C-142/96

HAUPTZOLLAMT MÜNCHEN v WACKER WERKE

OPINION OF ADVOCATE GENERAL TESAURO delivered on 24 April 1997 *

1. In this case the Court has once again been Community with total or partial relief from called upon to give a ruling on the interpre­ import duties. tation of Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward process­ ing relief arrangements and the standard 1 exchange system. Here, the Bundesfinanz­ hof (Federal Finance Court) is asking the Court to clarify the interpretation of the sec­ ond subparagraph of Article 13(2) of that As we know, the purpose of that mechanism regulation, in particular the concept of the is to avoid the levying of customs duty on processing value applicable for the purpose goods exported from the Community for of determining the definitive customs duty. processing. To that end, Article 13(1) of the regulation provides in particular that:

Legal background

'The total or partial relief from import duties provided for in Article 1(2) shall be effected by deducting from the amount of import duties applicable to the compensating prod­ ucts released for free circulation the amount of import duties that would be applicable to the temporary export goods if they were 2. As stated in Article 1(2) of Regulation No imported into the customs territory of the 2473/86, outward processing relief arrange­ Community from the country in which they ments allow Community goods to be underwent the processing operation or last exported temporarily from the customs terri­ such operation'. tory of the Community in order to undergo processing, working or repair and the prod­ ucts resulting from those operations ('com­ pensating' products) to be released for free circulation in the customs territory of the

3. The value of the temporary export goods is to be calculated in accordance with the second subparagraph of Article 13(2), according to which it is the value 'taken into consideration for those goods in accordance with Article 8(l)(b)(i) of Council Regulation (EEC) No 1224/80, as last amended by Regulation (EEC) No 1055/85, when deter­ mining the customs value of the compensat­ ing products or, if the value cannot be deter­ mined in this way, the difference between the The second possibility envisaged in the regu­ customs value of the compensating products lation, by contrast, relates to situations in and the processing costs determined by rea­ which the product incorporated in the sonable means'. imported goods has been supplied for valu­ able consideration, as in the present case, so that the prerequisites for applying Article 8 of Regulation No 1224/80, which, as stated earlier, refers to products supplied by the buyer free of charge or at reduced cost, are not met (hereinafter 'the second alternative'). In those circumstances, according to the pro­ vision in question, the value of the tempo­ rary export goods must therefore be deter­ In practice, provision is made for the value mined by deducting from the customs value of the temporary export goods to be calcu­ of the compensating goods the processing lated in two distinct ways. The first sets out costs determined by reasonable means. what is probably the more frequent case, in which the customs value of the compensat­ ing products is determined in accordance 3 — Article 8(l)(b)(i) of Regulation No 1224/80 lays down that with Article 3 of Regulation No 1224/80 on in order to determine the customs value of the goods to be processed (under Article 3 of that regulation), it is necessary the valuation of goods for customs pur­ to add to the price actually paid or payable for the imported 2 goods the value, apportioned as appropriate, of 'the materi- poses, and the temporary export goods are als, components, parts and similar items incorporated in the supplied by the buyer free of charge or at a imported goods' where they arc supplied directly or indi- rectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable. That situation, however, does not arise in this case, where it is common 2 — OJ 1980 L 134, p. 1. ground that the transactions were for consideration.

Facts and questions referred for a ruling 5. The Hauptzollamt (Principal Customs Office) München initially calculated the cus­ toms value of the compensating products and of the temporary export goods on the basis of the prices which the two companies had invoiced to one another; subsequently, however, it considered that whereas the value of the compensating products should be fixed on the basis of the invoiced selling 4. The facts of the case may be summarized prices, that of the temporary export goods as follows: should be determined on the basis of pro­ duction costs (in the case of the petrol engines) or the purchase price (in that of the diesel engines), that is disregarding the increase of 25 % or 5% applied by Wacker Werke; accordingly, it took steps to recover DM 36 057.20 by way of customs duty. Wacker Werke exports petrol engines and diesel engines to the United States of America under the outward processing relief arrangements and imports equipment which is manufactured by Wacker Corporation (with which it has financial links) and in which the said engines are incorporated. In particular, Wacker Werke invoices the petrol engines manufactured by it on the basis of production costs, increased by 25 % for gen­ eral expenses and profit margins, whereas it invoices the diesel engines purchased from third-party producers on the basis of the Taking the view that the correct method of purchase price increased by 5 %. The calculation was the one initially adopted, imported equipment, by contrast, is invoiced Wacker Werke first contested the demand for at the prices indicated in the selling compa­ payment and then brought an action before ny's price lists, reduced by 45 %. the Finanzgericht (Finance Court) München. The company maintained in substance that the engines had been supplied for valuable consideration and that it was therefore not possible to rely on Article 8(l)(b)(i) of Regu­ lation No 1224/80, according to which, as stated earlier, the value of 'materials, compo­ nents, parts and similar items incorporated in the imported goods' must be taken into As the national court itself has acknowl­ account when determining the value of the edged, there is no reason to believe that the goods before processing, on the grounds that prices invoiced for the temporary export this provision applies only if such materials goods and for the compensating products are and components have been supplied 'free of influenced by the links between the two charge or at reduced cost', as is clear from its companies. wording.

6. The Finanzgericht München decided to 7. Following that ruling, the Finanzgericht stay proceedings and refer to the Court three upheld Wacker Werke's application, holding questions for a preliminary ruling concern­ that, if the calculation of the amount to be ing the interpretation of the provisions appli­ deducted in the case was governed by the cable for the determination of the value of second alternative in the second subpara­ the compensating products and the tempo­ graph of Article 13(2) of Regulation No rary import goods within the meaning of the 2473/86 (no adjustments having been made aforesaid regulations. within the meaning of Article 8(1)(b)(i) of Regulation No 1224/80), the processing value had to correspond to the transaction value of the compensating products, that is the purchase price inclusive of uplifts, after deduction of the processing costs. The Finanzgericht pointed out that it considered those rules to be applicable even where they had resulted in unjustified preferential treat­ ment on account of certain conditions relat­ ing to customs tariffs (in particular, the imposition of a higher levy on the temporary By judgment of 17 December 1992 4 the export goods than that borne by the com­ Court held as follows: 'Council Regulation pensating products). No 2473/86 of 24 July 1986 on outward pro­ cessing relief arrangements and the standard exchange system is to be interpreted as meaning that, in calculating the total or par­ tial relief from import duty for which it pro­ vides, the calculation of import duty on the compensating products must in principle be based on the transaction value of those prod­ ucts, while the value of the temporary export 8. The Hauptzollamt decided to appeal goods must be calculated using one of the against the judgment of the Finanzgericht. two methods set out in the second subpara­ graph of Article 13(2) of that regulation. If the value of the compensating products has been determined without any adjustment for the purposes of Article 8(1)(b)(i) of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes, the value of the temporary export In the proceedings before the Bundesfinanz­ goods corresponds to the difference between hof, the Hauptzollamt maintained that the the customs value of the compensating prod­ processing costs within the meaning of the ucts and the processing costs determined by second alternative in the second subpara­ reasonable means, such as taking account of graph of Article 13(2) of Regulation No the transaction value of the goods in ques­ 2473/86 cannot be determined with a suffi­ tion.' cient degree of certainty merely by deduct­ ing the selling price of the temporary export goods from the purchase price of the com­ 4 — Judgment in Case C-16/91, cited in footnote 1 above. pensating products. In support of its view, it

'1 . Is the second alternative provided for in the second subparagraph of Article 13(2) of Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward processing relief arrangements (OJ 1986 L 212, p . 1) to be In that regard, allow me to recall the obser­ interpreted as meaning that a method of vations I made in my Opinion in that

I - 4655

OPINION OF MR TESAURO — CASE C-142/96

case. I began by pointing out that although compensating products supplied by Wacker in abstract terms it could be held that the Corporation should be calculated by deduct­ costs borne by the processing undertaking in ing from the selling price taken into consid­ manufacturing the compensating products eration in calculating the customs value of are all processing costs, such an approach such goods, the sums paid by Wacker Cor­ would mean that the customs value of the poration for the purchase of the engines, compensating products corresponded to the including the increases applied by Wacker 6 amount of processing costs, with the result Werke. The Court, as I have said, decided that the value of the temporary export goods to endorse that approach. would be equal to zero, a consequence that would not appear to have been intended by the Community legislature.

I - 4656

HAUPTZOLLAMT MÜNCHEN v WACKER WERKE

which the value of the temporary export question is not so much to prevent unjusti­ goods at least comes close to the purchase fied advantages for customs purposes as to price. prevent the taxation of goods exported from 7 the Community for processing. Any unjus­ tified advantages which might arise should therefore, in accordance with the relevant provision as currently worded, be tolerated 8 at least in principle.

7 — Opinion in Case C-16/91, cited above, point 8. 8 — The Bundesfinanzhof itself, after expressing the doubts which induced it to make a reference, states at the end of its order that it favours this interpretation (which is shared, moreover, by the Commission as well as by Wacker Werke evidently). As I argued in my previous Opinion, the 9 — In any event, this would be a matter for the national court to overriding objective of the regulation in establish.

I - 4657

OPINION OF MR TESAURO — CASE C-142/96

16. In the light of the foregoing observations, I therefore propose that the Court answer the questions referred by the Bundesfinanzhof as follows:

(1) The second alternative provided for in the second subparagraph of Article 13(2) of Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward processing relief arrangements and the standard exchange system should be interpreted as meaning that a method of determining the processing costs can­ not be considered reasonable only if the resulting value of the temporary export goods corresponds to the purchase price paid by the holder of an out­ ward processing authorization or to the production costs.

(2) That article is to be interpreted as meaning that, in determining the processing costs, reference can be made to the purchase price for the inputs inclusive of uplifts paid by the processor to the holder of an outward processing authori­ zation, even where there is a tariff anomaly resulting in a higher rate of duty for the unprocessed goods than for the compensating products.