C-213/96

3. Under the Eräiden energialähteiden valm- isteverosta annettu laki (Law on excise duty on certain sources of energy, 1473/94), 1 coal, peat, natural gas, electricity and pine oil are Duty on electricity is not, however, payable subject to duty payable to the Finnish State, on electrical energy which is produced in a generator with an output of less than two megavolt-amperes. It appears in addition that electricity generated from certain industrial * Original language: English. 1 — It appears that that law was repealed by Law 1260/1996 of waste and electricity generated from peat if 30 December 1996 on the goods duty applicable to electric- production is no more than 25 000 MWh per ity and certain fuels, which came into force on 1 January 1997. annum is exempt from the duty.

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4. The tax table annexed to the Law is as follows:

Product Basic Additional Product group duty duty

Coal, coal briquettes, solid fuels processed from coal; lignite 1 — 116.1 mk/tonne

Pine oil 7 18.55 p/kg —

1 — 'mk' and 'p' are abbreviations of the Finnish units of currency, markka and penni. 'kWh' and 'MWh' are abbreviations of kilowatt-hour and megawatt-hour. *Theduty payable on natural gas for the period from 1 January 1995 to 31 December 1997 is reduced by 50%.

5. The taxation of coal, electricity, natural tricity to its subsidiaries. Since 1 November gas, milled peat, sod peat and crude pine oil 1995 Outokumpu has been importing elec- was based on environmental grounds. The tricity from a Swedish generating company total tax on the import of electricity was pursuant to a five-year supply contract. determined in such a way that it corre- Before delivery of electricity under that con- sponded to the average tax content of elec- tract started, electricity was supplied by the tricity produced in Finland. N o account was Swedish company to Outokumpu for a trial taken of the reduction of duty on peat and period from 18 September 1995 to 9 October natural gas. 1995. Outokumpu made a tax declaration with respect to the trial supply to the Hels- inki District Customs Office, submitting with its declaration a letter in which it expressed The facts and the main proceedings its opinion that the levying of the duty o n electricity was contrary to Articles 12 and 13 of the EC Treaty and that for that reason the 6. Outokumpu Oy ('Outokumpu') is the duty ought not to be assessed. It appears that holding company of a group which is among the customs office none the less decided that the biggest industrial consumers of electricity the duty was payable. Outokumpu appealed in Finland. Outokumpu inter alia sells elec- against that decision to the Lääninoikeus.

1. Is excise duty on electricity, determined for imported electricity in the manner 'Under Finnish national legislation on the described above, to be regarded as a taxation of energy, excise duty on electricity charge having equivalent effect to a cus- is levied in Finland on electrical energy pro- toms duty, within the meaning of duced there, the amount of the duty depend- Articles 9 and 12 of the EC Treaty? ing on the method of production of the elec- tricity. O n electricity produced by nuclear power, the excise duty charged is a basic duty of 1.5 p/kWh and an additional duty of 0.9 p/kWh. O n electricity produced by water power, the excise duty charged is only an 2. If it is not a charge having equivalent additional duty of 0.4 p/kWh. O n electricity effect to a customs duty, is excise duty produced by other methods, for example on electricity, determined for imported from coal, excise duty is charged on the basis electricity in the manner described of the amount of input materials used t o above, to be regarded as a tax which dis- produce the electricity. O n electrical energy criminates against imports from other produced by some methods, for example in a Member States, within the meaning of generator with an output below two Article 95 of the EC Treaty?' megavolt-amperes, no excise duty at all is charged. On imported electricity, the excise duty charged, regardless of the method of production of the electricity, is a basic duty of 1.3 p/kWh and an additional duty of 0.9 p/kWh. The excise duty on electricity is thus 8. Written observations have been submitted determined with respect to imported elec- by Outokumpu, the Finnish and French tricity on a different basis from that applied Governments and the Commission. Outo- to electricity produced in Finland. The levy- kumpu, the Finnish Government and the ing of excise duties determined on the basis Commission were represented at the hearing. of the method of production of the energy is founded on environmental grounds in the drafting history of the law. The amount of duty chargeable on imported electricity is not, however, determined on the basis of the method of production of the electricity. The 9. Exhaustive detail of the applicable legisla- excise duty chargeable on imported electric- tion has been provided by the applicant. ity is higher than the lowest excise duty Since however the essential features for the chargeable on electricity produced in Fin- purpose of the questions referred have been land, but lower than the highest excise duty supplied in exemplary and lucid fashion by chargeable on electricity produced in Fin- the national court, both in the summary

10. Articles 9 and 12 of the Treaty, in so far Member States shall refrain from introducing as is relevant to this case, provide as follows: between themselves any new customs duties on imports or exports or any charges having equivalent effect, and from increasing those which they already apply in their trade with 'Article 9 each other.'

1. The Community shall be based upon a customs union which shall cover all trade in 11. Article 95 of the Treaty provides as fol- goods and which shall involve the prohibi- lows: tion between Member States of customs duties on imports and exports and of all charges having equivalent effect ... ' N o Member State shall impose, directly or indirectly, on the products of other Member 2 — Paragraphs 3 to 5. States any internal taxation of any kind in

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excess of that imposed directly or indirectly between Member States is significantly less on similar domestic products. developed and liberalised than the market in most other goods. National restrictions — legislative, technical and other — prevent free trade in electricity within the Commu- nity, although the Nordic countries share a unified grid which makes trade in electricity practicable. Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.

13. It is settled case-law that a given levy cannot be both a charge having an equivalent effect under Articles 9 and 12 and internal Member States shall, not later than at the taxation under Article 95. 4 beginning of the second stage, repeal or amend any provisions existing when this Treaty enters into force which conflict with the preceding rules.'

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15. Although, as I stated in my Opinion in 18. The Finnish Government contrasts a Haahr Petroleum, 6 the line between the hypothetical duty imposed on imported parallel concepts of customs duties and products purely on account of their crossing charges having an equivalent effect, on the a frontier, which would be a charge having one hand, and internal taxation contrary to an effect equivalent to a customs duty, with a Article 95, on the other, is very fine, 7 duty such as that at issue in this case, which the Court has since its first decisions on is applicable to both imported and national the distinction between those concepts products. The chargeable event in both cases frequently reiterated that the essential feature is the moment when the electricity enters the of a charge having an effect equivalent to a national grid. The duty on imported electric- customs duty which distinguishes it from an ity is part of a general system of taxes o n internal tax resides in the fact that the former production in which the method of produc- is borne solely by an imported product as tion has an effect on the rate of the duty. such whilst the latter is borne both by Only when that is not possible is the duty imported and domestic pro ducts. 8 based on the final product. The duty thus applies both to electricity produced in Fin- land and to imported electricity. The same authority collects the duty. The object of the duty was not to align the price of the imported and national products, but to arrive at a duty on imported electricity correspond- ing to the average rate of the duty on elec- tricity produced in Finland. 16. Since the Finnish duty on electricity applies to both imported and domestic elec- tricity, it seems clear prima fade that it is not a charge having an effect equivalent to cus- toms duties.

that those requirements are satisfied in this 22. The Commission notes that there are case. certain borderline cases in the 'grey zone' between Articles 9 and 12 on the one hand and Article 95 on the other. There are clearly differences in the basis on which imported and domestic electricity are taxed in the present case. The fact that fiscal distinctions are drawn between domestic and imported products does not, however, necessarily mean that Article 95 is inapplicable, since the very purpose of Article 95 is to prevent any discrimination to the detriment of imported 20. First, electricity generated in Finland is goods. The Commission accordingly consid- taxed on production, which amounts in prac- ers, to my mind correctly, that each border- tice to being taxed when it arrives on the line case calls for a global assessment which grid. That is so in effect even for electricity takes account of the general objectives and generated from sources other than nuclear the nature of the tax regime in question and and hydraulic: even though in economic compares the scope and effect of the systems terms it is those sources which bear the duty, applicable to imported and to domestic the duty is none the less directly propor- products. If the differences are sufficiently tional to the amount of electrical energy marked to preclude a straightforward delivered to the grid derived from those comparison, that would tend to support the sources. Imported electricity is similarly view that Articles 9 and 12 were at issue. taxed when it arrives on the national grid. The French Government submits that there is thus no need to attach any symbolic sig- nificance to the crossing of the frontier.

electricity are not sufficiently flagrant for the 26. Secondly, Outokumpu refers to the pro- former to be categorized as a charge having vision in the Finnish law which provides that an effect equivalent to a customs duty within the duty on imported electricity is payable the meaning of Articles 9 and 12. The duty by the importer whereas the duty on elec- may on the other hand be considered to tricity produced in Finland is payable by the form an integral part of the general Finnish producer. Outokumpu states that it is evi- regime of excise duties applicable both to dent from that provision that the duty on domestic goods and to goods originating in imported electricity is levied by virtue of the other Member States. crossing of a frontier between Member States. To my mind, however, that argument is no more decisive than the previous one: any tax affecting imports may be seen as due by reason of the crossing of a frontier. As I pointed out in my Opinion in Haahr Petro- leum:

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on the crossing of a frontier to be within the 30. That argument however appears to be scope of Article 95 rather than Articles 9 and misconceived. It is clear from the order for 12: see for example Commission v Italy, 12 reference that what differentiates the duty which concerned a 'frontier surcharge' levied on electricity from such sources from imposed on certain imported mineral oils the duty on imported electricity and electric- and derivatives, and Stier, 13 in which the ity generated in Finland from nuclear or Court stated that taxes such as the turnover hydraulic power is the basis on which the tax at issue in that case came within the con- rate of duty is calculated. While that differ- cept of internal taxation referred to in Article ence may be of crucial relevance for deter- 95 even if charged at the moment of impor- mining whether the duty is contrary to tation. 14 Article 95, it cannot prevent the duty from falling within the scope of that provision. The Court has on many occasions held that taxes on imports and domestic production assessed on different bases fall to be assessed under Article 95: a particularly compelling analogy is perhaps provided by the Belgian and Luxembourg beer cases, 15 in which excise duty on domestic production of beer 28. Thirdly, Outokumpu argues that the was calculated on the basis of the actual duty on imported electricity is not applicable quantity of the intermediate product (hot to domestic electricity in certain cases and wort) used in the manufacturing process hence, being to that extent specifically whereas the duty on imported beer was cal- imposed on products imported from another culated on the basis of the quantity of the Member State but not similar national prod- finished product, adjusted so as to take into ucts, is a charge having an effect equivalent account the notional amount of wort that to a customs duty. There appear to be several will have gone into the production of the overlapping strands to that argument, which beer. can be broken down into two principal sub- missions.

product is imported from other Member provided for certain exemptions for domestic States. 16 Outokumpu recognises this in its production could not fall within the scope of submissions in the alternative alleging that Article 95, since such a system is precisely the duty contravenes Article 95. the sort of system which Article 95 is designed to regulate. In any event it is clear from the case-law of the Court that Article 95 applies in such circumstances: see, for example, Schüttle 17 and Commission v France. 18 The Court has even been prepared to find Article 95 applicable where all 32. In addition, Outokumpu makes a num- equivalent domestic products and the raw ber of points concerning the different bases materials from which they were produced on which the duty on imports and on were exempt. 19 domestic production is calculated. It notes that, of national production, only nuclear electricity is subject to the basic tax, whereas all imported electricity is so subject and that imported electricity is subject to duty at a 34. Fourthly, Outokumpu refers to the prin- standard rate whereas national production is ciple established by the Court that, in order taxed at variable rates with some exemptions to fall within the scope of Article 95 of the which, since they depend on the source of Treaty rather than Articles 9 and 12, the con- the energy which cannot be determined once tested measure must form part of a general electricity arrives on the grid, are not avail- system of internal taxation applying system- able for imported electricity. atically to domestic and imported products according to the same criteria. 20 It refers to four criteria which allegedly differ depending on whether the excise duty is levied on domestic or imported electricity and con- cludes that the duty is a charge having effect equivalent to a customs duty rather than 33. That argument is similarly unfounded. internal taxation within the meaning of The Finnish Government disputes Outo- Article 95. kumpu's assertion that some electricity on the grid has benefited from exemptions, stat- ing that the exemptions for electricity pro- duced in generators with an output of less than two megavolt-amperes and for certain electricity produced from peat in practice 35. First, Outokumpu asserts that the affect only electricity produced for con- chargeable event is different: for domestically sumption by the producer, for example in a produced electricity, it is the production of hospital's emergency generator. However, even if the assertion were correct, it would be perverse if a system of taxation which 17 — Case 20/76 Schbttle v Finanzamt Freudenstadt [1977] ECR 247, paragraph 21 of the judgment. 18 — Case 196/85 [1987] ECR 1597, paragraph 7 of the judg- ment. 19 — Molkerei-Zentrale Westfalen v Hauptzoüamt Paderborn, 16 — Case 28/67 Molkerei-Zentrale Westfalen v Hauptzollamt cited in note 17. Paderborn [1968] ECR 143, p. 155. It may be noted that the 20 — Case 46/76 Bauhuis v Netherlands [1977] ECR 5, paragraph French is somewhat clearer than the English. 11 of the judgment.

37. Thirdly, Outokumpu argues that the basis of assessment is different: domestically 'As to the requirement that the chargeable produced electricity is subject to duty at dif- events be identical, no difference may be dis- ferent rates depending on whether it is cerned in the present case in the fact that the nuclear or hydraulic, or is taxed only at the charge is levied on an imported product at level of raw materials (and even that is differ- the time of importation and on the domestic entiated), or is not taxed at all, whereas product when it is sold or used, for in actual imported electricity is taxed at a single, rela- economic terms the marketing stage is the tively high rate, which is even higher if same since both operations are carried out duties levied by the State of production are with a view to utilisation of the product.' 22 taken into account. Outokumpu cites a num- ber of cases (in particular Bresciani, 24 Den- kavit, 25 United Foods 26 and Commission v Belgium 27) in support of its argument that those differences are sufficient to take the duty on electricity outside the scope of Article 95. Those cases all concern the status of charges based on public health grounds and levied on certain imported animal prod- 36. Secondly, Outokumpu asserts that the ucts. It was unsuccessfully argued in each duty is levied at a different stage: in the case

23 — See Molkerei-Zentrale Westfalen, cited in note 17. 21 — Cited in note 10, paragraph 8 of the judgment. 24 — Case 87/75 Bresciani v Amministrazione Italiana delle 22 — Joined Cases C-149/91 and C-150/91 Sanders Adorn and Finanze [1976] ECR 129. Guyomarc'h Orthez v Directeur des Services Fiscaux des 25 — Cited in note 10. Pyrénées [1992] ECR I-3899, paragraph 18 of the judgment. See also the Opinion of Advocate General Mischo in Case 26 — Case 132/80 United Foods and Van den Abeele v Belgium C-235/90 Aliments Morvan [1991] ECR I-5419, at para- [1981] ECR 995. graphs 8 to 11. 27 — Case 314/82 [1984] ECR 1543.

39. Finally, Outokumpu states that the duty is not levied on groups of products indepen- dendy of their origin, since the rate of duty and the basis of assessment differ for electric- ity produced in Finland and for imported electricity. Outokumpu asserts that a tax falls within the scope of Article 95 only if the provenance of the goods is irrelevant to the rate of the tax or the basis of assessment or 38. In my view those cases do not establish the manner in which it is levied. That argu- any general principle that the application of ment however is based on a misreading of different bases of assessment to imports and national products is a decisive factor for the classification of a tax as a charge having an equivalent effect (although it is, of course, 28 — P. 1939.

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29 — Cited in note 9, paragraph 12 of the judgment. 30 — Joined Cases C-228/90 to C-234/90, C-339/90 and 44. I would at this point note the reference C-353/90 Simba and Others v Ministero delle Finanze [1992] ECR I-3713, paragraph 8 of the judgment. made by Outokumpu to the fact that elec- 31 — Case C-130/92 OTO v Ministero delle Finanze [1994] ECR tricity imported from Sweden (which I-3281, paragraph 12 of the judgment. 32 — Cited in note 5, paragraph 25 of the judgment. according to Outokumpu is the only Mem-

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ber State which exports electricity directly 33 46. The French Government, while recog- to Finland) will already have borne duty nising that it is difficult, even impossible, to imposed in Sweden which is not refunded on determine how imported electricity was pro- export. The cumulative effect of the Swedish duced, considers that the Finnish regime is and Finnish duties obviously further contrary to Article 95: it is liable to discrimi- increases the difference between the total nate against electricity imported from other duties payable on imported electricity pro- Member States since such electricity may be duced from certain sources (particularly elec- taxed at a higher rate than the same amount tricity produced in hydraulic power stations of electricity generated in Finland from the built before 1978) and the duty payable on same source materials. electricity produced in Finland from equiva- lent sources.

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the Court has ruled incompatible with p/kWh to which electricity generated from Article 95 systems involving a graduated tax nuclear power in Finland is subject. Since on domestic production and a flat-rate tax however it is common ground that it is not on imports, 36 a tax on domestic production possible to determine the method of produc- involving calculation of actual wastage in the tion of imported electricity, it must be manufacturing process and a tax on imports assumed that, at least in some cases, the duty involving a flat-rate assumption of wast- borne by imported electricity exceeds that age, 37 and a tax on domestic production borne by nationally produced electricity from equivalent sources. 39 based on the actual wholesale price and a tax on imports subject to a flat-rate increase of the basis of assessment. 38

39 — See Luxembourg, cited in note 16, paragraph 25 of the judg- ment, Belgium, cited in note 16, paragraph 16, and Greece, 36 — REWE and Bobie, cited in note 36. cited in note 36, paragraph 20. 37 — Luxembourg and Belgium, cited in note 16. 40 — See, for example, Commission v France, cited in note 19, 38 — Greece, cited in note 36. paragraph 6 of the judgment.

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from different sources in its view reflects the require appropriate evidence from the only feasible way of linking environmental importer that those criteria have been met if considerations and the taxation of electricity. that is feasible, provided that the evidentiary requirements are not stricter in respect of imported products than they are for similar national products or disproportionate to the goal pursued, namely to eliminate the risk of fraud. 44

52. It may be noted that a Member State 'This finding [of an infringement of Article wishing to retain differential tax rates based 95] cannot be refuted by the claim that on objective criteria such as, in the present although the imported product is taxed at a case, the method of production is entitled to flat rate whilst the domestic product is taxed according to a sliding scale this is because the investigations which would be necessary in the former case could not be carried out. 41 — See, for example, Cose 319/81 Commission v Italy [1983] ECR 601, paragraph 13 of the judgment; Case 106/84 Com- mission v Denmark [1986] ECR 833, paragraph 22. 42 — Case 21/79 Commission v Italy [1980] ECR 1. 43 — Commission v Italy, cited in note 43, paragraphs 14 to 15 of 44 — Italy, cited in note 43, paragraphs 20 and 21 of the judg- the judgment; Commission v France, cited in note 19, para- ment, and France, cited in note 19, paragraphs 14 and 15. graph 7. 45 — Cited in note 36.

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56. First and foremost, there seems to be a compelling justification for the tax system at

46 — Paragraph 15 of the judgment. Sec also Greece, cited in note 47 — Cited in note 43. 36, paragraph 24. 48 — P. 21.

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57. Since that case and other decisions of the Directive 90/547 on the transit of electricity Court on Article 95, the Treaties have been through transmission grids, 5 4the preamble amended to emphasise environmental objec- to which states: tives. Thus the preamble to the Treaty on European Union refers to the determination of the Member States to promote economic and social progress -within the context of reinforced environmental protection. 49 The Treaty establishing the European Commu- nity, as amended by the Treaty on European 'energy policies, more than any other meas- Union, states that the Community shall have ure contributing to the achievement of the among its tasks to promote sustainable econ- internal market, must not be implemented omic growth respecting the environment 50 with the sole aim of reducing costs and and that its activities shall include a policy in maintaining competition, but must also take the sphere of the environment. 51 Article account of the need to ensure the security of 130r, already mentioned, is devoted to Com- supplies and the compatibility of energy pro- munity policy on the environment and pro- duction methods with the environment; vides in particular that environmental pro- tection requirements must be integrated into the definition and implementation of other Community policies. 52 As Advocate Gen- eral Fennelly commented in a recent case, the Community's powers and responsibility to ensure respect for the environment are in ... to attain that objective, account should be principle an inescapable adjunct of its pow- taken of the specific characteristics of the ers and responsibility in relation to the regu- electricity sector'. 55 lation of economic activity. 53

of imported electricity. It may therefore not 61. It was similarly the absence of any be appropriate to apply to electricity the workable alternative which prompted the principles developed in cases concerning authors of the Treaty to provide in Article 97 goods such as alcohol, oil, and beer whose that Member States applying cumulative source is less elusive. multi-stage systems of turnover tax were permitted to establish average rates for prod- ucts or groups of products while respecting the principles laid down in Articles 95 and 96 of the Treaty. It is true that the broad application of turnover taxes to many cat- egories of goods and services meant that the use of average rates was deemed ultimately not to be a satisfactory solution, with the result that the cumulative multi-stage sys- tems were eventually replaced by the Com- munity legislature with the common system of value added tax. The problems arising in relation to electricity are however much more specific and are due to the particular characteristics of the product. It seems to me 60. The Court's previous case-law might be that to deprive Member States, in the absence taken to suggest that a system of taxation in of Community rules on the matter, of any which differential rates are applied to domes- possibility of using a system of differential tic production while an average of those taxation to pursue aims of environmental rates is applied to equivalent imports can policy in relation to the production of elec- never be compatible with Article 95 since the tricity would be disproportionate given that application of a rate of taxation to imports properly calculated averages do not entail which represents the average differential rate any overall restriction on imports, that any applied to domestic production may entail discrimination in individual cases is pre- that some imports are taxed at a higher rate sumed and unquantiñable and that no other than equivalent domestic products. 56 That means of achieving the environmental objec- unequivocal conclusion seems inappropriate tive seems readily available. where imports are, as in the case of electric- ity, inextricably pooled, so that no individual instance of a greater tax burden can be proved or even identified. In particular where, as here, the differential rates on domestic production are based on different methods of production and it is impossible to determine the method of production of imports or even to identify imports from a 62. In order, however, for a flat-rate duty on particular producer, a strict application of the imports to be permissible in such circum- Court's earlier case-law would in practice stances, the average must be correctly calcu- mean that a Member State could never sub- lated. In particular it must be weighted so as ject domestic production to differential rates. precisely to reflect the spread of the domes- tic products subject to differential taxation; moreover the weighting must be regularly reviewed in the light of changing patterns of 56 — See the cases cited in note 40. production. The table provided by the Finn-

On the basis of those figures, the duty 63. It is however for the national court to imposed on imported electricity is approxi- verify the accuracy of the figures presented mately half that imposed on domestic elec- by the Finnish Government and of the tricity produced from heavy fuel oil and resultant average tax which can lawfully be coal imposed on imports. It may be noted that Outokumpu produces slightly different fig- (representing 2 3 % ( ( 2 % + 19%)/ ures. It appears moreover that the average 90% ) rate of 22 mk/MWh does not take account of the categories of electricity which are exempt of domestic production) from taxation (including electricity produced from certain industrial waste and by a gen- and slightly less than that on domestic erator with an output below two megavolt- electricity produced from nuclear power amperes). If that is so, the national court must verify whether such electricity is in a (representing 30% ( 27%/ competitive relationship with imported elec- 90% ) tricity. That would be the case if it entered of national production). on to the national grid.

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64. In the light of all the foregoing consider- infringing Article 95 where the average rate ations, I conclude that a system of taxation applied to imports has been correctly calcu- of electricity such as that at issue in the lated. present case should not be regarded as

Conclusion

65. Accordingly I am of the opinion that the questions referred by the Uudenmaan Lääninoikeus should be answered as follows: