JUDGMENT OF 4. 4. 1968 — CASE 7/67 WÖHRMANN v HAUPTZOLLAMT BAD REICHENHALL

In Case 7/67 Reference to the Court under Article 177 of the EEC Treaty by the Finanzgericht (Finance Court), Munich, for a preliminary ruling in the action pending before that court between

THE COURT composed of: R. Lecourt, President, A. M. Donner and W. Strauß (Rapporteur), Presidents of Chambers, A. Trabucchi and J. Mertens de Wilmars, Judges, Advocate-General: J. Gand Registrar: A.Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts

1. Summary

A —. Article 12(2) of Regulation No 13/64/EEC of the Council of 5 February 1964, on the progressive establishment of a common organization of the markets in milk and milk products (Official Journal of 27 February 1964, p. 549 et seq.) (hereinafter referred to as ‘Regulation No 13/64’) provides that:

‘On imports from third countries, the following shall be incompatible with the application of the present Regulation:

the charging of any customs duty or charge having equivalent effect.’

B —. In June and July 1966 the undertaking Milchwerke H. Wöhrmann und Sohn KG (hereinafter referred to as ‘the Wöhrmann undertaking’) cleared through the relevant customs office five consignments of ‘Roller’ whole-milk powder of Austrian origin; the German customs office levied on these imports a turnover equalization tax of 3 % in accordance with German law. For this reason the Wöhrmann undertaking commenced an action before the Finanzgericht, Munich; in this action it alleged in particular that having regard to the fact that in accordance with the German law in force milk and milk products are not subjected to the turnover tax, the turnover equalization tax in question does not amount to ‘internal taxation’ as referred to in Article 95 et seq. of the Treaty establishing the EEC, but to a charge having an effect equivalent to a customs duty which is prohibited by Article 12(2) of Regulation No 13/64.

2. Contents of the order containing the reference; arguments of the Finanzgericht

A —. On 15 February 1967 the Finanzgericht, Munich, decided to request the Court of Justice to give a preliminary ruling on the following questions:

‘(a) Is the character of a charge having an effect equivalent to a customs duty within the meaning of Article 12(2) of Regulation No 13/64 determined by the general protective purposes of the charge or else by the protective effect which it exerts in fact in the case of a given product? and in the second event:

b) Must it be considered that an equalization tax constitutes in its totality a charge having an effect equivalent to a customs duty when neither the supply of the (finished) domestic product which is similar to the product imported nor that of the primary product is directly subject to the turnover tax, or only as regards the fraction which exceeds the charge imposed upon similar domestic products under the turnover tax? and if the Court replies in the negative to the first part of question (b):

c) In a cumulative multi-stage turnover tax system is it possible to equate the rate of the equalization tax charged with that portion of the turnover tax which relates to auxiliary and accessory materials, the means of production, fuel, energy, etc. used for the manufacture of similar domestic products? and if the Court replies in the affirmative to the second part of question (b):

d) Where a charge is intended to be of an internal nature, does Article 12(2) [of Regulation No 13/64] produce, with regard to that portion of the charge which has an effect equivalent to a customs duty, direct effects and create individual rights which national courts must protect?’

B —. The Finanzgericht explains the reasons for and the meaning of these questions and on several occasions gives its own opinion in this respect; in particular it points out the following: The outcome of the case depends first of all on the answer to the question whether the statement of the Court in Case 57/65 (Rec. 1966, p. 294) to the effect that: If, in accordance with the judgment delivered by the Court in Joined Cases 2 and 3/62 ([1962] E.C.R. 425) it is accepted that a protective purpose only exists for taxes applying solely to imported products but not to similar domestic products, the view cannot then be taken that the equalization tax has a protective purpose taken as a whole, that is to say, without regard to the goods under consideration in the particular case. In this case the only finding which can be made is that the purpose of the equalization tax is to establish conditions of equal competition between national products and foreign products; consequently, the turnover equalization tax is not equivalent to a customs duty even when, in a given case, it applies to an imported product more heavily than the turnover tax applies to a similar domestic product. If, on the other hand, it is accepted that the legal nature of the turnover equalization tax must be examined separately for each product and that in consequence this tax can in a given case be considered as a charge having an effect equivalent to a customs duty, it must also be inquired which amongst the taxes affecting similar domestic products are those which must be considered as ‘indirect’ within the meaning of Article 95 of the Treaty and must therefore be taken into consideration in carrying out the comparison laid down by that article. The Finanzgericht puts forward its detailed views on this subject. Its argument is as follows: To the extent to which, in a given case, that comparison makes it appear that the burden of the turnover equalization tax is higher than that applied to comparable national products, another question arises: that is to say, whether it is possible from the legal point of view to regard in a special light that fraction of the turnover equalization tax which exceeds that burden, that is to say, to consider it as ‘a charge having equivalent effect’ within the meaning of Articles 12 and 13 of the EEC Treaty and of Article 12 of Regulation No 13/64. Such a view would be in contradiction with the aforementioned judgment of the Court of Justice in Case 57/65, according to which Articles 12 and 13 of the EEC Treaty on the one hand and Article 95 of the Treaty on the other cannot be applied ‘jointly to one and the same case’. In the two articles first above-mentioned the concept of ‘charges having equivalent effect’ has the same meaning as in Article 12 of Regulation No 13/64. Moreover, as regards Article 95, it is true that it could not be directly applied in the present case. In any event, however, a higher turnover equalization tax charged on goods originating in other Member States, by its very nature comes under Article 95 and does not constitute a ‘charge having equivalent effect’ within the meaning of Articles 12 and 13 of the EEC Treaty. This last finding must apply also to importation from third countries. From all this it follows that a national court cannot consider as inapplicable that fraction of the turnover equalization tax charged on importations from third countries which exceeds the charge imposed on comparable national products. Even if, moreover, that fraction is regarded as contrary to the Treaty, private persons cannot avail themselves of an individual right to apply to the courts to reduce the tax. ‘The prior condition for such a reduction in the rate by the Finanzgericht would in fact be the establishment of a new rate in conformity with the Treaty, which cannot be brought about on a local scale by a taxation court but solely by the legislature of the Member State in conformity with the principle of separation of powers.’

‘a charge intended to offset the effect of internal taxation thereby takes on the… character of the taxation whose effect it is intended to offset’,

‘applies to the turnover equalization tax as such, as it is defined in general terms in paragraph 1(3) of the German Law relating to the turnover tax or else to the turnover equalization tax as affecting a given imported product’.

II — Procedure

The order containing the reference was lodged at the Court Registry on 20 February 1967. The Government of the Federal Republic of Germany and the Wöhrmann undertaking submitted written observations in pursuance of Article 20 of the Protocol on the Statute of the Court of Justice of the EEC and presented their oral observations at the hearings on 5 and 7 December 1967. The Advocate-General delivered his reasoned, oral opinion at the hearing on 25 January 1968.

The Wohrmann undertaking was represented by Messrs Dres, Modest, Heeman, Gündisch and Brändel, Hamburg; the Government of the Federal Republic of Germany by Messrs Everling, Ministerialrat, Hahnfeld, Ministerialrat, and Bülow, Oberlandesgerichtsrat; and the Commission of the European Communities by its legal adviser, Mr Thiesing.

III — Summary of the observations submitted by the parties concerned

Introductory remarks

The Wöhrmann undertaking points out that the concept of ‘charge having equivalent effect’ has the same meaning in Article 12 of Regulation No 13/64 as in Articles 12 and 13 of the Treaty.

The systems of levy of the market organizations of the Commission of the European Economic Community have the object of adjusting inequalities of price between imported products and national products; the imposition of customs duties or of charges having equivalent effect over and above these levies would have a discriminatory, and protectionist effect.

According to the case-law of the Court the concepts of ‘charge having equivalent effect’ and ‘internal taxation’ are mutually exclusive; consequently it is appropriate to examine whether the taxation in question comes under one or other of these concepts; in order to do this it is also necessary to interpret Article 95 of the Treaty, even though it only applies to importations from other Member States.

The Federal Government alleges that the questions put are only comprehensible if account is taken of the fact that the Finanzgericht has to deliver judgment with regard to an importation from a third country of products coming under one of the market organizations of the Commission of the European Economic Community.

The Treaty itself does not prohibit the levying of charges having equivalent effect or of higher internal taxation in conformity with Article 95 on products coming from third countries; Regulation No 13/64 imposes such a prohibition only on charges having equivalent effect.

Question (a)

The Wöhrmann undertaking maintains that the prohibitions contained in Articles 12 and 13 of the EEC Treaty and in Article 12 of Regulation No 13/64 are intended to prevent protective duties hampering or making impossible the importation of foreign products and thus creating distortions of competition.

The name by which a tax is described or the purposes for which it is intended are unimportant; only its effect is significant.

Consequently it is appropriate to solve the question in the following manner: a charge must be regarded as having an effect equivalent to a customs duty on every occasion on which, in the actual case of a given product, it produces protective effects.

The Federal Government points out that the question whether a tax has the same effect as a customs duty depends solely on its general purpose and a factual comparison of charges is without importance.

The concept of ‘charges having equivalent effect’ has the same meaning in Article 12(2) of Regulation No 13/64 as in Article 12 et seq. of the EEC Treaty, as is clear in particular from a comparison with Article 12(1) which concerns trade between Member States.

The principles applicable for the definition of the factual situations governed respectively by Article 12 et seq. and by Article 95 of the EEC Treaty are also applicable to the interpretation of Article 12(2) of Regulation No 13/64.

This definition is explained by the fact that these provisions pursue different objectives; Article 12 et seq. concern the ‘free movement of goods’ and are intended to eliminate obstacles to trade whilst Article 95 is intended to avoid distortions of competition within the Common Market. The Treaty does not require the elimination of internal taxes but restricts itself to limiting their rate. In doing so it recognizes that they are of a legal nature fundamentally different from that of customs duties and charges having equivalent effect. The case-law of the Court of Justice has always taken into consideration the general purpose of the taxation in question.

Even if an equalization tax is too high in a given case, it must be assessed solely in terms of Article 95. If it were otherwise, the prohibition imposed by that Article would have no independent application as far as Article 12 et seq. were concerned.

An equalization tax falls under Article 95, even if the imported product in a given case does not compete with any comparable national product or one which may be substituted for it. In such a case, the charge does not have the effect of a customs duty if only because it cannot serve to protect national production. As a general rule Member States then impose internal taxation. Article 17 of the EEC Treaty expressly permits them to do so to the extent to which it is a question of products hitherto subject to customs duties of a fiscal nature.

This interpretation is corroborated by Article 112 of the EEC Treaty.

Regulation No 13/64 confirms these considerations. In Article 2(1) it prescribes that amongst other things account must be taken of ‘the incidence of internal duties charged on imports’ in calculating the amount of the levy. It emerges clearly from the implementing provisions that this provision also applies to the turnover equalization tax charged in Germany.

The Commission points out that for ‘internal taxation’ referred to in Article 95 of the EEC Treaty, Regulation No 13/64 contains no provision corresponding to the prohibition on the charging of customs duties or charges having equivalent effect. The Member States therefore retain their freedom of action, for Article 95 is only applicable to trade in ‘the products of other Member States’. The Commission points out in detail that Article 2(1) of the abovementioned Regulation and the provisions adopted for its implementation confirm this view. In its opinion it also emerges from all these provisions that the organization of the markets in milk in the European Economic Community rests equally on the distinction between charges having equivalent effect and internal taxation and that these two concepts have here the same meaning as in the Treaty. For the definition of these concepts it is of importance to ascertain whether the charge in question is directed towards compensation with regard to similar domestic products. According to this criterion the turnover equalization tax is in principle internal taxation as is otherwise clear from the German Law on turnover tax. It may nevertheless become a charge having equivalent effect when in a given case similar domestic products are not subjected to any charge by reason for example of benefiting from an exemption from taxation. Nevertheless, in the case of the turnover equalization tax, this reservation does not have great practical importance.

The turnover equalization tax constitutes a single legal entity. To the extent to which, in a given case, it exceeds the charge imposed upon similar domestic products, the fraction in excess cannot be considered as a charge having equivalent effect.

Question (b)

The Wöhrmann undertaking alleges that in Germany neither the primary product, ‘milk’, nor the product derived therefrom, ‘milk powder’, is subjected to turnover tax. Consequently the turnover equalization tax charged on the importation of powdered milk coming from abroad can at most serve to compensate for a charge imposed indirectly on similar domestic products.

The judgment delivered by the Court in Case 45/64 (Rec. 1965, p. 1058) arrives at a restrictive interpretation of the expression ‘indirectly’, which has the same meaning in Article 95 and in Article 96. Parties concerned and courts must be in a position to calculate the indirect charge with precision. Thus it is only possible to take into consideration charges imposed upon a product, without regard to the structure or the method of working of the manufacturer in view of the fact that, if this were not the case, it would be impossible to establish whether domestic products or imported products were taxed in a uniform manner. Both milk and milk powder are produced by different undertakings in the most widely varying conditions.

Consequently, with regard to the first alternative contained in this question, it is appropriate to decide that an equalization tax constitutes a charge having equivalent effect when neither supply of the similar domestic product nor of the primary products is directly subject to turnover tax.

Although, in Case 57/65, the Court stated that Articles 12 and 13 of the EEC Treaty on the one hand and Article 95 on the other cannot be applied jointly to one and the same case, that by no means excludes the possibility of dividing up the charge in such a way that the fraction corresponding to the charge imposed on domestic products is considered as falling within Article 95 and the excess on the other hand as being of effect equivalent to a customs duty. Such a division may even in certain cases be necessary in view of the fact that the first fraction of the charge has an equalizing effect, whereas the second part on the other hand has a discriminatory effect.

If the idea of such a division is rejected the tax must be considered as being in its totality a tax having equivalent effect to a customs duty because, having regard to its excessive character, it is not possible to agree that it is solely intended to be a charge of a fiscal nature.

The Federal Government takes the view that Question (b) has no purpose having regard to its position on Question (a).

The opinion of the Commission on this question may be deduced from its statement relating to Question (a).

Question (c)

The Wohrmann undertaking points out that for the reasons set out with regard to Question (a), it is appropriate to give a negative answer to this question. Moreover it is not possible to speak of a cumulative multi-stage tax system when the primary material, the semi-finished product and the finished product are not themselves taxed under the turnover tax.

The Federal Government declares that in its view Question (c) has no purpose for the reasons set out with regard to Question (a). However, by reason of the fundamental importance of Question (c), it is appropriate to observe that, according to the unequivocal terms of Article 95 of the EEC Treaty, charges imposed indirectly on domestic products must also be taken into consideration. This must be understood as meaning any charge which makes the national product dearer, in particular one imposed on the means of production, machines, auxiliary accessory materials and energy, for otherwise this product would be subject to a disadvantage in the field of competition.

The Commission points out that it is necessary to take into consideration not only any charge on the similar domestic product or the immediately preceding primary product but also, as is clear from Article 95 of the EEC Treaty, the prior indirect charge. It is true that the question of the extent to which it must be taken into account arouses doubts. However, this question is of little importance in the present case in view of the fact that there is always internal taxation when there is a question of offsetting some charge or other.

Question (d)

The Wöhrmann undertaking takes the view that it is appropriate to give an affirmative answer to this question in conformity with the judgments delivered by the Court in Joined Cases 2 and 3/62 and in Case 57/65. Furthermore, in accordance with the provisions of Regulation No 13/64, read in conjunction with Article 189 of the EEC Treaty, the said Regulation is binding in its entirety and directly applicable in all Member States.

The Federal Government takes the view that Question (d) has no purpose for the reasons which it put forward with regard to Question (a).

The Commission refers to the judgment delivered by the Court in Case 26/62 ([1963] E.C.R. 1 et seq.), according to which Article 12 of the EEC Treaty creates individual rights. In its view the same applies to Article 12(2) of Regulation No 13/64.

Grounds of judgment

By order of 15 February 1967, which reached the Court on 20 February 1967, the Finanzgericht, Munich, referred to the Court of Justice under Article 177 of the Treaty establishing the European Economic Community several questions relating to the interpretation of Article 12(2) of Regulation No 13/64/EEC of the Council on the progressive establishment of a common organization of the markets in milk and milk products.

In Question (a) the court referring the question asks the Court to rule whether ‘the character of a charge having an effect equivalent to a customs duty within the meaning of Article 12(2) of Regulation No 13/64 is determined by the general protective purposes of the charge or else by the protective effect which it exerts in fact in the case of a given product’.

This question must be examined in the light of the facts of the main action as they have been indicated by the court making the reference.

From these data it emerges that the action concerns the application of an equalization tax, under the legislation relating to the turnover tax, to importation of milk products coming from a third state.

In these circumstances the question put by the Court making the reference must receive an answer based only on the provisions of Article 12(2) of Regulation No 13/64, as Article 95 of the Treaty establishing the European Economic Community applies exclusively to products originating in Member States.

According to Article 12(2) of the said Regulation, ‘On imports from third countries the following shall be incompatible with the application of the present Regulation:

the charging of any customs duty or charge having equivalent effect’.

The question put to the Court is thus intended to inquire whether a charge imposed in the circumstances set out by the Court making the reference comes under this prohibition.

Regulation No 13/64 has as its purpose in particular to substitute a uniform system of levies for all the protective measures of different kinds previously applied by Member States.

In consequence, Article 12(2) of the same Regulation abolished all national measures having protective effects similar to those of the levy.

Taxation such as that which is the subject of the main action, levied within the framework of legislation relating to the turnover tax, does not constitute a specific tax on imported products, but a general tax applying without distinction to all categories of products, whether domestic or imported, even if charged at the moment of importation.

Such a charge, of an essentially fiscal nature, when it is imposed on importation, is intended to place in a comparable fiscal situation all categories of products whatever their origin may be.

Hence, in the absence of a protective purpose, an internal tax of the type referred to by the Court making the reference cannot be considered as a charge having an effect equivalent to a customs duty within the meaning of Article 12(2) of Regulation No 13/64.

In consequence, as the suppositions on which Questions (b), (c) and (d) were put have not been realized, those questions have lost their purpose.

The costs incurred by the Government of the Federal Republic of Germany and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable and as these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the Finanzgericht, Munich, the decision on costs is a matter for that court.

On those grounds, Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the observations of the Federal Republic of Germany, the Commission of the European Communities and the applicant in the main action; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Articles 95 and 177; Having regard to the Protocol on the Statute of the Court of Justice of the EEC, especially Article 20; Having regard to Regulation No 13/64/EEC of the Council on the progressive establishment of a common organization of the markets in milk and milk products (Official Journal of 27 February 1964, p. 549 et seq.), especially Article 12; Having regard to the Rules of Procedure of the Court of Justice of the European Communities, THE COURT in answer to the questions referred to it by the Finanzgericht, Munich, by order of that court dates 15 February 1967, hereby rules: