C-345/93

NUNES TADEU

OPINION OF ADVOCATE GENERAL JACOBS delivered on 13 December 1994 *

1. The Supremo Tribunal Administrativo of 152/89 of 10 May 1989, as amended, which Portugal seeks a preliminary ruling on the at the relevant time provided as follows: interpretation of Articles 9, 12 and 95 of the Treaty in proceedings relating to the lawful­ ness of the tax arrangements applicable to second-hand cars imported into Portugal from other Member States. A number of questions concerning the compatibility with those Treaty provisions of the Portuguese '1 . The motor vehicle tax is a domestic tax motor vehicle tax were referred to the Court levied on light passenger motor vehicles 1 in a previous case (Lourenço Dias ) but the imported new or second-hand, or Court declined to answer most of them on assembled or manufactured in Portugal, the ground that they bore insufficient rele­ and which have been duly registered. vance to the facts of the case.

2. ...

3. Mr Nunes Tadeu paid the tax but subse­ The relevant Treaty provisions quently brought proceedings to recover it before the Tribunal Fiscal Aduaneiro do Porto. He argued that the tax was contrary to certain provisions of Community law, in particular Article 95 of the Treaty. The Tri­ bunal Fiscal Aduaneiro do Porto gave judg­ 4. Article 9(1) of the Treaty provides: ment in favour of Mr Nunes Tadeu, where­ upon the Portuguese tax authority (the Fazenda Pública) appealed to the Supremo Tribunal Administrativo. By judgment of 26 May 1993, that court referred the follow­ ing questions to the Court of Justice for a preliminary ruling: 'The Community shall be based upon a cus­ toms union which shall cover all trade in goods and which shall involve the prohibi­ tion between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries.'

'(1) Is the application of a motor vehicle tax with the characteristics described above on second-hand light motor vehicles imported from Belgium into Portugal 5. Article 12 prohibits Member States from compatible with the first and second introducing between themselves any new paragraphs of Article 95 of the Treaty of customs duties on imports or exports or any Rome when other second-hand vehicles, charges having equivalent effect, or from whether imported new or assembled or increasing existing ones. Articles 13 to manufactured in Portugal, are not sub­ 15 required Member States to abolish exist­ ject to the tax? ing duties on imports during the transitional period.

Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford 8. In Lourenço Dias the Court cited the indirect protection to other products. 3 Co-Frutta judgment in which it confirmed its previous case-law concerning the demar­ cation between the scope of Articles 9 to 12 and that of Article 95. According to that case-law, 'the prohibition laid down by Arti­ cles 9 and 12 of the Treaty in regard to Member States shall, not later than at the charges having equivalent effect covers any beginning of the second stage, repeal or charge exacted at the time of or on account amend any provisions existing when this of importation which, being borne specifi­ Treaty enters into force which conflict with cally by an imported product to the exclu­ the preceding rules.' sion of the similar domestic product, has the result of altering the cost price of the imported product, thereby producing the same restrictive effect on the free movement of goods as a customs duty. The essential The inapplicability of Article 9 et seq. of the feature of a charge having an effect equiva­ Treaty lent to a customs duty which distinguishes it from an internal tax therefore resides in the fact that the former is borne solely by an imported product as such whilst the latter is borne both by imported and domestic prod­ 4 ucts'.

7. The first issue that arises is whether the motor vehicle tax charged on the importa­ tion of Mr Nunes Tadeu's car is a customs duty within the meaning of Articles 9 and 12 of the Treaty or whether it is part of a general system of internal taxation which falls to be appraised under Article 95. That issue need not detain us for long, since it has 9. On the other hand, a charge which is already been resolved by the judgment in borne by a product imported from another Lourenço Dias. There the Court held that a car tax which applies without distinction to vehicles assembled or manufactured in the 2 — Paragraph 55 of the judgment, cited in note 1 above. Member State in which it is charged and to 3 — Case 193/85 [1987) ECR 2085. imported vehicles, both new and second­ 4 — Paragraphs 8 and 9 of the judgment in Co-Frutta.

11. As the Commission observes, the pur­ pose of Article 95 of the Treaty is to ensure 'complete competitive neutrality' between 10. The tax in question is charged on 'light domestic products and those imported from passenger motor vehicles imported new or other Member States. It prohibits Member second-hand, or assembled or manufactured States from applying a discriminatory or in Portugal and which have been duly regis­ protective tax system to the disadvantage of tered'. It thus forms part of a general system imported products. The Court has recog­ of internal taxation which applies to certain nized, moreover, that Article 95 plays a fun­ categories of products according to objective damental role in the field of free movement criteria and regardless of their origin. The of goods in so far as it complements the spe­ Court was therefore right to hold in cific provisions governing that field. If Mem­ Lourenço Dias that such a tax cannot be clas­ ber States were free to subject imported sified as a customs duty or charge having goods to discriminatory taxation, the effec­ equivalent effect and that its compatibility tiveness of the Treaty provisions prohibiting with Community law must be appraised customs duties and quantitative restrictions under Article 95 of the Treaty. That finding on trade between Member States would be is not affected by the fact that the tax is seriously undermined. charged on imports of used cars but not on domestic transactions involving used cars. That difference is due to the fact that the tax is charged, once only, in respect of the first registration of a vehicle in Portugal. It would not be correct to say that a domestic transac­ tion involving a used car is not burdened with the tax — contrary to what is implied by the first question of the Supremo Tribu­ nal Administrativo — since a residual por­ tion of the tax that was paid when the car was first registered continues to be incorpo­ rated in the value of the car. 12. For the purposes of the present case, it is important to appreciate that the concept of 'domestic products' is not confined to goods actually produced in the Member State in 5 — Paragraph 10 of the judgment in Co-Frutta. question; the Court recognized in Commis-

'... even if it appears that by reason of the very large amount of tax levied on new cars the portion of the duty still incorporated in the value of the vehicle is written off more slowly in Denmark than in other Member States which levy a lower duty, that does not prevent the levying of a registration duty for which the basis of assessment is at least 90% of the value of the car when new from con­ stituting generally manifest over-taxation of 13. As to the question how such fiscal neu­ the vehicles in comparison with the residual trality is to be attained, the answer may be registration duty in the case of previously sought in Commission v Denmark. In that registered used cars bought on the Danish case the Court held that Denmark had market, whatever their age or condition.' infringed Article 95 'by imposing a registra­ tion duty on imported used motor vehicles generally based on an estimated value which is higher than the real value of the vehicle with the result that imported used motor vehicles are taxed more heavily than used motor vehicles which are sold on the domes­ tic market after being registered in Den­ 14. It is clear from Commission v Denmark mark'. Under the Danish tax system an ad that the tax charged on an imported used car valorem registration duty was charged on must not exceed the residual tax incorpo­ motor vehicles when first registered in Den­ rated in the value of a domestic used car of mark. The rate of duty on new cars was the same characteristics. In order to calculate the residual tax incorporated in the value of a domestic used car it is necessary to look at 6 — Case C-47/88 Commission v Denmark [1990] ECR I-1509. its market value, the assumption being that

the amount of residual tax declines in direct than 90% of the tax on a new car, whereas proportion to the value of the car. Thus the residual tax incorporated in the value of a if the value of a new car placed on the domestic used car having the same character­ market in Portugal in 1987 was istics will be less than that amount whenever ESC 1000 000 including car tax of the value of the imported car is less than ESC 200 000, and if in 1990 the value of the 90% of the value of a new car. car was ESC 600 000, the residual tax incor­ porated in that value amounts to ESC 120 000. That is the maximum amount of tax that may be charged when a compar­ able car is imported into Portugal. It may be noted that that method of calculating the residual tax is similar to the method approved by the Court, in the case known as 7 Schul II, for the purpose of calculating the 16. The Netherlands Government, which residual amount of value added tax (VAT) submitted written observations, points out incorporated in the value of goods. Although that the Portuguese vehicle tax differs, as that case concerned a different issue (namely, regards its method of calculation, from the whether and to what extent the State into Danish registration tax. The former is based which second-hand goods are imported on the cylinder capacity of the car, whereas should take into account, for the purpose of the latter is an ad valorem duty. The Neth­ calculating VAT, the VAT paid in the export­ erlands Government suggests that that differ­ ing State), it seems logical to apply the same ence may be sufficient to render the Portu­ method of calculation, since in both cases it guese tax compatible with Article 95. I do is a question of determining the residual not see how that can be so. Regardless of amount of tax incorporated in the value of whether the tax is based on cylinder capacity second-hand goods. or on the value of the vehicle, the fact remains that under the Portuguese system, as under the Danish one, the residual tax incor­ porated in the value of a domestic used car automatically decreases as the value of the car depreciates. The principle of fiscal neu­ trality enshrined in Article 95 requires that the tax charged on an imported used car should likewise vary in accordance with the value of the car. 15. In the light of the Court's judgment in Commission v Denmark it is difficult to see how the Portuguese legislation in force at the time when Mr Nunes Tadeu imported his car can be compatible with Article 95. Under that legislation, as under the Danish legisla­ tion at issue in Commission v Denmark, the tax on an imported used car can never be less 17. The Portuguese Government argues that the contested tax system cannot have a pro­ tectionist intent or effect because the cost of 7 — Case 47/84 Staatssecretaris van Financiën v Schul[1985] ECR. 1491, paragraph 34 of the judgment. an imported used car, even after the addition

of vehicle tax, is lower than the cost of an preserve any competitive advantage arising equivalent domestic used car. The Portu­ from that lower value but would in addition guese Government defends the tax system give the importer a fiscal advantage which applicable to used cars on the ground that it would be inconsistent with fiscal neutrality. 'merely seeks to ensure equality in principle between the commercial value of domestic 8 and imported used cars'. That argument seems to be based on a misunderstanding of the requirements flowing from Article 95 of the Treaty. Those requirements are not satis­ fied simply because the price of an imported product, including tax, does not exceed the 19. At the hearing the Portuguese Govern­ price of a similar domestic product. It may ment referred to certain practical difficulties be that the pre-tax price of an imported that would ensue if the tax on imported used product is significantly lower than the pre­ cars had to be based on their actual market tax price of a competing domestic product. A value; that value might not be easy to deter­ tax system which seeks to eliminate that mine, according to the Portuguese Govern­ competitive advantage is manifestly contrary ment, since there are considerable discrepan­ to Article 95. What Article 95 requires is cies in the various lists of used car prices equivalence in the fiscal burden imposed on published in Portugal. That argument is domestic and imported goods, not equiva­ unconvincing. If it were upheld, there would lence in the final selling price. be no possibility of ensuring even a sem­ blance of fiscal neutrality between domestic and imported second-hand goods. Moreover, the problem of estimating the value of imported second-hand goods is not a new one and arises whenever second-hand goods liable to an ad valorem tax, including value added tax, are imported. It raises a question of fact which does not seem exceptionally complex, and which may be resolved, if nec­ essary, by recourse to the opinion of experts. 18. It should however be noted that the Certainly, the question does not seem to be importing State is not required to base the so overwhelmingly complex as to justify tax on the price paid for the car by the assessing tax on imported used cars on the importer or on its value in the exporting basis of a system which seems to proceed on State; it is entitled to take into account the the unlikely assumption that a used car, value in the importing State. That follows regardless of its age, condition and mileage, from the requirement that the tax charged in can never be worth less than 9/10ths as much the importing State must not exceed the as a new car. residual amount of tax incorporated in the value of a domestic used car of the same characteristics. If the importing State were required to base the tax on the lower value in the exporting State, that would not merely

several times. The amount of tax charged on But if the car has depreciated by more than an imported used car is now reduced pro 49%, which is surely possible, particularly if gressively in accordance with the age of the the car has higher than average mileage and car. At the hearing the Commission is in relatively poor condition, then the tax informed the Court that, if the legislation charged will exceed the amount of the resid now in force had been applicable when Mr ual tax incorporated in the value of a domes Nunes Tadeu's car was imported, the tax tic used car of identical characteristics. would have been reduced not by 10% but by

9 being imposed on the imported product. In the case of the Portuguese vehicle tax the imported product and the similar domestic product are in principle taxed on the basis of the same criterion (namely, cylinder capac ity) but the incidence of the tax is not the 21. Notwithstanding the Commission's same; the tax burden on a domestic used car view, it is questionable whether the current diminishes as the car depreciates, whereas Portuguese legislation (whose compatibility imported used cars are taxed under a flat-rate with the Treaty is not of course in issue in

As a result there will still be cases in which fiscal 9 — See Case C-152/89 Commission v Luxembourg [1991] ECR neutrality is not ensured. If, for example, I-3141, paragraph 20 of the judgment, and Case C-153/89 Commission v Belgium [1991] ECR 1-3171, para someone imports a car between 5 and 6 years graph 12; see also the cases cited in paragraphs 23 and 24 of my Opinion in those cases and my comments in para old, he will be granted an abatement of 49%, graphs 25 and 26 of that Opinion. The point was confirmed, which means that he will have to pay 51 % of in relation to the taxation of cars, in Case C-327/90 Commis- sion v Greece [1992] ECR 1-3033, paragraph 20 of the judg the tax that would be payable on a new car. ment.

(2) The charging of such a tax on imported used cars infringes Article 95 of the Treaty in so far as the amount charged exceeds the amount of residual tax incorporated in the value of a used car of the same characteristics which is already on the market in the Member State in question.

10 — Sec paragraph 49 of the judgment in Lourenço Dins. 11 — Case 3Ί/67 Luck v Hauptzollamt Koln [1968] ECR245 , p. 251; Case 74/76 laim'lli v Merom [1977] ECR 557, para­ graph 22 of the judgment.

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