C-365/98

3. In those tax declarations, the tobacco tax on the manufacture of the abovemen- tioned cigarillos was calculated in accor- dance with Paragraph 4.1.2 of the Tabak- steuergesetz (the German law on tobacco tax, hereinafter 'TabStG'), in the version in 1 — That is to say, the version current as from 1 January 1993 (BGBl. 1992 I, p. 2150), since amended by a law of 26 May 1998 known as the 'Zweites Gesetz zur Änderung der * Original language: French. Verbrauchsteuergesetze' (BGBl. 1998 I, p. 1121).

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4. However, each of the tax declarations 7. Article 3(1) of Directive 92/80 reads as lodged by Brinkmann was accompanied by follows: an administrative complaint requesting that, in determining the tobacco tax pay- able, the Hauptzollamt should take into account Article 3(1) of Council Directive 92/80/EEC of 19 October 1992 on the approximation of taxes on manufactured 'Not later than 1 January 1993, Member tobacco other than cigarettes. 2 States shall apply an excise duty which may be:

5. The purpose of Directive 92/80, as expressed in the third recital of the pre- amble thereto, is 'to establish minimum — either an ad valorem duty calculated on excise duties for manufactured tobacco the basis of the maximum retail selling other than cigarettes'. price of each product, freely deter- mined by manufacturers established in the Community and by importers from non-member countries in accordance with Article 5 of Directive 72/464/ 6. The scope of Directive 92/80 is defined EEC, in Article 1 which specifies, in particular, that:

— or a specific duty, by quantity, 'The following groups of manufactured tobacco produced in the Community and imported from non-member countries shall be subject, in each Member State, to a minimum excise duty as laid down in Article 3: — or a mixture of both, combining an ad valorem element and a specific ele- ment, provided that the overall excise duty expressed as a percentage, as an amount per kg or for a given number of (a) cigars and cigarillos; items is at least equivalent to the rates or minimum amounts laid down for:

I I— Questions referred for a preliminary 8. Article 3(2) of Directive 92/80 lays ruling down the following principle:

'Does Paragraph 4.1.2. of the Tabaksteuer- gesetz (Law on Tobacco Tax) in the version 'The rates or amounts referred to in current as at 21.12.1992 (Bundesgesetz- paragraph 1 shall be effective for all blatt 1992, Part I, p. 2150) constitute an products belonging to the group of manu- incorrect implementation of Article 3(1) of factured tobaccos concerned, without dis- Council Directive 92/80/EEC of 19 Octo- tinction within each group as to quality, ber 1992 on the approximation of taxes on presentation, origin of the products, the manufactured tobacco other than cigarettes materials used, the characteristics of the (OJ 1992 L 316, p. 10)? firms involved or any other criterion.'

If the Court of Justice answers that ques- 9. Brinkmann argued that, by providing for tion in the affirmative: a minimum rate of tax as an additional element of taxation, Paragraph 4.1.2. of the TabStG constituted an incorrect implemen- tation of Article 3 of Directive 92/80 and, relying on that provision having direct effect, requested the court not to apply the minimum rate of tax in question. Does Article 3(1) of that directive confer upon a person chargeable to tobacco tax a direct right to be taxed in accordance with the directive, with the result that the national courts are to set aside the mini- mum rate of tax which is applied to cigars 10. Following the dismissal of its com- or cigarillos in Germany contrary to the plaints by the Hauptzollamt, Brinkmann wording of the directive?'

11. By its first question, the Finanzgericht is seeking from the Court clarification as to 15. After examining the syntax of the whether Paragraph 4.1.2 of the TabStG is provision in dispute, the Finanzgericht compatible with Article 3(1) of Directive concluded that the formula employed did 92/80. in fact combine the first two options offered by Article 3(1) of Directive 92/80. The formula ' 5 % of the retail selling price, but not less than 3.1 Pfennig per item' meant that the tax on cigars and cigarillos with a retail selling price of less than 62 Pfennig was 3.1 Pfennig per item, whereas 12. In the context of the main proceedings, for the remainder, whose retail selling price the Hauptzollamt contended that, although exceeded that limit, it was 5% of the retail the provision at issue did not fully corre- selling price. Thus, the ad valorem duty and spond to the structure of Directive 92/80, the specific duty would be applied alter- any lack of correspondence was 'purely nately. Since the provision at issue had been formal' with no significant consequences adopted with a view to the situation on the for persons chargeable to tobacco tax, so German cigar and cigarillo market, where that the German legislature could not be nearly 90% of sales were made at a retail regarded as having transposed the directive price of less than 62 Pfennig, the tax incorrectly. applicable would, in fact, be virtually a per item tax, the ad valorem tax being marginal.

13. The Finanzgericht shared this view. It considered that '[i]ncorrect implementation 16. Brinkmann maintains that the Finanz- normally occurs only where the national gericht's proposed interpretation is mista- legislation conflicts with the directive in its legal substance, causing substantial preju- 3 — Paragraph 2.25 of the Commission report, document dice to the person concerned'. COM(98) 320 final (OJ 1998 C 203, p. 16).

ken, since it would result in the infringe- which it was legally liable', which consti- ment not only of paragraph 1 of Article 3 tuted a violation of the 'principle of the but of paragraph 2 as well. It points out legality of the fiscal administration'. that the purpose of Directive 92/80 is to establish 'a harmonised incidence of tax for all products belonging to the same group of manufactured tobacco'. It follows, in its view, firstly, that States should adhere to the tax structure laid down in the directive and, secondly, that they should subject all 18. According to the Commission, the tax products belonging to the same group of formula laid down in Paragraph 4.1.2 of manufactured tobacco to the same tax the TabStG does not correspond to any of structure, as required by Article 3(2) of the three options offered by Article 3(1) of Directive 92/80. In accordance with the Directive 92/80. The formula comprises an Finanzgericht's own interpretation, 'the tax ad valorem element ('5% of the retail structure adopted, by differentiating within selling price') which, in a sort of ancillary the same group of manufactured tobacco, provision, is subject to a minimum specific that is to say, by establishing an ad valorem duty ('not less than 3.1 Pfennig per item'). duty rate for more expensive cigars and cigarillos and a specific duty rate for cheaper cigars and cigarillos, does not in fact correspond — precisely because of that differentiation — to any of the three tax options'. 19. Admittedly, in addition to an exclu- sively ad valorem and an exclusively spe- cific excise duty, Directive 92/80 also provides for a mixture of the two, but this must 'combine both types of calculation, that is to say, an ad valorem element and a specific element'. The Commission insists that Directive 90/82 leaves no room for 'the imposition of a mixed excise duty under which the two forms of taxation are 17. Moreover, even a 'purely formal' applied alternately, depending on some infringement of Directive 92/80 would price threshold, thus dividing the cigar constitute an incorrect implementation, and cigarillo market into a part to which regardless of its actual consequences. a specific duty is applied and a higher- Nevertheless, if it were necessary to take priced part to which an ad valorem duty is into account the effects of the incorrect applied'. implementation, it should be borne in mind that the Commission's remarks concerning 'serious consequences' related solely to the overall operation of the internal market and not to the individual situation of the economic operator. 'Because of the rule establishing a minimum tax', Brinkmann 20. According to the Commission, Direc- had paid 'more excise duty than that for tive 92/80 is intended to establish the

25. It remains to be determined whether the word 'combining' and the conjunction 'and' mean that the ad valorem and specific elements must always be applied simulta- neously, whenever the tax is collected, or whether the text allows for cigars and 22. The Commission maintains that, cigarillos sold for less than a certain price according to settled case-law, control of to be subjected solely to the specific ele- the correct implementation of a directive is ment (the incidence of the tax then being a purely objective process and must be greater than 5%), whereas products of the exercised independently of whether incor- same category whose price exceeds the rect implementation might cause the inter- threshold in question are liable solely to ested parties prejudice that could, in parti- the ad valorem tax (the incidence of which cular, give rise to damages.

5 — Emphasis added. 4 —OJ 1995 L 211, p. 47. 6 — Emphasis added.

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would then exceed that of the specific sumption of manufactured tobacco 7pro- duty). vides that 'Member States may levy a minimum excise duty on cigarettes and on fine-cut tobacco for the rolling of cigar- ettes,...'. Furthermore, Article 8(1) of the same directive, applicable to the first stage of harmonisation, provides for cigarettes to be subject to 'a proportional excise duty 26. The answer to that question is not calculated on the maximum retail selling immediately obvious and it is understand- price, including customs duties, and also able that the German legislature should to 8a specific excise duty calculated per have considered that the second interpreta- unit of the product'. Paragraph 4 of the tion was also possible. same article also makes it clear that 'the excise duty on cigarettes may include a minimum tax component'. 9

a levy to be contrary to the spirit of 35. That authorisation entered into effect Directive 92/80, which pursues the same retroactively on 1 January 1999 (Directive objectives with respect to the harmonisa- 1999/81 being dated 29 July 1999). tion of excise duties on cigars and cigarillos as those which underlie the harmonisation of excise duties on cigarettes, namely, to prevent taxes affecting the consumption of products in the manufactured tobacco sector from distorting conditions of com- 36. Thus, the Finanzgericht was right to petition and impeding their free movement consider that the German provision at issue within the Community. Those objectives constitutes only 'a formal infringement, are defined in the basic directive common without serious consequences'. to all products in the manufactured tobacco sector, namely, Directive 72/464 (first reci- tal) and Directive 95/59 (second recital), which replaced it.

37. Nevertheless, I have no choice but to propose that, in answer to the first ques- tion, the Court should reply that Arti- cle 3(1) of Directive 92/80, in the wording in force up to 31 December 1998, should be interpreted as not permitting the levying on cigars and cigarillos of a minimum 33. This is what led the Council to note, in specific tax in combination with an ad the sixteenth recital in the preamble to valorem duty. Directive 1999/81 amending Article 3 of Directive 92/80, that 'there is nothing to prevent Member States from being author- ised to apply a minimum excise duty to cigars, cigarillos and smoking tobacco where such an option already exists for cigarettes and hand-rolling tobacco'. B — The second question

39. The Finanzgericht considers, first, that chargeable to tobacco tax a direct right to . since in this case the infringement of be taxed in accordance with the directive. Directive 92/80 is 'without serious conse- quences', it is the duty of the Member State concerned, at most, to bring the national law into conformity with the directive, which the German Government has done. 43. According to Brinkmann, in adopting the TabStG of 21 December 1992, the German legislature opted for an ad valorem tax at the minimum rate of 5% of the retail price. Brinkmann therefore considers itself to be automatically subject to that tax, without it even being necessary to have 40. Second, it argues that Article 3(1) of recourse to Directive 92/80. It follows from Directive 92/80 has no direct effect since it the phrasing of the question referred for a is not unconditional and sufficiently pre- preliminary ruling that the dispute relates cise. If it were, it would not be 'subject, in only to the inconsistent part of the national its implementation or effects, to the taking provision, that is to say the 'minimum rate of any measure either by the Community of tax which is applied... in Germany institutions or by the Member States'. In contrary to the wording of the directive'. fact, the implementation of the article does require the taking of a measure by the Member State, which must choose between the three different possible methods of raising tax on cigars and cigarillos allowed by the provision in dispute. 44. In Brinkmann's view, Directive 92/80 is unconditional and sufficiently precise for a litigant to be able to invoke it in order to have the national court set aside that part of Paragraph 4.1.2 of the TabStG which is incompatible with the directive.

46. According to the Commission, the inconsistent part, which must be set aside. national provision in question means that In that connection, it cites the judgment in the ad valorem excise duty must be applied, Fantask and Others, 11 in which certain provided that the specific excise duty (3.1 provisions of Council Directive 69/335/ Pfennig per item) is not higher. It acknowl- EEC of 17 July 1969 concerning indirect edges that, as a result, 'in practice about taxes on the raising of capital, 12 were 90% of cigars and cigarillos, the unit price recognised as having direct effect with the of which does not exceed 62 Pfennig, are result that a duty consisting of a fixed basic subject to the specific excise duty, while the element and a proportional element was ad valorem duty on the retail price is split into a part consistent with the direc- applicable only to the remaining 10%' or, tive and an inconsistent part the application in other words, that 'in practice, the Ger- of which was precluded. man excise duty is mainly a specific duty which, starting from a retail selling price of 63 Pfennig per item, becomes an ad valorem duty'.

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51. Brinkmann was entitled, according to and Spano and Others, 1 3the Commission the Commission, to demand that its cigars maintains that the national court should and cigarillos be taxed at 5% of the retail give the provision at issue an interpretation selling price, since the ad valorem excise consistent with Article 3(1) of Directive duty, described unconditionally and suffi- 92/80, which would also lead to the ciently precisely in the first indent of inconsistent part of the national provision Article 3(1) of Directive 92/80, should be not being applied. applied and, accordingly, both the tax base and the rate of tax had been established.

55. The Commission therefore proposes that the Court should declare that Arti- 52. The Commission then appears to back- cle 3(1) of Directive 92/80 confers upon track, acknowledging that it is 'aware that individuals a direct right, on which they the German legislature did not intend to can rely before the national courts, to be subject the whole of the cigar and cigarillo 'subjected either to an ad valorem excise market to an ad valorem excise duty of 5% duty, or to a specific excise duty, or to a of the retail selling price. On the contrary, it mixture of both, in accordance with this must have realised that, for most of the provision'. market, the duty applicable would be the minimum specific duty...'.

Assessment 53. However, it dismisses this objection to its own reasoning by asserting that 'never- theless, the German legislature must have anticipated that the minimum excise duty might be found incompatible with Com- munity law and that, consequently, given the direct applicability of the first indent of 56. The Court has consistently held that, Article 3(1) of the directive, it would be whenever the provisions of a directive bound, for the whole of the market, by the appear, as far as their subject-matter is ad valorem duty which it had chosen as the concerned, to be unconditional and suffi- normal basis of taxation'. ciently precise, those provisions may be relied upon by an individual against the State where the State fails to implement the directive in national law by the end of the

61. I should again point out that, in the 59. Thus, the third, fourth and fifth recitals recitals set out in the preamble to the basic in its preamble read as follows: directive, namely, Directive 72/464, which was supplemented by Directive 92/80, the Council explained that 'the objective of the Treaty is to establish an economic union within which there is healthy competition and whose characteristics are similar to those of a domestic market; and, as regards 'Whereas, in order to establish the internal manufactured tobacco, achievement of this market on 1 January 1993, it is necessary aim presupposes that the application in the to establish minimum excise duties for Member States of taxes affecting the con- manufactured tobacco other than cigar- sumption of products in this sector does not ettes; distort conditions of competition and does not impede their free movement within the Community'. 14 — See, in particular, Case C-236/92 Comitato di Coordina- mento per la Difesa della Cava and Others [1994] ECR I-483, Case C-389/95 Klattner [1997] ECR I-2719 and Joined Cases C-246/94 to C-249/94 Cooperativa Agricola Zootecnica S. Antonio and Others [1996] ECR I-4373. 15 — Emphasis added.

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62. There can therefore be no doubt that those of a domestic market. As far as the Community legislation in this field is concerns taxes on the raising of capital, the aimed at preventing distortions of competi- pursuit of such an objective presupposes tion that might result in a particularly low the abolition of indirect taxes in force in the level of taxation of manufactured tobacco Member States until then and imposing in in some countries. With regard to cigarillos, place of them a duty charged only once in in particular, Directive 92/80 leaves Mem- the common market and at the same ber States at liberty to set excise duties level 17 in all the Member States' (see higher than 'the overall minimum excise paragraph 13 of the judgment). duty' prescribed.

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67. Accordingly, it remains to be deter- 69. The answer must be that it does not, mined whether Directive 92/80 is suffi- since a legally permissible level of excise ciently precise to support such a conclu- duty cannot be inferred from 'the directive sion. The Court has held that 'a provision is alone'. 22 As has been shown above, Direc- sufficiently precise to be relied on by an tive 92/80 prescribes only an 'overall excise individual and applied by the court where duty' and not a maximum duty. the obligation which it imposes is set out in unequivocal terms'. 21

70. Thus, Article 3 would have allowed the Federal Republic of Germany to apply to 68. In the present case, therefore, the all cigarillos either an ad valorem duty of question which must be answered is: Does more than 5% or a specific duty of more it follow from the third indent of Arti- than 3.1 Pfennig per item. It would also cle 3(1), according to which the mixed have allowed that Member State to have excise duty must combine 'an ad valorem imposed an excise duty consisting of a element and a specific element', that when: specific element of 3.1 Pfennig or more applied concurrently with an ad valorem element of 5% or more.

— a Member State introduces a specific element which is not added to an ad valorem element but operates as a 71. If the applicant in the main proceedings minimum tax in relation to the latter, is questioning the level of the excise duty to which it has been subjected and a max- imum permissible level cannot be deduced from Directive 92/80, it is immaterial whether its assessment to tax was calcu- lated by directly setting a given ad valorem — and that specific element has, for the or specific duty or by applying a special least expensive categories of cigarillos, method of taxation, namely, a 'minimum an incidence greater than that of the ad duty', for which the directive does not valorem duty, provide.

78. In that connection, they refer to the 75. This, in substance, is what the Com- abovementioned judgment in Fantask and mission says in its proposal for a reply, Others. In that judgment, the Court found according to which Article 3(1) 'confers that 'charges with no upper limit which upon individuals the right, on which they increase directly in proportion to the nom- may rely in the national courts, to be inal value of the capital raised cannot, by subjected either to an ad valorem excise their very nature, 23 amount to duties paid duty, or to a specific excise duty, or to a by way of fees or dues within the meaning mixture of both, in accordance with this of the Directive [69/335]'. The Court provision'. concluded that the charges levied should be reimbursed in so far as they did not correspond to the actual costs of registra- tion, even when calculated at a flat rate on the basis of an average.

76. Acceptance of this line of reasoning would imply that, at the time, the Federal 23 — Emphasis added.

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formula while applying it incorrectly by national law, a court should interpret it 'as coupling it with a minimum duty. far as possible in the light of the wording and the purpose 24 of the directive so as to achieve the result 25 it has in view and thereby comply with the third paragraph of Article 189 of the Treaty'.

86. Even though it is certainly not for me to prejudge the scope of the jurisdiction conferred on the national court, I consider this line of argument to be fraught with difficulties given, firstly, that the system 89. However, I have already shown that the adopted by the German legislature had the purpose of Directive 92/80 is to prevent very tangible effect of subjecting 90% of any distortions of competition that might cigarillos not to an ad valorem duty but to follow from too low a tax being imposed a minimum levy of 3.1 Pfennig per item, on cigarillos in some Member States and which must have been clear to the legisla- that the intended result is the establishment ture when it adopted the provisions in of a tax floor and not a tax ceiling. dispute, and, secondly, that when the Ger- man legislation was reformed in 1998, the mixed duty formula was preferred.

90. Furthermore, it cannot be maintained that a subsidiary purpose of Directive 92/80 was to prohibit the application of 87. The Commission also contends that, the 'minimum duty' method of taxation. In should the Court not find that Article 3(1) fact, when Directive 92/80 was amended, of Directive 92/80 has direct effect, the the Community legislature considered that 'inconsistent part' of Paragraph 4.1.2 of the there was 'nothing to prevent' Member TabStG should be set aside by the national States from applying that method, which is court on the basis of the duty to interpret therefore in conformity with the system or, national law in conformity with a Com- at the very least, compatible with it. munity directive, as established, in particu- lar, in the abovementioned judgments in Habermann-Beltermann, Faccini Dori and Spano and Others.

92. I therefore propose that the questions referred by the Finanzgericht Düsseldorf should be answered as follows:

(1) Article 3(1) of Council Directive 92/80/EEC of 19 October 1992 on the approximation of taxes on manufactured tobacco other than cigarettes, in the wording in force up to 31 December 1998, should be interpreted as not permitting the levying on cigars and cigarillos of a minimum specific tax in combination with an ad valorem duty.

(2) Article 3(1) of Directive 92/80 does not constitute a provision sufficiently precise to enable an individual to rely on it before a national court and to oblige that court not to apply a minimum specific duty, for which its national legislation provides, in combination with an ad valorem duty.

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