C-68/96

GRUNDIG ITALIANA v MINISTERO DELLE FINANZE

OPINION OF ADVOCATE GENERAL LENZ delivered on 15 July 1997 *

Summary

A — Facts I - 3777

B — Analysis I - 3779

I. Article 95 I-3779

C — Conclusion I - 3795

2 A — Facts context. The main proceedings from which the present case arises relate to an action brought by Grundig Italiana SpA against the Ministry of Finance of the Italian Republic, 1. In the present proceedings the Tribunale in which the plaintiff seeks repayment of the di Trento (Trento District Court) has sum of LIT 112 236 330 770 and statutory referred to the Court for a preliminary rul­ interest. This is the amount of consumption ing a question relating to the compatibility tax paid by the plaintiff between 1 Janu­ of the Italian consumption tax on audiovi­ 1 ary 1983 and 31 December 1992, the period sual and photo-optical products with Com­ during which the disputed tax was in force. munity law. The Court has already had occa­ In the opinion of the plaintiff, the Italian sion to examine this tax, although in another consumption tax is in breach of Community law and on that ground should not be paid.

* Original language: German. 1 — Introduced by Article 4 of the Decree Law of 30 Decem­ ber 1982, which was converted with amendments into Law No 53 of 28 February 1983 and supplemented by the imple­ menting provisions of the Ministerial Decree of 23 2 — Judgment in Case 130/92 OTO v Ministero dell Finanze March 1983. [1994] ECR I-3281.

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6. The national court considers that, as a preliminary to any other questions raised by the parties, it is necessary to determine whether or not the provisions introducing

3. In the case of imported products, by con­ trast, the taxable value is the value at the Ital­ ian frontier, which is determined on the basis 3 — Council Regulation (EEC) No 1224/80 of 20 May 1980 on the valuation of goods for customs purposes (OJ 1980 L 134, of the customs value as defined by Regu­ p. 1).

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I. Article 95

9. The first paragraph thus deals with similar products. Where such similarity does not exist, the second paragraph provides that 'no Member State shall impose on the products 4 7. As stated in the OTO judgment, the dis­ of other Member States any internal taxation puted tax has to be examined in the light of

5 — Case C-130/92, cited above (footnote 2), paragraph 11. 4 — Case C-130/92, cited above (footnote 2), paragraph 15 et seq. 6 — Case C-130/92, cited above (footnote 2), paragraph 18 et seq.

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11. In the view of the Court, the similarity required under the first paragraph of Article 95 exists if at the same stage of production or marketing the products have similar charac­ teristics and meet the same needs from the point of view of consumers. Whether or not 13. If such similarity does not exist, the sec­ the domestic product and the imported ond paragraph of Article 95 prohibits the product are classified under the same head­ protectionist effect of the tax, which would ing in the Common Customs Tariff consti­ occur in particular if internal taxation were 9 tutes an important factor in this assessment. to impose a heavier burden on an imported product than on a domestic product with which the imported product is, by reason of one or more economic uses to which it may 10 be put, in competition. As the tax in question is levied on audiovisual and photo-optical equipment in the categories of 12. It appears from the Commission's obser­ cameras, lenses, cine-cameras, and so on, vations that 12 categories of audiovisual and it is undeniable that domestic and imported products are in competition with one another. 7 — Case C-130/92, cited above (footnote 2), paragraph 16. 8 — Judgment in Case 54/72 FOR v VKS [1973] ECR 193, para- graph 5. 9 — Judgment in Case 45/75 REWE v Hauptzollamt Landau 10 — Judgment in Case 27/67 Fink-Frucht v Hauptzollamt [1976] ECR 181, paragraph 12. München [1968] ECR 223, especially at 232.

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14. Article 95 is therefore applicable here in manufactured and marketed in Italy, abso­ any event. In the light of the information lutely no transport and marketing costs are available, the products would appear to be taken into account when determining the similar within the meaning of the first para­ taxable amount. graph of Article 95. In case of doubt, it is for the national court to make a product classi­ fication.

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19. The Italian authorities dispute the exist­ ence of such discrimination. They contend 20. According to the Italian Government, that all goods — whether imported or manu­ the application of the tax also demonstrates factured in Italy — are accorded equal treat­ that the essential prerequisite for liability to ment. In both cases, they point out, the the tax is that the products be intended for

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22. In the opinion of the Italian Govern­ ment, such an approach is compatible with 24. As I have already stated, imported prod­ Community law, as different national tax ucts are subject to higher taxation than systems continue to exist that have not yet domestic products because of their higher been harmonised. For that reason, it con­ taxable value. This is not contested by Italy tends, a system of internal taxation, includ­ either. Indeed, the Italian Government con­ ing a consumption tax, is lawful. According siders that it must be accepted that imported to Italy, there are no provisions of Commu­ products have a higher price than domestic nity law that require Member States to disre­ products when they cross the frontier gard certain price components when deter­ because of the transport costs that have mining the value of imported goods on the already been incurred. On the basis of that sole ground that domestic products do not difference in price, the taxable amount is bear corresponding costs, for objective eco­ then determined equally for domestic and nomic reasons. By way of example, the Italian imported products — according to the

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Italian Government — less transport and cases, to lower taxation of the domestic marketing costs incurred in Italy. product'.

(a) Different initial value

14 — Case 127/75 Bobie v Hauptzollamt Aachen-Nord [1976] 13 — Case 55/79 Commission v Ireland [1980] ECR 481, para- ECR 1079, paragraph 3. graph 8 and the references it contains. 15 — Case 74/76 Iannelli v Meroni [1977] ECR 557.

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therefore of the cost of the original raw 28. As regards Italy's contention that the material together with the value added), disputed consumption tax is legitimate as it increased by the expenses of loading, ship­ is part of the domestic tax system which has ping, commission, insurance, transport and not hitherto been harmonised, the Court has so on as far as the frontier, even if those held that obstacles to the free movement of expenses were not included in whole or in goods may be eliminated by applying the part in the seller's invoice. The Court again procedure for the harmonisation of tax legis­ stated that in order to apply Article 95, the lation, but the harmonisation of the provi­ basis of assessment and detailed rules for sions relating thereto cannot be laid down as levying the tax must also be taken into con­ a condition for the application of Article 95, sideration. As soon as any differences in that which imposes on Member States with respect result in the imported product being immediate effect the duty to apply their tax taxed at the same stage of production or legislation without discrimination even 1 marketing at a higher rate than the similar before there is any harmonisation. 8 domestic product, the prohibition in Article 95 is infringed. According to the Court, this would happen 'if a tax is assessed on the value of a product and in the case of the imported product factors for assessment are taken into consideration which are likely to increase the value of the imported product vis-à-vis the corresponding domestic prod­ 16 uct'.

32. Advertising costs must also be counted among these various marketing costs. Conse­ quently, they too are paid centrally at one place, namely the head office of the parent company. If that office is located outside Italy, under the Italian arrangements no transport or marketing costs at all can be (b) Other aspects deducted from the taxable amount.

33. In the view of the Commission, Italy has regulated this tax as though the common 31. Although a breach of Article 95 has market did not exist and as though it could already been established, therefore, I would be assumed that the transport and marketing like to consider the other aspects raised by costs incurred with respect to Italy could be the parties to the proceedings. They lead me determined precisely and were also to be to conclude that even the Italian Govern­ defrayed in Italy itself, for the Italian Gov­ ment's claim that all products are treated ernment stated in the oral procedure that in equally as regards the deduction of costs the case of imported goods only costs arising within Italy does not stand up to scrutiny. In and paid in Italy itself can be deducted. this connection, the plaintiff and the Com­ mission point out that a common market now exists, especially in the audiovisual and photo-optical field. In their view, this means that undertakings sell their products in sev­ eral Member States. In order to do so, they attempt to centralise their distribution sys- tem, with the result that transport costs are incurred at only one place, usually the loca­ 34. For the sake of clarity, I refer once again tion of the parent company. The parties con­ to the example given in the oral procedure. tend that the same applies to marketing Grundig, among other companies, advertises costs. After-sales service networks are cen­ its products at an important football match tralised in order to provide a uniform guar­ involving an Italian team, which is played in antee in all Member States, which, as the Germany and broadcast in many Member

37. The inequality of treatment becomes even greater if, going a stage further, it is assumed that Italian manufacturers have also centralised their sales and marketing costs and that — as the Italian Government stated at the hearing — in the event of distribution 36. Hence, from that point of view it would and marketing systems having been centra­ no longer be possible to deduct any trans­ lised, the costs can be deducted in the coun­ port and marketing costs for imported try in which they have been incurred. This goods, either because they could no longer would mean that an Italian manufacturer be quantified owing to the centralisation of could deduct not just the costs relating to costs or because they were no longer Italy but also the costs incurred in Italy, in incurred or paid in Italy itself. The basis for other words a large part of the costs of the entire distribution and marketing system, whereas in the case of imported goods such 19 — Case 45/75, cited above (footnote 9), paragraph 15. costs can no longer be deducted.

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39. In my view, it does not appear from the documents that separate invoicing is really required. According to the Italian Govern­ ment, costs are deducted on the basis of the customs declaration made at the frontier. 41. I see no reason why the deduction of From this the conclusion could be drawn certain costs for imported goods should be that in order to claim the deduction it is suf­ impossible merely because only a customs ficient for costs to be broken down accord­ declaration and no quarterly tax return is to ingly on the customs declaration, always on be submitted for such goods. As the customs the assumption of course that a breakdown declaration serves to determine the customs of costs is possible. Further clarification of value, which may include transport costs, a this issue is a matter for the national court, breakdown of costs has to be made in any which has the necessary information. Even if case. Since the calculated value thus consti­ separate invoicing were necessary, however, I tutes the taxable value, no further calcula­ see no reason why such a breakdown could tions are necessary. However, this question not be made on the invoice form. (The ques­ too must ultimately be decided by the tion whether such a breakdown is still pos­ national court, which has more precise infor­ sible, given centralization, has already been 20 mation on the content of the customs decla­ discussed). ration. Should it transpire that the costs to be deducted cannot be shown on the customs declaration, Article 95 would have been 20 — See points 31 to 34 above. infringed in that respect as well.

42. There is therefore discrimination against 44. Finally, the Italian Government cites my imported goods not only on account of the Opinion in the OTO case as evidence that different values used to calculate the taxable inequality of treatment between imported amount but also because of the differing and domestic products does not exist. It extent to which transport and marketing refers in that regard to the observation that costs relating to Italy can be deducted from there are no grounds for concluding that those values. goods from other Member States (whether manufactured there or released into free cir­ culation) are treated less advantageously than 22 products manufactured in Italy. As the rel­ evant footnote clearly indicates, that state­ ment relates to a previous paragraph in the Opinion dealing with the interpretation of the wording of the question referred in that case, which involved imports from non- member countries. The observation referred to by the Italian Government should there­ fore be understood to mean that the question submitted by the national court gave no grounds for concluding that there was dis­ crimination against products manufactured within the Community and that the question 43. As regards the increase in the value on therefore did not need to be examined. which the tax is levied to include transport costs up to the Italian frontier, Italy has also submitted that this is based on the Commu­ nity's regulation on the valuation of goods for customs purposes and for that reason can­ not infringe Community law. It must be said in that connection that the regulation in question is designed to govern trade with 21 non-member countries. Calculation of the 2. Possibility of making a flat-rate deduction customs value including transport costs up in respect of products manufactured in Italy to the frontier cannot contravene Article 95 in the case of imports from non-member countries, as Article 95 does not apply in this instance. This does not mean, however, that if the provisions of that regulation are trans­ posed to a completely different case — namely the importation of goods from other Member States — such an increase in the basis of assessment is not in breach of the prohibition on discrimination laid down in 45. In the opinion of the national court, fur­ Article 95. ther discrimination may result from the fact

46. The Italian Government disputes the existence of such discrimination. It maintains that the purpose of the facility to make a flat-rate deduction is not to reduce the tax­ able amount. The flat-rate amount of 35 % is deducted not from the ex-works value of the product but from the selling price, on the assumption that 35 % reflects the impact of transport and marketing costs within Italy 48. The Italian Government does not dis­ on the price of the product. The Italian Gov­ pute the fact that the taxable amount can be ernment points out that those costs can also calculated far more rapidly and easily for be deducted from the taxable amount for domestic products on the basis of the flat- imported goods. It also observes that it is rate deduction. It considers, however, that possible to adjust the amount of the flat-rate this merely restores comparability between deduction to suit general economic condi­ domestic and imported products, and that tions or to products for which the impact of without the possibility of making a flat-rate the said costs on the price does not corre­ deduction it is far more difficult to calculate spond to 35 %. In addition, it points out that the taxable amount for domestic products the price of the product declared by the than for imported ones. manufacturer, from which the flat-rate deduction is made, must correspond to the normal value of the goods defined in accord­ ance with Italian legislation. The competent authorities verify whether that is the case. The Italian Government concedes that if a manufacturer opts to make a flat-rate deduc­ tion his figures must initially be treated as correct, but this does not mean that the authorities are tied to the extent that they 49. The Italian Government maintains that can no longer verify them. in the case of imported products all that is required is to determine the customs value in accordance with Regulation No 1224/80, a value that can be established formally and objectively. The taxable values derive from the same formalities as are required for the customs declaration. According to the Italian Government, the ex-works value of domestic 47. For that reason, in the view of the Italian products is much more difficult to deter­ Government, the flat-rate deduction is only mine. Accounting and tax documents

50. In my view, that reasoning cannot be fully endorsed. For imported goods as well, 52. The Italian Government contends, how­ it is not sufficient to state the value free at ever, that the possibility of making a flat-rate frontier. On the contrary, in that case too, deduction constitutes merely a formal sim­ the transport and marketing costs incurred in plification which gives rise to no higher bur- the Italian market must be quantified pre­ den of taxation on imported goods. cisely in order to be capable of deduction. It is therefore difficult to see why those costs should be easier to determine for imported goods than for domestic products, all the more so as in the case of imported goods transport and marketing costs are incurred both up to the frontier and within Italy. Unlike the domestic manufacturer, therefore, the importer may also have to break down 53. The Court has consistently held that the the costs according to the territory in which first paragraph of Article 95 prohibits the they are incurred. It is far from clear why the levying of a tax on a product imported from importer requires fewer documents and less another Member State in accordance with evidence for this than the domestic producer, different methods of calculation or rules — unless the deduction of such costs is entirely for example a flat-rate amount in one case prohibited for importers, which would and a graduated amount in the other — lead­ undeniably constitute discrimination within ing, even if only in certain cases, to higher the meaning of Article 95. taxation of the imported product. 23 In the view of the Commission, such unequal treat­ ment of imported products amounts to 35 %. The flat-rate calculation, which is permitted only for domestic products, is the only way of deducting marketing and transport costs

incurred within Italy. In that regard, the marketing costs. Those amounts should also Commission reiterates its assertion that there be evident from accounting documents. is discrimination on the basis of different Whether such figures are sufficiently precise, taxable amounts. It maintains that the price however, and hence meet the requirements components relating to transport and mar­ for allowing the deduction of such costs, is keting costs incurred in Italy cannot be questionable, particularly since in the age of deducted as they are not stated separately on centralised distribution networks it could be the invoice, which shows a single price. extremely difficult to quantify precisely the Moreover, the Commission argues, there is costs incurred in Italy. no known procedure whereby importers can declare and deduct those costs. Finally, it restates the view that, because of centralisa­ tion, it is not possible to break down the price either according to particular types of cost or according to the particular Member States in which those costs arise. Such a demand on the part of the Italian Govern­ ment is, in the Commission's opinion, noth­ ing short of 'diabolical'. Thus, the Commis­ sion contends, it can be assumed that marketing and transport costs within Italy cannot be quantified and hence deducted unless the possibility of a flat-rate deduction is provided for. Since that option is available only to domestic producers, however, and at a rate of 35 %, the Commission maintains 55. Given those circumstances, the possibil­ that the tax on imported goods is 35 % ity cannot at any rate be ruled out that higher as there is no possibility of such a undertakings from other Member States may flat-rate deduction in the case of such goods. not be able to quantify their costs with suf­ ficient precision and hence deduct them in full. The Italian Government itself has stated how difficult it is for Italian producers to quantify deductible costs using the 'normal method'. Since, as I have already said, there is no difference in relation to imported prod­ ucts in that regard, it may in certain cases be more difficult, if not impossible, for foreign manufacturers to deduct their transport and marketing costs incurred in Italy. That in itself is sufficient for a finding of discrimi­ nation under Article 95. It is therefore not 54. It is doubtful whether it can really be merely a question of the convenience of argued that no costs at all can be deducted undertakings from other Member States, as by means of the 'normal method'. If neces­ the Italian Government maintains. Even if sary, this is a matter for the national court to such undertakings found a way of deducting decide. Moreover, when calculating the price, their costs, it would undoubtedly entail far each undertaking must determine the extent greater effort — and financial expense — to which the price includes transport and than for domestic producers. Even in that

3. Differences in the procedures for collect­ ing the tax

57. Finally, the EFTA Surveillance Autho­ rity points to a further possibility of unequal treatment of imported products under the flat-rate calculation procedure. It 60. The national court also expresses doubts states that domestic products could enjoy as to the compatibility of the tax with more advantageous treatment by virtue of Article 95 of the EC Treaty because of the the fact that in the case of a product on different procedures for its collection. In the which the profit margin is less than 35 %, it case of imported goods, the obligation to pay is nevertheless possible to deduct 35 % of the the tax arises at the time of importation of normal value. In that way, the producer the goods at the customs frontier. That is could reduce the taxable amount of the also when the tax becomes due and must be

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paid by the importer. The situation is differ­ account is also taken of the substantial sums ent for domestic products. Here the tax obli­ claimed by the plaintiff in the main proceed­ gation arises when the product is released on ings, the benefit in favour of domestic prod­ to the Italian market for consumption, but ucts can no longer be described as small. the tax does not become payable until later, Article 95 has therefore been infringed. that is to say when the domestic producer has to submit the tax return to the tax authorities, which he must do every quarter during the month following the end of the quarter. This means that the tax becomes due and thus has to be paid up to four months after the release of the goods for consump­ tion.

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only by granting the deferred payment facil­ the function of the Court to resolve the dis­ ity for imported goods as well. However, it pute in the national proceedings. It can only is doubtful whether the existing possibility provide the national court with criteria for of paying the tax, upon request, up to 30 interpreting Community law. The precise days after importation is sufficient. That is a calculation of the sum to be paid to the question that must be decided by the plaintiff must be left to the national court. national court, which must also examine Equally, it is for the national court to decide whether the need to make such a request within the framework of its own legal sys­ constitutes an obstacle for imported prod­ tem whether internal taxation which is dis­ ucts. criminatory within the meaning of Article 95 is to be regarded as not payable in its entirety or only in so far as it exceeds the tax 26 assessed on the domestic product.

65. The objective must be to prevent imported products from being treated less favourably than domestic products. 67. It should therefore be held that Article 95 of the EC Treaty is to be inter­ preted as meaning that a consumption tax such as that in dispute, which lays down dif­ 66. The Italian Government has requested ferent taxable amounts and different collec­ the Court, should it find that the differences tion procedures for domestic products and in the procedures for collecting the tax con­ those imported from other Member States stitute discrimination, to lay down criteria and allows the possibility of making a flat- for calculating the heavier taxation of foreign rate deduction only for domestic products, is products in such a case. It is not, however, in breach of that article.

for by Article 4 of the Decree Law of 30 December 1982, converted into law by Law No 53 of 28 February 1983, and further governed by the Decree of the Min­ istry of Finance of 23 March 1983, in so far as different taxable amounts are deter­ mined for domestic products and for products imported from other Member States, different procedures are laid down for collection of the tax and the possibil­ ity of making a flat-rate deduction for calculating the taxable amount is reserved for domestic products.

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