than 10%.

46. Thus the figure of 10.25% given by Dr adduced by Belgium, that a brewery in Wittmann, which appears in the report Belgium or Luxembourg that maximizes submitted by Belgium and which focuses efficiency will achieve a wastage factor of specifically on the brewing industry in the less than 10%. The reports drawn up by Dr Benelux countries, is clearly an average Dalgliesh and Professor Narziss confirm figure indicative of what might be attained even more clearly that an efficient brewery in a typical Benelux brewery. For each stage can attain a wastage factor well below 10%. of the brewing process Dr Wittmann gives minimum and maximum figures and then a 47. In view of the above finding it seems representative figure falling somewhere more than likely that some of the beer between the two extremes. The represen- exported from Belgium and Luxembourg tative figures total 10.25%. If, however, the will qualify for a refund of taxation in minimum figures are added up, they excess of the amount imposed. Conse- produce a total figure of 6.5%. I have quently, on the view I take, it is clear that already suggested that the figures in this Belgium and Luxembourg have failed to report may be too high, but even if they are comply with their obligations under not it is clear, even from the evidence Article 96.

Conclusion

48. In conclusion I am of the opinion that the C o u r t should:

(1) Declare that, by assessing excise duty on domestically produced beer o n the basis of the amount of hot wort and by assessing duty on beer imported from other Member States on the basis of the volume of the end-product, increased by a flat-rate figure of 5 % to arrive at the notional amount of hot w o r t used to produce the imported beer, Belgium and Luxembourg have failed to fulfil their obligations under Article 95 of the T r e a t y ;