C-312/91

OPINION OF MR JACOBS — CASE C-312/91

OPINION OF ADVOCATE GENERAL JACOBS delivered o n 22 April 1993 *

My Lords, Public Prosecutor ordered the seizure of 205 885 kg of aluminium ingots imported from Austria by Metalsa Sri on the ground 1. In this case the Giudice per le Indagini that Metalsa had failed to pay the value Preliminari (Judge responsible for prelimi- added tax due on importation and, as a nary inquiries) of the Tribunale di Milano result, infringed certain provisions of Italian has requested a preliminary ruling on the law concerning the payment of value added interpretation of Article 18 of the Agreement tax. The seizure of the aluminium ingots is a on free trade between the European Econ- provisional measure. In accordance with omic Community and Austria, which was Article 301 of Presidential Decree N o 43 of concluded and adopted on behalf of the 1973, the aluminium ingots will be confis- Community by Council Regulation (EEC) cated if it is established by final decision that N o 2836/72 of 19 December 1972 (Official Metalsa infringed the provisions of Italian Journal 1972 L 300, p. 1, hereafter 'the law concerning the payment of value added Agreement'). tax.

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relating to the payment of value added tax other Member States. ' Metalsa, however, on domestic transactions attract, in general, argues that a similar rule should be applied less severe penalties than those resulting to imports from Austria on the basis of Arti­ from the application of customs legislation. cle 18, first paragraph, of the Agreement The penalty of confiscation is not included which provides as follows: among them.

'The Contracting Parties shall refrain from any measure or practice of an internal fiscal 6. In Case 299/86 Drexl [1988] ECR 1213, nature establishing, whether directly or indi­ which concerned imports from other Mem­ rectly, discrimination between the products ber States, the Court examined that system of one Contracting Party and like products of differential penalties. The Court stated at originating in the territory of the other Con­ the second paragraph of the operative part of tracting Party.' the judgment:

8. According to Metąlsa, the spirit and the objectives of the Agreement are such as to justify an interpretation of Article 18 of the 'National legislation which penalizes Agreement similar to that which the Court offences concerning the payment of value followed in relation to Article 95 of the added tax on importation more severely than Treaty in Drexl. Metalsa argues that, since those concerning the payment of value added Article 18 extends to any discriminatory tax on domestic sales of goods is incompati­ measure or practice of an internal fiscal ble with Article 95 of the EEC Treaty in so nature, it also covers discriminatory criminal far as that difference is disproportionate to penalties. Metalsa's arguments are disputed the dissimilarity between the two categories by the Commission and the Italian Govern­ of offences'. ment.

10. In its substantive provisions, the Agree- 13. According to the preamble to the Agree- ment does in part resemble the Treaty. Arti- ment, which was concluded on the basis of cles 3 to 7 of the Agreement provide for the Article 113 of the Treaty, its purpose is to elimination of customs duties and charges consolidate and to extend the economic rela- having equivalent effect in trade between the tions existing between the Community and Community and Austria. Article 13 provides Austria and to ensure, with due regard for for the abolition of quantitative restrictions fair conditions of competition, the harmoni- on imports or measures having equivalent ous development of their commerce. To that effect. These provisions are supplemented by end, the Contracting Parties have agreed to Article 18 which, as stated, prohibits fiscal eliminate progressively the obstacles to sub- measures or practices of a discriminatory stantially all their trade in accordance with nature. Article 19 provides for the abolition the provisions of the General Agreement on of all restrictions on payments relating to Tariffs and Trade concerning the establish- trade in goods. Article 22 states that the ment of free trade areas. Contracting Parties must refrain from any measure likely to jeopardize the fulfilment of the objectives of the Agreement and must take all general and specific measures required to fulfil their obligations under the Agreement. Articles 23 and 25 contain rules 14. Under Article XXIV (8) of the General on competition, public aid and dumping. Agreement on Tariffs and Trade, a free trade area is understood to mean:

creation of the European Economic Area C-163/90 Legros [1992] ECR 1-4625.2 In [1991] ECR 1-6079, paragraph 17). Pabst & Richarz the Court interpreted Arti- cle 95 of the Treaty and Article 53(1) of the Association Agreement between the Com- munity and Greece signed in 1961 in a simi- lar way. The Court stated that Article 53(1) formed part of a group of provisions the purpose of which was to prepare for the 16. The case-law of the Court makes clear entry of Greece to the Community and that that a provision in an international agree- it followed from the wording of Article 53(1) ment concluded by the Community must be as well as from the objective and the nature interpreted in its context and in the light of of that Association Agreement that Arti- the purposes of the agreement (see Opinion cle 53(1) precluded a national system of 1/91, paragraph 14). Thus, the fact that an relief, such as the one in issue in those pro- agreement on free trade concluded by the ceedings, from providing a more favourable Community uses similar terms to those used tax treatment for domestic spirits than for by an article of the Treaty is not a sufficient those imported from Greece. reason for transposing the case-law of the Court in relation to that article to the provi- sions of the agreement: see Case 270/80 Polydor v Harlequin Record 18. In Legros the Court was concerned, inter Shops [1982] ECR 329. In that case the alia, with the interpretation of Article 6 of Court was concerned with the interpretation the Agreement on free trade between the of Articles 14 and 23 of the Agreement on Community and Sweden concluded in 1972, free trade between the EEC and Portugal which prohibits the imposition of charges signed on 22 July 1972, when Portugal was having equivalent effect to customs duties in still a member of EFTA. Articles 14 and trade between the contracting parties. The 23 of that agreement were similar to Articles Court held that, in the particular circum- 30 and 36 of the Treaty. The Court held that, stances of the case, Article 6 of that Agree- despite that similarity, certain restrictions on ment should be interpreted in the same man- free trade on the ground of the protection of ner as the equivalent provisions of the industrial and commercial property were jus- Treaty. The Court stated that, in the light of tified in the framework of the free trade the objective of eliminating the obstacles to arrangements established by that agreement trade between the Community and Sweden, although similar restrictions would not be the abolition of customs duties on imports justified in the framework of the Treaty. and charges having equivalent effect played a pivotal role. On that basis, the Court con- cluded that if the concept of a charge having equivalent effect were interpreted in the con- text of the Agreement with Sweden more restrictively than in the context of the Treaty,

the effectiveness of that Agreement would be 20. It is clear therefore that the principle of substantially compromised: see para- fiscal equality provided for in Article 18, first graph 26 of the judgment. paragraph, of the Agreement between the EEC and Austria must be interpreted in the light of the objectives of that Agreement. Since those objectives are more limited than 19. In Case 104/81 Hauptzoüamt Mainz v the objectives of the EEC Treaty, it follows Kupferberg [1982] ECR3641 the Court that there may be forms of fiscal discrimi- examined whether Article 21, first paragraph, nation which are prohibited by Arti- of the Agreement on free trade between the cle 95 but not by Article 18. It is therefore E E C and Portugal contained a prohibition necessary to look at the interpretation of analogous to that of Article 95 of the Treaty. Article 95 followed by the Court in Drexl It should be noted that Article 21, first para- and to examine whether that interpretation graph, of that Agreement is identical to Arti- can be transposed to Article 18, paragraph 1, cle 18, first paragraph, of the Agreement of the Agreement, read in the light of its between the EEC and Austria, which is in objectives. It must be noted at this stage that issue in these proceedings. The Court stated Article 18, paragraph 1, must be considered at paragraphs 29 to 31 of the judgment: as having direct effect. In Kupferberg, the Court held that Article 21, first paragraph, of the free trade Agreement between the EEC and Portugal contained an unconditional rule against discrimination in matters of taxation '... it must be observed that although Arti- and consequently produced direct effect cle 21 of the Agreement and Article 95 of the throughout the Community. The same rea- E E C Treaty have the same object inasmuch soning applies in relation to Article 18, para- as they aim at the elimination of tax dis- graph 1, of the Agreement between the EEC crimination, both provisions, which are and Austria, which is identical to Article 21, moreover worded differently, must however paragraph 1, of the Agreement at issue in be considered and interpreted in their own Kupferberg. context.

However, those differences cannot justify a 22. In Drexl, therefore, the Court accepted manifest disproportion in the severity of the that differences exist between offences con- penalties laid down by the two categories of cerning the payment of value added tax on offences. Such a disproportion exists where importation and those concerning the pay- the penalty provided for in the case of ment of value added tax on domestic transac- importation involves, as a general rule, a tions and that, in principle, Member States term of imprisonment and the confiscation are free to impose different penalties for the of the goods pursuant to the rules laid down two categories of offences. The Court held, to combat smuggling whereas comparable however, that the principle of fiscal equality penalties are not provided for, or are not provided for by Article 95 of the Treaty generally imposed, in the case of offences should be interpreted broadly so as to pro- concerning the payment of value added tax hibit the imposition of manifestly dispropor- on domestic transactions. A situation of that tionate penalties on comparable offences. kind could in fact have the effect of jeopar- The Court followed a broad interpretation dizing the free movement of goods within of Article 95 in the light of the objectives of the Community and would thus be incom- the Treaty and, in particular, in the light of patible with Article 95 of the Treaty. the objective of establishing an internal mar- ket.

24. The Commission and the Italian Gov- ernment claim that the interpretation fol- 26. With regard to the second argument, the lowed by the Court in Drexl in relation to Italian Government states that, even if it Article 95 cannot be transposed to Arti- were accepted that the prohibition against cle 18 of the Agreement. First, the Commis- fiscal discrimination provided for in Arti- sion and the Italian Government argue that cle 18 extended to criminal penalties, that Article 18 prohibits only substantive dis- prohibition would apply only to the imposi- crimination with regard to fiscal matters and tion of different penalties for similar does not affect the Member States' compe- offences. However, offences concerning value tence with regard to criminal penalties. Sec- added tax on importation are different from ondly, the Italian Government argues that, offences concerning value added tax on even if it is accepted that Article 18 prohibits domestic transactions. It follows that the discrimination with regard to criminal penal- imposition of different penalties with regard ties, there is no breach of that prohibition to those two types of offences does not con- where the offences concerned are different. stitute fiscal discrimination; the system of differential penalties provided for by Italian law is not therefore contrary to Article 18 of the Agreement. 25. With regard to the first argument, the Commission argues that in Drexl the Court followed a broad interpretation of the princi- ple of fiscal equality in the light of the objec- tives of the Treaty. It claims that the princi- 27. In my view Article 18 of the Agreement ple of fiscal equality cannot be interpreted in does not require any comparison to be made such broad terms in the context of a free between penalties imposed by Member trade agreement whose scope and objectives States for tax offences on imports from Aus- are much more limited. The Commission tria and penalties for tax offences on domes- argues that, in the light of the objectives of tic transactions or on imports from other the Agreement, the purpose of Article 18 is Member States. The right of free trade pro- to prohibit discrimination as regards all mea- vided for by the Agreement is more limited sures and practices concerning the imposi- than the rights emanating from the Treaty tion and collection of value added tax. Thus, provisions on the free movement of goods: Article 18 encompasses the basis upon which in that respect, the submissions of the Com- value added tax is assessed, the rate of value mission and the Italian Government seem to added tax and the methods of payment and me persuasive. Moreover, it is clear from the recovery of the tax which might have an Court's decision in Kupferberg that not all effect on the free circulation of products forms of discrimination which are prohibited originating in the territory of one of the by Article 95 of the Treaty are necessarily Contracting Parties. The Commission con- prohibited by Article 18 of the Agreement. cludes that restrictions on the competence of Indeed, even the notion of 'like product' in

Article 18 must be understood relatively nar- tive restrictions on imports shall be abol- rowly in the light of the object of the Agree- ished not later than 1 January 1975.' ment: see paragraphs 41 and 42 of the Kupferberg judgment. It would be inconsis- tent with the Court's case-law to adopt a broad interpretation of Article 18 so as to require a comparison to be made between It seems to me that a penalty imposed in penalties relating to imports from Austria relation to imports from Austria which is so and penalties relating to domestic or intra- disproportionate to the gravity of the offence Community transactions. as to pose an obstacle to the right of free trade provided for by the Agreement would be a measure having equivalent effect con- trary to Article 13 of the Agreement. Article 13 must be regarded as having direct effect: 28. I conclude that the interpretation fol- see the Opinion of Advocate General lowed by the Court in Drexl in relation to Tesauro in Case C-207/91 Eurim-Pharm, Article 95 of the Treaty cannot be transposed cited above at footnote 2, at paragraph 14. to Article 18, paragraph 1, of the Agreement. Nevertheless, Member States are in my view required, in the penalties they impose in rela- tion to imports from Austria, to respect the principle of proportionality. That require- ment does not follow from Article 18 which 30. It is true that criminal legislation is a is confined to the prohibition of discrimi- matter which in principle falls within the nation but rather from Article 13 of the competence of the Member States. However, Agreement. the case-law of the Court makes clear that, in accordance with the principle of proportion- ality, penalties which are imposed by national law must not in view of their sever- ity constitute an obstacle to the exercise of 29. It will be recalled that Article 13 of the the fundamental freedoms provided for by Agreement prohibits quantitative restrictions the Treaty. See e. g. in relation to the free on imports or measures having equivalent movement of goods, Case 41/76 Doncker- effect in trade between the Contracting Par- wolcke v Procureur de la République [1976] ties. It is in the following terms: ECR 1921 and Case 52/77 Cayrol v Rivoira [1977] ECR 2261, and in relation to the free movement of persons, Case 157/79 R v Pieck [1980] ECR 2171. In Case 203/80 Casati [1981] ECR 2595 the Court stated at para- '1. N o new quantitative restriction on graph 27 of the judgment: imports or measures having equivalent effect shall be introduced in trade between the Community and Austria.

31. It is therefore clear that, according to the case-law of the Court, a system of penalties imposed by Member States must not be so disproportionate to the gravity of the offence 33. I do not accept the Commission's argu- that it becomes an obstacle to the exercise of ment that restrictions on the competence of a freedom guaranteed by the Treaty. In my Member States to impose criminal sanctions view, analogous considerations should also apply only in the context of the Community apply in relation to international agreements and not in the context of a free trade agree- concluded by the Community. ment.

State punished even an inadvertent failure to principle of proportionality: see Case pay the full amount of value added tax due C-26/90 Wünsche [1991] ECR 1-4961, at on the importation of goods from Austria by paragraphs 12 and 13 of the judgment; imposing cumulatively the penalties of con- Case 112/80 DUrbeck v HauptzolUmt fiscation and a fine ten times the value of the Frankfurt am Main-Flughafen [1981]

I see no reason why that should the seriousness of the offence as to pose an be so. obstacle to the right of free trade provided for by the Agreement. Whether a penalty is so disproportionate in a specific case is a question for the national court. Two princi- ples, however, could be laid down in this context. First, it is clear that the right of free trade provided for by an agreement con- cluded between the Community and a third 35. The principle of proportionality applies State is more limited than the freedoms guar- generally, in my view, to all provisions gov- anteed by the Treaty. It follows that a erning trade between the Community and national system of penalties which is so dis- third countries. Thus quantitative restric- proportionate as to pose an obstacle to the tions on exports to third countries permitted attainment of the common market is not

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OPINION OF MR JACOBS — CASE C-312/91

Conclusion

37. I am accordingly of the opinion that the question referred by the national court should be answered as follows:

Article 18, first paragraph, of the Agreement on free trade between the EEC and Austria does not require any comparison to be made between penalties imposed by Member States for tax offences on imports from Austria and penalties for tax offences on domestic transactions or on imports from other Member States. H o w - ever a Member State may not impose a penalty for an offence concerning the pay- ment of value added tax on imports from Austria which is so disproportionate to the seriousness of the offence as to pose an obstacle to the exercise of the right of free trade provided for by the Agreement.

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