C-230/89

OPINION OF MR JACOBS — CASE C-230/89

OPINION OF MR ADVOCATE GENERAL JACOBS :; delivered on 21 February 1991 '

My Lords, discriminates against products from other Member States ... Article 95 must guarantee the complete neutrality of internal taxation as regards competition between domestic products and imported products' (Case 168/78 Commission v France [1980] 1. In this case, the Commission seeks a ECR 347, paragraph 4). The Court sees declaration that certain Greek legislation on Article 95 as a supplement to the Treaty the taxation of spirits is incompatible with rules on the abolition of customs duties and Article 95 of the EEC Treaty. The legis­ of charges having equivalent effect. The lation in question was adopted in 1986 and article therefore encompasses not only it established a system of value added tax. goods produced in the Member States, but As amended, it provides for the imposition also goods originating in non-member of VAT at the rate of 36% on certain countries which have entered into free imported spirits which, according to the circulation in the Community: see Case Commission, are not produced in Greece, 193/85 Co-Frutta [1987] ECR 2105. It is such as whisky, gin, vodka, rum and tequila. therefore immaterial that some of the spirits Other spirits, such as ouzo, brandy and at issue in these proceedings are produced various liqueurs, many of which are outside the Community, for the rate of tax produced in Greece, are subject to VAT at to which they are subject is not affected by a lower rate. The written pleadings of both whether or not they are in free circulation. parties refer to a lower rate of 16%, although at the hearing the lower rate was said to be 18%. Whatever the lower rate may be, it is clear that it is substantially less than the higher rate.

The application of that paragraph requires a 5. In order to establish a breach of the comparison to be made between the tax second paragraph of Article 95, it must be burden imposed on domestic products and shown that the effect of the national legis­ the tax burden imposed on 'similar' lation in question is to afford indirect imported products. The Court has protection to domestic production (see e. g. emphasized that the first paragraph of Case 170/78 Commission v United Kingdom Article 95 'must be interpreted widely so as [1980] ECR 417, paragraph 9). None the to cover all taxation procedures which less, in order to satisfy this requirement, it is conflict with the principle of the equality of not necessary for statistical data to be treatment of domestic products and produced. It is enough for it to be shown imponed products; it is therefore necessary that 'a given tax mechanism is likely, in view to interpret the concept of "similar of its inherent characteristics, to bring about products" with sufficient flexibility' (see the protective effect referred to by the e. g. Case 169/78 Commission v Italy [1980] Treaty' (ibid., paragraph 10), for example ECR 385, paragraph 5). Products are by reducing the potential consumption of regarded as similar for these purposes if imported products (voir Case 216/81 Cogis they have similar characteristics and meet [1982] ECR 2701, paragraph 11). the same needs from the point of view of consumers. The decisive factor is not whether the products in question are identical but whether they have similar and comparable uses (ibid.).

7. The classification of different products States are entitled to grant tax advantages to under the Common Customs Tariff was at certain types of undertaking for reasons of one time regarded by the Court as an economic or social policy. The defendant important factor in determining whether also takes issue with the Commission's claim products were to be regarded as similar for that the contested legislation discriminates the purposes of the first paragraph of Article against imported spirits, maintaining that a 95 (see Case 45/75 Rewe [1976] ECR 181, range of spirits, both domestic and paragraph 12), although it was not treated imported, are taxed at the lower rate. as decisive (see Case 169/78 Commission v Italy [1980] ECR 385, paragraph 31). However, in Cogis (see paragraph 8 of the judgment), the Court stated that it was not necessary to refer to the customs classifica­ tions of different products in order to establish whether they were similar for the purposes of the first paragraph of 9. Moreover, at the hearing, the defendant Article 95. Other distinguishing criteria claimed for the first time that some of the such as the origin and method of manu­ spirits taxed at 36%, namely gin, vodka and facture of the products, their possible rum, were not exclusively imported but were application and the habits of consumers in also now produced in Greece. The the Community as a whole were said to be defendant added that a certain amount of more important. I therefore disregard the whisky was bottled in Greece. It went on to fact that the spirits at issue in these cite statistics purporting to show that proceedings all fall under the same heading imports into Greece of some of the spirits of the Common Customs Tariff. taxed at the higher rate were increasing. This new information was said to show that the contested legislation did not discriminate against spirits produced outside Greece and that it had not caused a reduction in imports.

'Amongst all spirits there is an indeterminate 12. In any event, the new information does number of beverages which must be not in my opinion assist the defendant. As regarded as similar products within the far as the level of imports is concerned, the meaning of the first paragraph of Article 95 Commission rightly pointed out at the and even where it is impossible to perceive a hearing that imports might have been even sufficient degree of similarity between the higher had all spirits been taxed in Greece products concerned, there are nevertheless at the same rate. characteristics common to all those spirits which are sufficiently marked for it to be said that they are at least partly or poten­ tially in competition. That is sufficient for it to be concluded that taxation of them must not have the effect of protecting domestic products. For that purpose it is necessary to take into consideration the potential market of the products in question in the absence of protectionist measures 13. The defendant's claim that some spirits taxed at 36% are produced in Greece is not in itself enough to show that the contested legislation does not discriminate against imports in the absence of any evidence as to the proportion represented by such spirits of Greek spirit production as a whole. The Court helo in Case 169/78 Commission v Italy [19K0] ECR 385, which also concerned It follows from that statement that all spirits spirits, that a system in which typical must be regarded as being at least in com­ domestic products were in the most petition with each other for the purposes of favoured tax category, while the two types the second paragraph of Article 95. Most of of product which were almost all imported the arguments put forward by the defendant from other Member States were subject to to justify the contested legislation are conse­ heavier taxation, was incompatible with quently irrelevant. Article 95. The Court explained that it was immaterial that domestic production of spirits in the second category also existed, since only minimal quantities were involved.

15. The only outstanding question is whether the contested legislation is likely to 17. The contested legislation does not in have a protective effect. That question must my view satisfy these criteria. The defendant in my view be answered in the affirmative, has not sought to distinguish the two classes since it must be assumed that there is no, or of spirits on the basis of the raw materials at least no significant, production in Greece used in their manufacture or the production of spirits taxed at the higher rate of 36 %. processes employed. The defendant claims The contested legislation is therefore more that one of the purposes of the legislation is likely to discourage consumption of to protect small businesses. It is not, imported than of domestically produced however, apt to achieve that objective, since spirits. the rate of VAT to which particular spirits are subject is not affected by the size of the undertaking which produced them. Although the defendant claims that ouzo is produced essentially by small undertakings, 16. That may be sufficient to dispose of the it has produced no evidence to support this issues before the Court. Nevertheless, for claim. Indeed, it acknowledges in its the sake of completeness, I will examine the rejoinder that some of the ouzo and brandy substance of the arguments put forward by produced in Greece comes from large the defendant in its written pleadings. The undertakings. In any event, a small under­ Court has acknowledged on a number of taking in Scotland producing, say, whisky occasions that: would still find its output taxed in Greece at the rate of 36%.

laid down in Article 95, in particular the ouzo. As the Commission points out, whisky principle of non-discrimination. The Court's might not enjoy the same status in Scotland case-law makes it clear that Member States and brandy, which is taxed in Greece at the cannot justify the discriminatory tax lower rate, might be regarded as a luxury treatment of a particular product solely on product in some parts of the Community. the basis that the product in question is regarded as a luxury item in certain parts of the Community. As the Court emphasized 20. The defendant has not sought to in Case 170/78 Commission v United establish any separate justification for distin­ Kingdom [1980] ECR 417 at paragraph 14, guishing the spirits other than whisky which in this respect: are taxed at 36% from those taxed at the lower rate. In my view, spirits in both categories must accordingly be regarded as '... it is impossible to restrict oneself to similar for the purposes of the first consumer habits in a Member State or in a paragraph of Article 95. Since the class of given region. In fact, those habits, which are spirits taxed at the higher rate consists essentially variable in time and space, mainly of imports, the contested legislation cannot be considered to be a fixed rule; the is therefore contrary to that provision. tax policy of a Member State must not therefore crystallize given consumer habits so as to consolidate an advantage acquired by national industries concerned to comply 21. In any event, spirits in both categories with them'. must be regarded at the very least as poten­ tially in partial or indirect competition with each other for the purposes of the second 19. I am therefore unable to accept the paragraph of Article 95. The contested defendant's claim that whisky's alleged legislation is therefore incompatible with status in Greece as a luxury product that provision, for, as I have explained, it is constitutes an objective justification for in my view likely to produce a protective taxing it more heavily than, for example, effect.