JUDGMENT OF 13. 3. 1979 — CASE 91/78 HANSEN v HAUPTZOLLAMT FLENSBURG

In Case 91/78 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht [Finance Court] Hamburg for a preliminary ruling in the action pending before that court between

THE COURT composed of: H. Kutscher, President, J. Mertens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), A. M. Donner, P. Pescatore, M. Sørensen, A. O'Keeffe, G. Bosco and A. Touffait, Judges, Advocate General: F. Capotorti Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of the procedure and the observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:

I — Facts and written procedure

The undertaking Hansen GmbH & Co. (hereinafter referred to as ‘Hansen’), which has its registered office in Flensburg, produces spirits intended for human consumption. For this purpose it uses spirits of widely differing origins which it stocks and blends in its own warehouse.

On 7 February 1977 Hansen declared to the Hauptzollamt Flensburg that it had removed from its warehouse and put into free circulation in the course of January 1977 a quantity of wine-spirit amounting in all to 137311.1 litres, made up of various spirits, alcohol from Italy, base rum from Guadeloupe, rum from Jamaica, arrak from Indonesia, spirits covered by the monopoly of the Bundesmonopolverwaltung [Federal Monopoly Administration] and grain-spirit from the German Kornbranntwein-verwertungsstelle [grain-spirit marketing agency].

Under the German Law on the Monopoly in Spirits, spirits are subject to a tax on consumption imposed in three different forms: a tax on spirits (Branntweinsteuer) payable in accordance with Article 84 (1) on spirits marketed by the Bundesmonopolverwaltung; a spirits surcharge (Branntweinaufschlag) payable under Article 78 on spirits which are exempt from the obligation of delivery to the Federal Monopoly Administration or which, in breach of that obligation, are not so delivered; and a monopoly equalization duty (Monopolausgleich) imposed, in accordance with Article 151 (1), on imported spirits.

Following the judgments of the Court of Justice of 17 February 1976 in Case 45/75 (Rewe, [1976] 1 ECR 181) and in Case 91/75 Miritz, [1976] 1 ECR 217) the Law on the Monopoly in Spirits was amended by the Law of 2 May 1976 (Bundesgesetzblatt I, p. 1145). That law increased the tax on spirits sold by the Federal Monopoly Administration from DM 1500 to DM 1650 per hectolitre of wine-spirit; in addition it fixed the spirits surcharge and the monopoly equalization duty at the same level as the tax on spirits. Article 79 (2) of the Law on the Monopoly in Spirits, as amended, makes provision for a reduction in the rate of the spirits surcharge where the spirits are manufactured either in a distillery for which production is estimated at a standard level for tax purposes on the basis of the amount of raw material used (Abfindungsbrennerei) or by an owner of the raw materials used to produce the spirits (Stoffbesitzer) within the limits of a production scheme advantageous to the monopoly or in a ‘bonded’ distillery (Verschlußbrennerei) with an annual production not exceeding 4 hectolitres of wine-spirit or in a cooperative fruit farm distillery within the limits of its distilling right. That reduction in the spirits surcharge amounts to 21 % but is increased to 30.5 % in the case of spirits manufactured exclusively from stone fruit, berries or gentian roots. According to Article 151 (1) the higher rate of the reduction also applies to imported spirits distilled from fruit originating from a distillery having an annual production not exceeding 4 hectolitres of wine-spirit.

By the Law of 5 July 1976 (Bundesgesetzblatt I, p. 1770) the tax on spirits and, consequently, the amount of the spirits surcharge and of the monopoly equalization duty were increased as from 1 January 1977 from DM 1650 to DM 1950 per hectolitre of wine-spirit.

In accordance with that legislation Hansen calculated the tax on consumption payable by it at a rate of tax of DM 1950 per hectolitre of wine-spirit as equal to a total sum of DM 2677566.45.

This calculation was accepted by the Hauptzollamt Flensburg.

By letter of 23 February 1977 Hansen notified the Hauptzollamt that, contrary to what it had stated in its declaration of 7 February, it had not abandoned its right to initiate proceedings against the fixing of the amount of the tax.

On 25 February 1977 Hansen lodged a direct application (Sprungklage), without instituting proceedings before lower courts, with the Finanzgericht Hamburg against the decision fixing the amount of the tax payable by it.

Hansen claimed that the possible commercial uses and objective properties of rum and arrak place them in competition with other domestic spirits. The fact that the tax on imported rum and arrak exceeds that imposed on a part of the spirits manufactured on the territory of the Federal Republic of Germany is contrary to Articles 37 and 95 of the EEC Treaty. Furthermore, the increase in the tax on spirits prescribed by the Law of 2 May 1976 infringes Article 37 (1) and (2) of the Treaty in that it has created discrimination between nationals of the Member States regarding the conditions under which goods are procured and marketed. Finally, the Federal Republic of Germany, by notifying the Commission of the increase in the tax on spirits only after it had taken effect, has infringed Article 93 (3) of the Treaty.

The IVth Senate of the Finanzgericht Hamburg decided by order of 22 March 1978 pursuant to Article 177 of the EEC Treaty to stay the proceedings until the Court of Justice had delivered a preliminary ruling on the following questions:

‘1. Is Article 37 of the EEC Treaty a lex specialis in relation to Articles 92 and 93 of the EEC Treaty in the sense that State measures which affect the movement of goods between Member States and, where applicable, between Member States and third countries must be judged in the light of Article 37 of the EEC Treaty even if the State measures contain inter alia an aid? 2. If Question 1 is answered in the affirmative: (a) Is Article 37 (2) in conjunction with the first subparagraph of Article 37 (1) of the EEC Treaty on the prohibition of discrimination between nationals of Member States regarding the conditions under which goods are procured and marketed to be interpreted as also covering State measures which entail an identical increase in the tax on consumption on imported and domestic goods, the income from which is credited to the general budget and is indirectly intended to compensate for the losses of a State monopoly of a commercial character which are incurred because certain producers are paid an excessive price which does not accord with market conditions within the Community and because at the same time the selling prices for the products purchased at the excessive prices have been reduced? (b) Is Article 37 (2) of the EEC Treaty prohibiting the introduction of measures which restrict the scope of the articles dealing with the abolition of customs duties to be interpreted as also including measures of the kind referred to in Question 2 (a)? (c) Does Article 37 of the EEC Treaty also confer direct rights which must be protected by the national courts upon those who are subject to an increase in the tax on consumption which affects imported and domestic goods equally if, although viewed in isolation the increase in the tax is compatible with the EEC Treaty, in conjunction with other measures it is incompatible with the Treaty? (d) Does the sphere of application of Article 37 of the EEC Treaty extend to measures which affect the importation of goods from third countries, and if so, subject to what conditions? 3. If the imposition of the tax on consumption is a charge having an effect equivalent to a customs duty and if the sphere of application of Article 37 of the EEC Treaty does not extend to imports from third countries: does Article 2 (1) of the Decision of the Council of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community (Official Journal, English Special Edition, Second Series I, External Relations (2), p. 164) create direct rights which must be protected by the national courts?’

The order of the Finanzgericht Hamburg was received at the Court Registry on 12 April 1978.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC written observations were lodged on 26 June 1978 by the Government of the French Republic, on 27 June by Hansen GmbH & Co., the plaintiff in the main action, on 3 July by the Government of the Federal Republic of Germany and on 4 July 1978 by the Commission of the European Communities.

The Court, upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to open the oral procedure without any preparatory inquiry. However, it requested the Commission to submit a written reply to two questions. That request was complied with within the prescribed time-limit.

II — Written observations submitted to the Court

Hansen GmbH & Co., the plaintiff in the main action, maintains that the basis of assessment of the monopoly equalization duty charged on imported spirits is aligned on the basis of assessment of the spirits surcharge, which is imposed on domestic spirits, in appearance only: that alignment relates only to spirits distilled from fruit products by distilleries whose annual production does not exceed four hectolitres of wine-spirit. The only distilleries affected are in fact ‘bonded’ distilleries, a traditional feature of the German monopoly system which does not occur in other Member States; there was a deliberate failure to align the charges imposed on imported spirits with those payable on spirits produced in distilleries whose production is estimated at a standard level and in co-operative fruit-farm distilleries.

The increase in the tax on spirits was, moreover, stated to have a double objective: on the one hand, to provide protection against an increase in imports and, on the other, to increase revenue with a view to replacing the protection of the German distilling industry, which was previously provided by a monopoly of imports and by taxes on imports, by an increase, financed by means of an increase in the tax on spirits, in the purchase prices paid by the monopoly.

(a) Question 1

The Finanzgericht Hamburg rightly considers that the German spirits monopoly continues to exist as a State monopoly of a commercial character within the meaning of Article 37 (1) of the EEC Treaty. That finding follows in particular from the maintenance, albeit purely as a matter of form, of the prohibition on imports (Article 3 of the Law on the Monopoly in Spirits), from the obligation to deliver and sell production to the Monopoly Administration (Articles 58 and 61 of the Law) and from the monopolistic effects following from the fixing of the purchase and selling prices of spirits which must or may be delivered.

The prohibition on discrimination contained in Article 37 forms a lex specialis in relation to all other prohibitory provisions in the EEC Treaty in that the discrimination originates in the rôle played by the monopoly and in the way in which it operates. The objectives of the monopoly could be attained by a great variety of measures: customs duties and similar charges, quantitative restrictions and measures having equivalent effect, various arrangements of internal taxation and aids.

The aims of Articles 92 and 93 differ from those of Article 37: their subject-matter is aids as such, whilst Article 37 deals with State monopolies of a commercial character and the forms of discrimination which are thereby entailed or caused. The discrimination itself may arise from a variety of measures, in particular from the fixing of prices made possible by aids.

Article 37 of the Treaty is a lex specialis in relation to Articles 92 and 93, even if the discriminatory State measure entails in particular an aid.

(b) Question 2 (a)

This is the decisive question in the main action. Its wording may, however, give rise to certain misunderstandings. The ‘identical increase in the tax on consumption’ has not led to an equalization of taxation; imported spirits continue to suffer discrimination not only in relation to domestic spirits which must be delivered to the Monopoly but also in relation to spirits produced in distilleries whose production is estimated at a standard level, by distillers who are also owners of the raw materials and in co-operative fruit-farm distilleries. Furthermore, the revenue from the increase in the tax on consumption entered in the general budget is directly intended to finance the losses of the Monopoly Administration arising from the difference between the high purchase prices and low selling prices.

The tax on consumption which, increased by DM 150 per hectolitre, applies to imported products and domestic products merely presents an appearance of uniform taxation. In fact the rate of taxation on domestic spirits is reduced either because no tax is levied (Article 79 (a) of the Law on the Monopoly in Spirits) or because the increase in the tax is in fact entirely compensated for by measures of the Monopoly Administration. Domestic spirits still enjoy a privileged position in that the Monopoly Administration markets spirits produced by German distillers, taking over the costs of transport, handling, storage and administration.

A second, and appreciably further-reaching ‘compensation effect’ in relation to taxation arises from the payment by the Monopoly Administration of a high purchase price. The latter not only brings the price to the level of the production costs of foreign competitors but also confers upon the distiller aids which increase his income.

Whilst imported spirits bear the entire tax on spirits of DM 1950 per hectolitre of wine-spirit, domestic spirits subject to the obligation to deliver and resold by the Monopoly Administration are relieved of the difference between the Federal Monopoly Administration's buying and selling prices and of the transport and marketing costs.

The effect of that discrimination is exacerbated by the fact that the charge on imported spirits constituted by the increase of DM 150 in the tax on spirits is used to subsidize competing domestic products.

This constitutes discrimination regarding the conditions under which goods are marketed, since the increase in the tax on spirits means that the imported product is subject to more onerous taxation than the similar domestic product; furhter, the measures in question are related to the existence of the monopoly and produce an effect on specific products; finally, the provisions in question constitute new measures within the meaning of Article 37 (2) of the Treaty.

(c) Question 2 (b)

By the reference in Article 37 (2) to the ‘scope of the articles dealing with the abolition of customs duties’ is intended Article 12 et seq. and Article 18 et seq. of the Treaty and accordingly also the prohibition on measures having an effect equivalent to customs duties on imports.

The duty on spirits imposed on domestic and imported products cannot be considered as forming part of a general system of internal taxation, applying systematically to domestic and imported products according to the same criteria. In fact domestic spirits and imported spirits are not taxed systematically according to the same criteria. There are three duties on spirits, each with a different name, which have rates calculated according to different bases of calculation and which are applied systematically to domestic and imported products in accordance with different characteristics.

The fact that the increase in the monopoly equalization duty is in the nature of a customs charge is indicated by both the protective character and the objective of that duty. It is clear from the case-law of the Court that a fiscal or aid device merely has the appearance of a system of internal taxation if it applies to particular products taxes whose sole purpose is to finance activities for the specific advantage of taxed domestic products so as to compensate wholly or in part for the fiscal charge imposed upon them. Those principles also apply to taxes on consumption and to an increase in an existing tax where only the amount of the increase is intended to provide resources the purpose of which is to reduce the taxation imposed on similar domestic products.

It is clear from the preparatory stages of the Law of 2 May 1976 and from its context that the increase in the tax on spirits was intended to compensate for the deficit arising from the difference between the purchase price of domestic spirits and the prices at which the Monopoly Administration sells such spirits; there is thus a direct connexion. It is not ‘broken’ by the fact that the tax on spirits is initially inserted in the budget and subsequently re-assigned to the Monopoly Administration.

The fact that the increase of DM 150 is employed to finance purchase prices means that, since those prices are paid by the Monopoly Administration, spirits which must or may be delivered to the Administration obtain relief to the extent of that amount at least. The increase is thus in the nature of a customs duty.

(d) Question 2 (c)

The Court has ruled on a number of occasions that Article 37 (1) and (2) has direct effect and may be relied upon by individuals before the national courts. There is no reason to restrict the scope of that case-law.

(e) Question 2 (d)

According to its wording Article 37 of the Treaty relates exclusively to intra-Community trade in goods. In fact the prohibition set out in paragraphs (1) and (2) goes beyond the free movement of goods between the Member States.

The scope of Article 37 is extended by Article 227 (2) of the Treaty to Algeria and the French overseas departments; it has also been extended by various conventions of association and also by Council Decision No 70/549/EEC of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community (Official Journal, English Special Edition, Second Series I, External Relations (2), p. 164).

Furthermore, the prohibition on charges having an effect equivalent to customs duties applies, pursuant to Regulation (EEC) No 950/68 of the Council of 28 June 1968 on the Common Customs Tariff (Journal Officiel 1968, L 172, p. 1) in conjunction with Article 18 et seq. of the Treaty, to all imports from third countries following the entry into force of the Common Customs Tariff on 1 July 1968.

The prohibitions laid down by Article 37 also apply to products coming from third countries which are in free circulation in the Member States pursuant to Article 9 (2) and Article 10 (1) of the Treaty.

(f) Question 3

Article 2 (1) of Decision No 70/549/EEC, by reason of the legal nature of that decision, has direct effect, it is directly applicable also by reason of the Common Customs Tariff and the common agricultural policy of the Community, which were given concrete form by that decision, albeit unnecessarily, having regard to the judgment of the Court of 13 December 1973 in Joined Cases 37 and 38/73 (Diamantarbeiders [1973] 2 ECR 1609).

The Government of the Federal Republic of Germany maintains that the monopoly in spirits was adjusted in accordance with Article 37 of the EEC Treaty by the Law of 2 May 1976; that law inter alia abolished the import monopoly and abolished the compensation of prices, so that at present the sole function of the monopoly is to assist in the organization of the market. There are thus grounds for doubt as to whether the increase in the tax on spirits and the methods of price-formation which are at issue in the main action constitute, for the purposes of Article 37, measures related to the existence of the monopoly.

(a) Question 1

Article 37 contains a general prohibition on all discrimination against imported products in relation to domestic products; on the other hand, under Article 92 certain forms of aid to domestic undertakings or production may be authorized provided that they satisfy certain criteria of economic policy. Article 92 et seq. provide no guidance as to the forms and means which may be employed in granting aids; the forms of open subsidies, in particular so-called financial aids and the non-imposition of charges and taxes, must thus in principle be permitted regardless of the adverse effects which they may have indirectly on sales of competing imported products. In this connexion Article 92 must be considered as a lex specialis if its subject-matter overlaps that of Article 37. Such overlapping follows from the attribution of a wide sphere of application to Article 37.

It is necessary to appraise the relationship between Articles 37 and 92 differently where, in order to promote the national production, the opportunities for using competing imported products are restricted or such products are subjected to higher taxation. In that case the fact that the aid corresponds to the criteria of economic policy laid down in Article 92 is not enough to justify the method chosen, as that would render nugatory the prohibition in Article 37.

In order to distinguish between the types of subsidy permitted under Article 92 and the arrangements prohibited by Article 37 it is necessary to establish whether the measure in question merely modifies the conditions of competition and has only an indirect effect on the movement of goods. Financial aids, relief from taxation and even a system reducing the prices of domestic products to the general level of prices, which is itself influenced by imports, in essence affect the conditions of production and do not directly concern the movement of goods. It is of little significance with regard to that last method whether prices are subsidized directly or through a system of purchase by the State at higher prices covering production costs and of resale at the lower market price.

The reply to the first question should be that Article 92 constitutes, in the conditions of economic policy for which it provides, a lex specialis in relation to certain forms of aids, in particular all measures which in essence influence the conditions of production and have only an indirect effect on the movement of goods.

(b) Question 2 (a) and (b)

The imposition of charges uniformly on imported products and domestic products, the revenue from which is appropriated to the general budget and which is applied, at most indirectly, to compensate for the losses of a monopoly of a commercial character does not fall under Article 37 (2) of the Treatly.

The increase in the tax on the consumption of spirits laid down by the Law of 2 May 1976 is in accordance with the obligation contained in Article 37 to accord the same treatment in matters of taxation to imported products and domestic products. The aid granted to domestic producers of spirits manufactured from agricultural products by way of the payment of purchase prices covering the production costs is not contrary either to the principle of nondiscrimination in matters of taxation or to the prohibition on charges having an effect equivalent to customs duties under Article 37 (2). In so far as that aid may be considered to be an indirect obstacle to the movement of goods it must be recalled that it constitutes an aid introduced in accordance with the Treaty, under the first subparagraph of Article 42, for ethyl alcohol obtained from agricultural products and authorized by the Commission in pursuance of the provisions of Article 93 (3) of the Treaty and of Article 4 of Regulation No 26 of the Council of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (Official Journal, English Special Edition 1959-1962, p. 129). The type of aid chosen by the Government of the Federal Republic of Germany is lawful on the basis of Article 92 of the Treaty. The Court of Justice has held that the legislation applicable to aids of this type is not the provisions of Article 37 but other specific provisions of the Treaty which limit the scope of Article 37.

According to the case-law of the Court the imposition of a tax in conjunction with an aid may constitute an unlawful infringement of the prohibition on charges having an effect equivalent to a customs duty or of the principle of nondiscrimination in matters of taxation where the revenue from the tax is intended solely to support activities which exclusively benefit the taxed domestic product. The German tax on spirits, however, does not satisfy the conditions for the application of that case-law. It constitutes a tax on consumption imposed solely in accordance with criteria of a fiscal nature and the revenue is appropriated to the general budget of the State; it is not collected by a fund or similar agency but by the finance administration for the benefit of the general treasury; the aids are not financed by methods similar to taxation but by the budget of the State; accordingly, there is no connexion, as prescribed in the case-law of the Court, between the collection of the tax and the conditions for payment of the subsidy.

The tax on the consumption of spirits is independent of the monopoly and is not specifically appropriated.

The increase in the tax on the consumption of spirits undertaken in the Federal Republic in the course of the adjustment of the monopoly in spirits and the guarantee that purchase prices will cover the production costs of producers of spirits from agricultural products are in accordance with Community law.

Accordingly the following reply should be given to the question submitted:

A tax which forms an integral part of a general system of internal taxation applying to domestic and imported products according to the same criteria, the revenue from which is appropriated to the general budget of the State, is not contrary to Article 37 (2) of the Treaty even if it serves indirectly to compensate for the losses of a State monopoly of a commercial character as described in the question.

(c) Question 2 (c)

Since the conditions mentioned in that question are not present an answer is unnecessary.

(d) Question 2 (d)

In trade with third countries the general rules apply to goods covered by a monopoly within a State. Article 37 applies only in so far as it contains a prohibition on charges having an effect equivalent to customs duties; nevertheless, regard must also be had for the external customs tariff. The Court has confirmed that in the sphere of external trade there is a prohibition on the introduction of new charges or an increase in the rates of existing taxes since, without such a standstill clause, there is a danger that the Common Customs Tariff would be disregarded.

(e) Question 3

Since the conditions with a view to which this question was submitted do not obtain an answer is unnecessary.

The Government of the French Republic observes with regard to Question 2 (a) that at the request of the Commission it is at present turning to a solution in line with that adopted in the Federal Republic of Germany in 1976.

The point at issue being to determine to what extent the present system of taxation of spirits in Germany is in accordance with the requirements of the Treaty, in particular Article 37, it should be noted that the solution to that problem appears to be derived largely from the judgment of the Court of 19 February 1976 in Case 45/75 (Rewe, [1976] 1 ECR 181), in which it was stated that ‘the first paragraph of Article 95 does not prohibit the imposition of the same taxation on an imported product and a similar domestic product, even if a part of the tax levied on the domestic product is allocated for the purposes of financing a State monopoly, whilst that levied on the imported product is imposed for the benefit of the general budget of the State’. That decision should be upheld.

The Commission in essence submits the following observations.

(a) Questions 1 and 2

Since they are concerned with the legal situation after the expiry of the transitional period those questions give rise to the preliminary point as to whether Article 37, paragraph (1) of which provides that when the transitional period has ended no discrimination regarding the conditions under which goods are procured and marketed is to exist between nationals of Member States, may be relied upon before the national courts after the end of that transitional period in proceedings calling in question national taxation applied in a different manner to an imported product.

Article 37 (1) is, with regard to the Member States, in the nature of a duty to act which had to be performed during the transitional period; its purpose was to ensure that at the end of the transitional period products coming under a State monopoly of a commercial character were subject to the conditions created for trade in freely-marketed products not covered by a monopoly by eliminating customs duties, quantitative restrictions, charges, charges and measures having equivalent effect and by the prohibition of discrimination in taxation. As from 31 December 1969 State monopolies of a commercial character had to be adjusted so as to eliminate their exclusive right to import from other Member States. The same principle applies following the end of the transitional period with regard to the exclusive rights to export from Member States and to market products in Member States, since those exclusive rights constitute the essence of the monopoly. The abolition of exclusive rights terminated the existence of monopolies as such. Article 37 (1) continues to apply only in so far as it requires the abolition of the exclusive rights of importation, exportation and marketing. With regard to all other measures the general provisions of the Treaty, in particular Articles 12, 30, 34 and 95, are applicable; where appropriate, regard should also be had for Article 92.

In those cicumstances the problems raised by the main action should be approached in the following manner:

The first point to be established is whether Article 95 of the Treaty must be interpreted as meaning that, when taxes are levied on products coming from other Member States, it prohibits any lesser variation of rates according to the categories of producers than occurs within the national territory. According to the case-law of the Court Article 95 prohibits the taxation of imported products in accordance with a basis of calculation or with rules differing from those for taxation applied to similar domestic products and leading to a heavier charge on imported products, even if that disparity occurs in only a small number of cases; the Member States nevertheless remain free to establish the system of taxation which they consider the most appropriate for each product but they are not released from the duty to ensure that imponed products are not ultimately subjected to higher taxation. If it proves impossible to obtain equal taxation for domestic products and imported products all that can be done is to apply the same standard-rate or fixed tax to the two products.

The second point is whether those differences in taxation may constitute, for a part of the national production, a State aid which must be assessed in the light of Articles 92 to 94 of the Treaty. The consequence of the mutual and general relationship between Articles 95 and 92 is that only Article 92 et seq. are applicable to tax reductions coming under Article 92 because their objective is to confer an advantage on certain undertakings or areas of production. Under those conditions it is certainly possible that differences in taxation whereby, as in the present case, certain domestic producers obtain an advantage must be assessed in the light of Article 92 et seq.

The third point is whether the provisions prohibiting charges having an effect equivalent to customs duties and those prohibiting all discrimination in the taxation of imports preclude a uniform increase, affecting both imported products and domestic products, in a tax on consumption, the revenue from which is appropriated to the general budget and intended to offset the losses of a public agency which arise both from the payment to certain producers of a price which is excessive in relation to market conditions within the Community and from a simultaneous reduction in the selling prices of the products purchased at excessive prices.

In this connexion it should be noted that the German system for the taxation of imported spirits does not infringe the prohibition on charges having an effect equivalent to a customs duty on imports or the prohibition on discrimination in matters of taxation.

The judgments of the Court cited in this connexion refer to so-called ‘para-fiscal’ charges, the revenue from which is paid not to the State itself but to autonomous public agencies. According to those judgments, for the charges to be considered contrary to the Treaty they must be intended exclusively to support activities which specifically benefit the taxed national product; State taxation, the revenue from which is paid into the general budget, is thus excludes.

The principles enshrined in those judgments cannot be applied by analogy to charges levied by the State, such as taxes on consumption. With regard to the fixing of the level of taxation appropriated to the national budget Member States retain full discretion within the framework of their economic independence, subject to any obligations which may be incumbent on them under Community law.

In the present case there is no ‘clearly established connexion’ between, on the one hand, the collection of a fiscal duty levied without distinction on the products in question, whether domestic or imported and, on the other hand, the advantage which enures only for the benefit of the domestic products by reason of the proceeds of that same duty.

(b) Question 3

The levying of the tax on the consumption of spirits does not constitute a charge having an effect equivalent to a customs duty and in those circumstances the question of the scope of Article 37 becomes devoid of purpose.

On the other hand, since this question involves the interpretation of Article 5 (1) of Decision No 70/594/EEC, according to which Member States shall refrain from any internal fiscal measure or practice that directly or indirectly leads to discrimination between their own products and like products originating in the overseas countries and territories, it should be noted that that provision corresponds broadly with Article 95 of the Treaty and there appear to be no grounds for considering that it does not have direct effect.

III — Oral procedure

At the hearing on 28 November 1978 Hansen GmbH & Co., the plaintiff in the main action, represented by Dietrich Ehle, Rechtsanwalt of Cologne, the Government of the Federal Republic of Germany, represented by Martin Seidel, Ministerialrat at the Federal Ministry for Economic Affairs, and the Commission of the European Communities, represented by its Legal Adviser, Rolf Wägenbaur, submitted oral observations and replied to questions put by the Court. The questions concerned in particular the conditions under which the Commission was informed by the Federal Republic of Germany, pursuant to Article 93 (3) of the EEC Treaty and Article 4 of Regulation No 26, of the preparation of the Law of 2 May 1976 amending the Law on the Monopoly in Spirits.

The Advocate General delivered his opinion at the hearing on 16 January 1979.

Decision

1. By an order of 22 March 1978 which was received at the Court on 12 April 1978 the Finanzgericht Hamburg referred, pursuant to Article 177 of the EEC Treaty, a number of questions on the interpretation of Article 37 of the Treaty concerning State monopolies of a commercial character in relation to Articles 92 and 93 concerning the system of aids and of Article 2 (1) of Council Decision No 70/549/EEC of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community (Official Journal, English Special Edition, Second Series I, External Relations (2), p. 164) in order to establish whether the treatment in matters of taxation accorded by the Federal Republic of Germany to imported spirits following the entry into force of the Gesetz zur Änderung des Gesetzes über das Branntweinmonopol [Law for the Amendment of the Law on the Monopoly in Spirits] of 2 May 1976 (Bundesgesetzblatt I No 50 of 7 May 1976, p. 1145) is compatible with Community law.

2. The plaintiff in the main action is an undertaking which manufactures and distributes spirits and which marketed in the Federal Republic of Germany at the time in question imported spirits coming from various sources, of both Community and non-Community origin, either unprocessed or in the form of coupages. After the entry into force of the Law of 2 May 1976 such spirits became liable to the tax on spirits of DM 1650 per hectolitre of wine-spirit which is applicable uniformly, albeit under various designations, both to domestic spirits and to imported spirits.

3. The plaintiff, however, maintains that that equality of treatment is merely apparent, since it is clear from the preparatory stages of the Law of 2 May 1976 that the increase in the rate of taxation from DM 1500 to DM 1650 per hectolitre had the sole objective of enabling the Monopoly Administration to make good its losses stemming from the marked difference which had arisen between, on the one hand, the purchase price which it is bound by law to pay to producers of spirits to which the monopoly applies and, on the other, the selling price of such spirits to consumers, as determined by market forces following the judgments of the Court of 17 February 1976 in Cases 45/75 Rewe ([1976] 1 ECR 181) and 91/75 Miritz ([1976] 1 ECR 217). Despite the uniform increase in the rate of taxation brought about by the Law of 2 May 1976 the practical result of the system is therefore said to be that the burden of massive subsidies granted in favour of domestically-produced spirits is borne by imported spirits and that there exist the conditions under which the Court has held that an internal tax, even if in appearance it is not discriminatory, may be classified as a charge having an effect equivalent to a customs duty prohibited by the Treaty, as is made clear by the judgments of the Court of 25 May 1977 in Cases 77/76 Cucchi ([1977] 1 ECR 987) and 105/76 Interzuccheri ([1977] 1 ECR 1029. According to the plaintiff that practice is simply the continuation of the monopoly in spirits by other means and accordingly it is appropriate to apply Article 37 of the Treaty, in particular paragraph (2), whereby the Member States are required to refrain from introducing any new measure which is contrary to the principles laid down in paragraph (1) or which restricts the scope of the articles dealing with the abolition of customs duties and quantitative restrictions between Member States.

4. The German tax administration, the defendant in the main action, claims for its part that the monopoly in spirits was adjusted in such a way that its only function at present is that of a national organization of the market and that it no longer supervises or directs the importation of spirits. It contends that the indirect connexion existing between the levying of the charge on importation and the financing of a national economic activity does not suffice to give that charge the character of an unlawful tax or aid.

5. In order to settle the points at issue the Finanzgericht submitted the following questions:

‘1) Is Article 37 of the EEC Treaty a lex specialis in relation to Articles 92 and 93 of the EEC Treaty in the sense that State measures which affect the movement of goods between Member States and, where applicable, between Member States and third countries must be judged in the light of Article 37 of the EEC Treaty even if the State measures contain inter alia an aid?

2) If Question 1 is answered in the affirmative:

a) Is Article 37 (2) in conjunction with the first subparagraph of Article 37 (1) of the EEC Treaty on the prohibition of discrimination between nationals of Member States regarding the conditions under which goods are procured and marketed to be interpreted as also covering State measures which entail an identical increase in the tax on consumption on imported and domestic goods, the income from which is credited to the general budget and is indirectly intended to compensate for the losses of a State monopoly of a commercial character which are incurred because certain producers are paid an excessive price which does not accord with market conditions within the Community and because at the same time the selling prices for the products purchased at the excessive prices have been reduced?

b) Is Article 37 (2) of the EEC Treaty prohibiting the introduction of measures which restrict the scope of the articles dealing with the abolition of customs duties to be interpreted as also including measures of the kind referred to in Question 2 (a) ?

c) Does Article 37 of the EEC Treaty also confer direct rights which must be protected by the national courts upon those who are subject to an increase in the tax on consumption which affects imported and domestic goods equally if, although viewed in isolation the increase in the tax is compatible with the EEC Treaty, in conjunction with other measures it is incompatible with the Treaty?

d) Does the sphere of application of Article 37 of the EEC Treaty extend to measures which affect the importation of goods from third countries, and if so, subject to what conditions?

3) If the imposition of the tax on consumption is a charge having an effect equivalent to a customs duty and if the sphere of application of Article 37 of the EEC Treaty does not extend to imports from third countries: does Article 2 (1) of the Decision of the Council of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community (Official Journal, English Special Edition, Second Series I, External Relations (2), p. 164) create direct rights which must be protected by the national courts?’

Question 1

6. The first question asks in essence whether a State measure which is related to the operation of a State monopoly of a commercial character and affects the free movement of goods may be exempted from the prohibition on discrimination contained in Article 37 of the Treaty because it comprises inter alia an aid within the meaning of Articles 92 and 93.

7. Both the Government of the Federal Republic of Germany and the Commission have called in question the applicability of Article 37 in the context of the dispute brought before the Finanzgericht. According to the German Government the Law of 2 May 1976 was intended to adjust the German monopoly in spirits in accordance with Article 37 of the Treaty. It is stated that that law in fact abolished the import monopoly existing until that time and dispensed with price-compensation so that at present the monopoly operates solely as an agency for the organization of the market, purchasing the entire domestic production at a price which covers production costs and, after processing, reselling it at prices fixed by market forces. The Commission for its part claims that when State monopolies were adjusted in accordance with Article 37 at the end of the transitional period the effectiveness of that provision of the Treaty was exhausted and this field is thus governed, on the one hand, by the provisions of the Treaty concerning the free movement of goods and, on the other, by Article 95 concerning the application without discrimination of internal taxation.

8. Article 37 does not require the total abolition of State monopolies of a commercial character but only that they be so adjusted as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States. It is further provided in Article 37 (2) that the operations of a State monopoly shall not be employed to re-establish a customs barrier or quantitative restrictions in intra-Community trade. Article 37 remains applicable wherever, even after the adjustment prescribed in the Treaty, the exercise by a State monopoly of its exclusive rights entails a discrimination or restriction prohibited by that article. In a case such as the present, which concerns an activity specifically connected with the exercise by a State monopoly of its exclusive right to purchase, process and sell spirits, the application of the provisions of Article 37 cannot be excluded. It thus appears that the national court was justified in requesting clarification of the relationship between Article 37 and the provisions of the Treaty concerning official aids since the operations of the monopoly are closely linked with the support of certain categories of producer by means of purchase prices guaranteed by law.

9. A comparison between Article 37 on the one hand and Articles 92 and 93 on the other shows that those provisions pursue the same objective, which is to ensure that the two categories of intervention on the part of a Member State, namely action by a State monopoly and the granting of aids, do not distort the conditions of competition within the common market or create discrimination against the products or trade of other Member States. However, the application of those provisions presupposes distinct conditions peculiar to the two kinds of State measure which they are intended to govern and they differ furthermore as to their legal consequences, above all in that the intervention of the Commission plays a large part in the implementation of Articles 92 and 93 whilst Article 37 is intended to be directly applicable. A measure effected through the intermediary of a public monopoly which may also be considered as an aid within the meaning of Article 93 is consequently governed both by the provisions of Article 37 and by those applicable to State aids. It follows that the operations of a State monopoly are not exempted from the application of Article 37 by reason of the fact that they may at the same time be classified as an aid within the meaning of the Treaty. It is therefore clear that in all cases where the arrangements for marketing a product such as spirits entail the intervention of a public monopoly acting pursuant to its exclusive right the specific provisions of Article 37 are applicable, even if the relationship between the monopoly and producers may be in the nature of an aid.

10. The answer to the first question must therefore be that Article 37 of the Treaty constitutes in relation to Articles 92 and 93 of that Treaty a lex specialis in the sense that State measures, inherent in the exercise by a State monopoly of a commercial character of its exclusive right must, even where they are linked to the grant of an aid to producers subject to the monopoly, be considered in the light of the requirements of Article 37.

11. In view of that answer it is unnecessary to consider the extent to which the provisions of Articles 92 and 93 are applicable to the production and marketing of agricultural products, such as spirits, which are not yet subject to a common organization of the market.

Question 2

12. Question 2 (a) and (b) concerns the point whether Article 37 (1) and (2) prohibits an increase in a tax on consumption where such increase, which in itself is not discriminatory, is organized in such a way that the additional revenue thereby obtained is intended to make good the losses incurred by a State monopoly as a result of the fact that it is obliged to pay producers a guaranteed purchase price in excess of the market resale price.

13. That question is in fact intended to establish whether a system of aid in conjunction with the operations of a State monopoly which together constitute a guarantee to producers of a purchase price which is higher than the selling price prevailing on the market may constitute an infringement of the provisions of Article 37. It should be noted in this context that, in a case like the present, there is no causal connexion between the amount of the aid, which is granted in the form of a purchase price guaranteed to the producer, and the selling price, since by virtue of the intervention of the monopoly the producer, who benefits from the aid, does not have access to the market, the selling price to the consumer being determined independently by the monopoly for reasons inherent in its sales policy, without reference to the destination and the amount of aid. Accordingly, unlike Articles 92 and 93 of the Treaty, pursuant to which the actual economic effect of an aid granted by a State may be assessed, Article 37 is intended to render the sales policy of a State monopoly subject to the requirements of the free movement of goods and of the equal opportunities which must be accorded to products imported from other Member States. Such equality of opportunity would be jeopardized if the selling price charged for domestically-produced spirits by the monopoly appeared to be lower not only than the purchase price guaranteed to the producer but also than the price, before tax, of spirits of comparable quality imponed from another Member State.

14. The answer to Question 2 (a) and (b) must therefore be that any practice by a State monopoly which consists in marketing a product such as spirits with the aid of public funds at an abnormally low resale price compared to the price, before tax, of spirits of comparable quality imponed from another Member State is incompatible with Article 37 (1) of the EEC Treaty. The national court must assess the facts of the case on the basis of those criteria.

15. In accordance with the foregoing, Question 2 (c) must be understood as being intended to establish whether Article 37 has the effect of conferring rights directly on all persons adversely affected by the price policy which a State monopoly operates on the market under the conditions described by the national court.

16. Article 37 is based on the principle of the prohibition of all discrimination between nationals of the Member States regarding the conditions under which goods subject to a State monopoly in a Member State are procured and marketed. In a situation such as that under consideration by the Finanzgericht in the present action it is possible for the national court to draw a comparison between, on the one hand, the selling price for spirits marketed by the monopoly and, on the other, the import price of a trader importing a comparable product into the national territory. Since any discriminatory effect in favour of domestic products at the expense of imported products may be verified with sufficient certainty there can be no doubt that, in such a case, Article 37 confers upon individuals rights which the national courts must protect.

17. The answer to Question 2 (c) must therefore be that Article 37 of the Treaty confers rights, which the national courts must protect, on persons who suffer the financial consequences of discrimination resulting from an abnormal reduction of the resale price charged by a public monopoly through the use of State funds.

18. Question 2 (d) asks whether the sphere of application of Article 37 of the Treaty extends to measures which affect the importation of goods from third countries.

19. Article 37 forms part of Chapter 2 of Title I of the Treaty, relating to the ‘elimination of quantitative restrictions between Member States’. It is clear both from the wording of that provision and from its place in the framework of the Treaty that Article 37 is intended to promote the free movement of goods within the Community and to maintain normal conditions of competition between the economies of Member States where in one or other of those States a specific product is subject to a State monopoly of a commercial character. Accordingly the provisions of that article cannot be applied to products imported from third countries since the arrangements for the importation of such products are subject not to the provisions governing the internal market but to those relating to commercial policy.

20. The answer to Question 2 (d) must therefore be that the sphere of application of Article 37 of the Treaty does not extend to measures which affect the importation of goods from third countries.

Question 3

21. This question is asked by the Finanzgericht in order to clarify the scope of Article 2 of Council Decision No 70/549/EEC of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community, according to which products originating in the countries and territories in question must, on importation into the Community, be admitted ‘free of customs duties and charges having equivalent effect’.

22. Decision No 70/549/EEC — assuming that it was applicable to the importations in question — is intended inter alia to extend to the countries and territories associated with the Community and to the products of such countries the rules relating to the free movement of goods within the Community. In this connexion it is provided in Article 2 (1) of the decision that products originating in the associated countries and territories shall, on importation into the Community, be admitted free of customs duties and charges having equivalent effect. Regard should also be had for Article 5 (1) of that decision, according to which ‘Member States shall refrain from any internal fiscal measure or practice that directly or indirectly leads to discrimination between their own products and like products originating in the countries and territories’. Those provisions may be juxtaposed with, on the one hand, Article 37 (2) of the EEC Treaty and, on the other, Article 95 concerning the application without discrimination of systems of internal taxation to domestic products and to imported products. It is therefore clear that spirits originating in the countries and territories covered by Decision No 70/549/EEC must receive the same treatment on importation as that which has been set out above with regard to products of Community origin.

23. The answer to Question 3 must therefore be that Council Decision No 70/549/EEC of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community — subject to the reservation that its applicability to the facts of the case is verified by the national court — is intended to place goods originating in the countries and territories concerned on an equal footing with Community products so far as concerns any discriminatory practices on the part of a State monopoly of a commercial character.

Costs

24. The costs incurred by the Government of the French Republic, the Government of the Federal Republic of Germany and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since 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 Hamburg, the decision on costs is a matter for that court.

On those grounds, THE COURT in answer to the questions referred to it by the Finanzgericht Hamburg by an order of that court of 22 March 1978, hereby rules:

1 Article 37 of the EEC Treaty constitutes in relation to Articles 92 and 93 if that Treaty a lex specialis in the sense that State measures, inherent in the exercise by a State monopoly of a commercial character of its exclusive right must, even where they are linked to the grant of an aid to producers subject to the monopoly, be considered in the light of the requirements of Article 37.

2 Any practice by a State monopoly which consists in marketing a product such as spirits with the aid of public funds at an abnormally low resale price compared to the price, before tax, of spirits of comparable quality imported from another Member State is incompatible with Article 37 (1) of the EEC Treaty.

3 Article 37 of the EEC Treaty confers rights, which the national courts must protect, on persons who surfer the financial consequences of discrimination resulting from an abnormal reduction of the resale price charged by a public monopoly through the use of State funds.

4 The sphere of application of Article 37 of the EEC Treaty does not extend to measures which affect the importation of goods from third countries.

5 Council Decision No 70/549/EEC of 29 September 1970 on the Association of the Overseas Countries and Territories with the European Economic Community — subject to the reservation that its applicability to the facts of the case is verified by the national court — is intended to place goods originating in the countries and territories concerned on an equal footing with Community products so far as concerns any discriminatory practices on the part of a State monopoly of a commercial character.