C-343/89

2. The facts of the present case are straight­ 4. The Finanzgericht München has referred forward. In June 1981 Mr Max Witzemann the following question to the Court: acquired counterfeit money with a face value of USD 300 000 in Italy. He then took it to Germany by car, intending to sell it in Munich. He was arrested in Munich and the counterfeit banknotes were seized. Three years later the Hauptzollamt München-Mitte issued a tax assessment 'Are the provisions of the EEC Treaty requiring Mr Witzemann to pay customs (Article 3(b), Article 9(1), Articles 12 to 29) duties and VAT on the counterfeit and the Sixth Council Directive banknotes. It is not clear from the order for 77 / 388 / EEC of 17 May 1977 on the reference or the national case-file on what harmonization of the laws of the Member basis the German authorities purported to States relating to turnover taxes (Article charge customs duties; possibly they took 2(2)) to be interpreted as meaning that a the view that the Community origin of the Member State is not entitled to impose goods was not proven. I would in any event customs duties and import turnover tax on emphasize that customs duties may in illegally imported goods, the production and principle be imposed only on the sale of which is — as in the case of

* Original language: English.

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counterfeit currency — prohibited in all 7. In Case 294/82 Einberger v Haupt- Member States?' zollamt Freiburg ('Einberger IT) [1984] ECR 1177, the Court held that the same principle applied to VAT. Illegal imports of drugs were wholly alien to the provisions of the Sixth Directive (Directive 77/388, Official Journal 1977 L 145, p. 1) and Article 2 5. Before attempting to answer that thereof must be interpreted as meaning that question I shall briefly summarise the VAT could not be charged on the unlawful existing case-law. In Case 50/80 Horvath importation into the Community of drugs. v Hauptzollamt Hamburg-Jonas [1981] ECR 385 the Court held that:

9. It will be clear from the above summary that the previous cases represent a natural 6. In that case the prohibited drugs had progression. The Court began by holding been discovered and seized. It was not long that customs duties could not be charged on before the same problem arose in a case in imports of prohibited drugs that had been which the illegal importation remained seized and destroyed. It then held that the undetected until after the drugs had been same rule applied to drugs that remained disposed of. The Court held, none the less, undetected and so were not seized. It went that the same principle applied and that no on to hold that the rule established for customs debt arose upon the importation of customs duties was also valid for import drugs otherwise than through economic VAT. Finally, it held that the same rule channels strictly controlled by the applied to VAT on internal supplies. All the competent authorities for use for medical above cases were concerned with prohibited and scientific purposes, regardless of drugs, but here again there has been a whether the drugs were discovered and natural progression. In Horvath the drug in destroyed under the control of those question was heroin, the sale of which was authorities or went undetected by them: prohibited in all the Member States; in see Case 221/81 Wolf v Hauptzollamt Happy Family it was hashish, the sale of Düsseldorf [1982] ECR 3681 and which, though illegal, was in fact tolerated Case 240/81 Einberger v Hauptzollamt by the national authorities of the Member Freiburg ('Einberger I')[1982]ECR 3699. State in question. The Court rejected

10. The question which arises in the present case is whether the principles developed in connection with drugs should be extended to counterfeit money. There are of course many other steps that could be taken along 12. The Commission points out that there the same road. Illegality manifests itself in has been an important legislative many forms and there are many products amendment since the aforesaid cases were that either cannot be lawfully traded or decided. Council Regulation (EEC) trade in which is subject to certain No 2144/87 on customs debt (Official restrictions: drugs, counterfeit money, Journal 1987 L 201, p. 15) has replaced weapons, pornography, the pelts of certain Council Directive 79/623 (Official animals, stolen goods and so forth. Not Journal 1979 L 179, p. 31). The regulation every transaction tainted with illegality will took effect from 1 January 1989 and did not be exempt from taxation. A line must be of course apply at the time when the facts drawn between, on the one hand, trans­ of the present case occurred. Article 2(2) actions that lie so clearly outside the sphere provides as follows: of legitimate economic activity that, instead of being taxed, they can only be the subject of criminal prosecution and, on the other hand, transactions which, though unlawful, must none the less be taxed, if only for the sake of ensuring, in the name of fiscal 'The customs debt on importation shall be neutrality, that the criminal is not treated incurred even if it relates to goods subject to more favourably than the legitimate trader. measures of prohibition or restriction on importation of whatever kind.

nevertheless be deemed to have been 14. The Commission proposes that the incurred where, under a Member State's Court's case-law on prohibited drugs should criminal law, customs duties provide the be extended to counterfeit money, but that basis for determining penalties, or the the Court should make it clear that it bases existence of a customs debt is grounds for its ruling on secondary sources of law, i. e. taking criminal proceedings.' legislation, rather than on the Treaty itself. The legislation applicable to the present case would be the Common Customs Tariff, Article 2 of Directive 79/623 (the prede­ cessor to Regulation No 2144/87) and, as regards VAT, the Sixth Directive. It should be noted, however, that the time-limit for It should be noted also that Article 8(1) of the implementation of Directive 79/623 did the regulation provides that a customs debt not expire until 1 January 1982, so its appli­ is extinguished by confiscation of the goods. cability to the present case must be in doubt. Accordingly the legislation has introduced, But the issue is not of crucial importance, in relation to goods other than narcotic since the directive did not deal expressly drugs, within the second subparagraph of with the question whether customs duties Article 2(2), a distinction which the Court should be charged on illegal goods. In that decided not to draw in Wolf and respect there seems to be no major Einberger I: such goods are subject to difference between the legislation applicable customs duties, but the customs debt is in the present case and the legislation extinguished by confiscation. applicable in the previous cases cited above.

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goods for customs purposes (Official judgment). Echoing the language of the Journal, English Special Edition 1968 (I), Wolf and Einberger ƒ judgments, the Court p. 170) was based on the assumption that held that: the imported goods were capable of being put on the market and absorbed into commerce. The Court was also influenced by the fact that Regulation (EEC) ' ... illegal imports of drugs into the No 1430/79 on the repayment or remission Community, which can give rise only to of import or export duties (Official penalties under the criminal law, are wholly Journal 1979 L 175, p. 1) provided for the alien to the provisions of the Sixth Directive repayment of duty where the goods were on the definition of the basis of assessment destroyed under the supervision of the and, in consequence, to the origination of a competent authorities. The only Treaty turnover tax debt' (paragraph 20). provision mentioned in Horváth was Article 18 of the EEC Treaty, which is not in my view directly relevant.

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law. Its approach has been as follows: the would be jeopardized if each Member State legislation is silent on this particular point, refrained from charging customs duties and so it is necessary to examine the Treaty VAT on the particular products that happen provisions on which the legislation is based to be prohibited under its own legislation. and to see if they provide any guidance. For that reason I question whether the rules That is of course an appropriate technique established by the Court in relation to drugs of interpretation, but there is no reason to should be applied to operations that are assume that the rule thus arrived at is a contrary to national legislation on, for direct interpretation of the Treaty which is example, trade in firearms, pornography or binding on the legislature and can be altered animal pelts. Such legislation varies only by an amendment of the Treaty. considerably from one Member State to Moreover, it cannot, I think, be suggested another. Moreover, there is normally a that there is any fundamental principle of legitimate trade in such products that law precluding the taxation of illicit trans­ cannot clearly be distinguished from the actions. I am therefore of the opinion that illicit trade. For example, the same type of the Community legislature is free to firearm can be bought and sold legitimately intervene in this area and to provide, if it so by an authorized dealer and unlawfully by a wishes, that customs duties and VAT must black-market supplier. It would be illogical be charged on narcotics and other to confer a fiscal privilege on the latter. prohibited products.

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(paragraph 24), did not constitute a basis No 2144/87, that question does not of for the interpretation of Community law. course need to be answered in the present proceedings. In the interests of legal certainty, however, it may be useful to consider the question.

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the manner proposed by the Commission. I Court noted in Einberger II, Article 10(3), conclude therefore that, after the entry into second subparagraph, of the Sixth Directive force of the regulation, import duties are allows Member States to link the chargeable payable on the importation of counterfeit event and the date when VAT becomes money into the customs territory of the chargeable with those laid down for Community. At the same time, I think it will customs duties. However, it seems to me be helpful for the Court to indicate in its that Article 10 is concerned only with the ruling that its case-law on drugs extended to date on which the liability to VAT takes counterfeit money only until the entry into effect; it is not concerned with the question force of the regulation; that will make it whether the liability exists or not. clear that the case-law was not based on any Moreover, Article 10(3) merely allows superior rule of law but could be modified Member States to link VAT with customs by legislation. duties for this purpose; it does not require them to do so. I do not think that the Sixth Directive establishes an absolute link between customs debt and VAT liability. The principle laid down by the Court in Einberger //excluding imports of prohibited 29. One final question that arises (though drugs from the ambit of the Sixth Directive once again it does not need to be answered is equally applicable to counterfeit money in the present case) is whether the link and continues to apply notwithstanding the between customs duties and VAT on fact that Regulation No 2144/87 has made imports is so strong that, since the entry the importation of counterfeit money into force of Regulation No 2144/87, the subject to customs duties. If the legislature importation of counterfeit money is subject considers that the result is to create an not only to customs duties but also to VAT. unacceptable anomaly between customs It might be argued that VAT is payable duties and VAT, the remedy must be to whenever a customs debt is incurred. As the amend the legislation.