CJEC, November 16, 1977, No 13-77

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES,

1. By an order of 7 January 1977 which was received at the Court on 26 January 1977, the Belgian Hof van Cassatie (Court of Cassation) referred under Article 177 of the EEC treaty four questions on the interpretation of Article 3 (f), the second paragraph of Article 5, Articles 30, 31, 32, 86 and 90 of the treaty, and of Council Directive No 72-464-EEC (OJ, English special edition 1972 (31 December), p. 3) on taxes other than turnover taxes which affect the consumption of manufactured tobacco.

2. These questions were raised in the context of an action between the Belgian limited liability company GB-INNO-BM, which runs several supermarkets in Belgium, and the non-profit-making association Vereniging van de Kleinhandelaars in tabak (association of tobacco retailers) (hereinafter referred to as ' ATAB ').

3. It emerges from the file on the case that, by an order of 24 April 1972, following proceedings brought by ATAB, the President of the Rechtbank Van Koophandel (Commercial Court), Brussels, ordered the company to which GB-INNO-BM is the legal successor to discontinue the selling or offering for sale of cigarettes at a price lower than that stated on the tax label, on the grounds that such practice was an unfair competitive act and infringed Article 58 of the Belgian law of 3 July 1969 (value-added tax code), which is in the following terms :

' In respect of manufactured tobacco which is imported into or produced within this country, the tax shall be levied whenever excise duty has to be paid in accordance with the relevant provisions of tax laws or regulations. The tax shall be calculated on the basis of the price stated on the tax label which must be the compulsory selling price to the consumer or, if No price is specified, on the basis adopted for the imposition of excise duty '.

4. The appeal lodged by GB-INNO-BM against that order was dismissed by the Hof van Beroep (Court of appeal), Brussels, by a judgment of 24 November 1974, and the company then appealed to the Hof van Cassatie (Court of Cassation).

The national legislation

5. In Belgium manufactured tobacco is subject to a system of excise duties which is characterized by the imposition of an ad valorem excise duty calculated on the retail selling price ' including vat '.

6. The aggregate amount of these two charges is paid by the manufacturer or importer when he buys the tax labels which will be affixed to the various manufactured or imported tobacco products and which state the retail selling price.

7. It is prohibited to sell tobacco products to the consumer at a price higher than the retail selling price appearing on the label.

8. With regard to excise duties, the same prohibition is formally laid down in paragraph 12 of the Regulation annexed to the ministerial order of 22 January 1948 governing the imposition of excise duties on manufactured tobacco.

9. As regards vat, the prohibition results from the fact that Article 58 (1) of the said law of 3 July 1969 refers to the principles governing liability to and imposition of excise duties.

10. It is also prohibited to sell tobacco products to the consumer at a price lower than the one appearing on the tax label.

11. If, at the material time, that prohibition was not in force as regards excise duties, nonetheless it was in force as regards vat, by virtue of Article 58 (1) of the law of 3 July 1969, which is quoted above.

12. The questions referred by the Hof van Cassatie for a preliminary ruling must enable that Court to assess the compatibility with Community law of Article 58 (1) of the Belgian law of 3 July 1969, in so far as under those provisions a selling price determined by the manufacturers or importers is imposed for sales to the consumer.

General observations

13. In all the Member States, taxes on manufactured tobacco are an important source of revenue, so that the competent authorities must possess effective means of ensuring that they are collected.

14. In the present state of Community law, it is for each member state to choose its own method of fiscal control over manufactured tobacco on sale in its territory.

15. Because of the need to satisfy the demands of the rigorous and often complicated controls - which differ moreover from one member state to another - the import and export of manufactured tobacco at present come up against inevitable obstacles and in these circumstances trade between States in this product requires considerable resources and skill.

16. Taking into account the large tax element in the selling price to the consumer, the profit made by the wholesaler and by the retailer is relatively small.

17. In a system in which, as in Belgium, the basis of assessment to excise duty and to vat is the retail selling price, a prohibition on selling tobacco products to the consumer at a price higher than the retail selling price appearing on the tax label constitutes an essential fiscal guarantee, designed to prevent producers and importers from undervaluing their products at the time of paying the taxes.

18. On the other hand, a prohibition on selling to the consumer at a price lower than that which appears on the tax label is not necessarily imposed for fiscal reasons, but rather, according to certain governments which intervened in this case, for socio-economic purposes, in that, by eliminating the possibility of any kind of discounts on sales to the consumer, it aims to support a certain retail selling structure and prevent that structure from becoming concentrated to the disadvantage of small retailers.

19. It has also been argued that maintaining a fixed retail price is essential in order to ensure that the member state is certain of actually obtaining the revenue from taxes on manufactured tobacco.

20. However, since in a system such as the one at issue collection is effected when the tax labels are obtained, that argument cannot be accepted.

21. Finally, it should also be noted that in a system such as the one which applies in Belgium, there is in theory nothing to prevent a retailer from being able to determine his own price for sale to the consumer, by obtaining tobacco products bearing appropriate tax labels.

22. However, in practice such a transaction is possible only with the co-operation of the manufacturer or importer on the one hand, and of the national tax authorities on the other, and such co-operation may often be difficult to obtain.

23. The questions referred by the National Court have to be answered after taking all these considerations into account.

The first question

24. In the first part of the first question the Hof van Cassatie asks whether Article 3 (f), the second paragraph of Article 5 and Article 86 of the EEC treaty must be interpreted as meaning that Member States are prohibited from introducing into or maintaining in force in their legislation a provision whereby, for the sale to consumers of both imported and home-produced goods, a selling price is fixed by the manufacturers or importers if the provision

- is of such a nature as to encourage the abuse by one or more undertakings of a dominant position within the common market within the meaning of Article 86 of the EEC treaty ;

- encourages the abuse by one or more undertakings of a dominant position which exists because the manufacturers and importers of manufactured tobacco can oblige the retailers in a member state to comply with the selling prices to the consumer fixed by the former.

25. In the second part of the question it is asked first whether the introduction or maintenance in force of such a provision is prohibited even if it is general in scope in that it relates to manufacturers and importers in general, that is, even those which have No dominant position or make No abuse thereof and a fortiori if the abuse of a dominant position was neither its aim nor its object nor its effect.

26. It is asked secondly whether in such a case the treaty provisions referred to in the first part of the question must not be interpreted as meaning that the introduction or maintenance in force of such a provision is by No means prohibited but that the provision can have No effect on the scope of application of Article 86 in the sense that abuse of a dominant position remains unlawful even if it is encouraged by this provision in the particular circumstances.

27. The different parts of this question should be dealt with together.

28. First, the single market system which the treaty seeks to create excludes any national system of Regulation hindering directly or indirectly, actually or potentially, trade within the Community.

29. Secondly, the general objective set out in Article 3 (f) is made specific in several treaty provisions concerning the rules on competition, including Article 86, which States that any abuse by one or more undertakings of a dominant position shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.

30. The second paragraph of Article 5 of the treaty provides that Member States shall abstain from any measure which could jeopardize the attainment of the objectives of the treaty.

31. Accordingly, while it is true that Article 86 is directed at undertakings, nonetheless it is also true that the treaty imposes a duty on Member States not to adopt or maintain in force any measure which could deprive that provision of its effectiveness.

32. Thus Article 90 provides that, in the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary inter alia to the rules provided for in Articles 85 to 94.

33. Likewise, Member States may not enact measures enabling private undertakings to escape from the constraints imposed by Articles 85 to 94 of the treaty.

34. At all events, Article 86 prohibits any abuse by one or more undertakings of a dominant position, even if such abuse is encouraged by a national legislative provision.

35. In any case, a national measure which has the effect of facilitating the abuse of a dominant position capable of affecting trade between Member States will generally be incompatible with Articles 30 and 34, which prohibit quantitative restrictions on imports and exports and all measures having equivalent effect.

36. In assessing the compatibility with the treaty of a system for fixing retail selling prices, a National Court must take into account all the conditions for the application of the provisions of Community law which have been referred to.

37. In this connexion, the Hof van Cassatie has taken into consideration, first, the possibility that the fact that manufacturers and importers of tobacco products can oblige retailers in a member state to adhere to the prices for sale to the consumer fixed by them could constitute a dominant position, and, secondly, that the measure regarded as possibly infringing Article 86 in conjunction with the second paragraph of Article 5 is a provision whereby on a sale to the consumer those prices must be adhered to.

38. In order to assess the compatibility of the introduction or the maintenance in force of such a measure with those provisions of Community law, the National Court must also determine, taking into account the obstacles to trade in manufactured tobacco between States which may result from the nature of the fiscal arrangements in question, whether that measure as such is capable of affecting trade between Member States, for this condition has to be satisfied for the prohibitions laid down in Article 86 to be applicable.

The second question

39. In the second question, the Hof van Cassatie asks whether undertakings to which Member States grant special or exclusive rights within the meaning of Article 90 of the treaty exist where, by means of a legislative provision, the state indirectly gives manufacturers and importers of certain products, as distinct from manufacturers and importers of other products, the possibility of themselves fixing the compulsory selling price to the consumer, and, if that question is answered in the affirmative, whether the retention of such special or exclusive rights is contrary to the provisions of Article 7 and Articles 85 to 94 of the treaty.

40. It should be pointed out that the fiscal system in question leaves the manufacturer or importer free to fix for his products a retail selling price lower than the selling price of competing products of the same kind and quality and which have the same characteristics.

41. Since that possibility is open to all those, including retailers, who become producers or importers of manufactured tobacco, and consequently to an indefinite class of undertakings, it is questionable whether those undertakings can properly be described as having been granted ' special ', and at all events ' exclusive ', rights.

42. However, since it has already been indicated in the reasons given for the answer to the first question that in any case Article 90 is only a particular application of certain general principles which bind the Member States, it does not appear necessary to give an answer to the second question.

The third question

43. This question, which is subdivided into three parts, asks first whether Articles 30, 31 and 32 of the EEC treaty must be interpreted as meaning that a measure having an effect equivalent to a quantitative restriction includes rules in a member state whereby a fixed price is imposed for the sale of tobacco products to the consumer, namely the price stated on the tax labels and which, according to the particular case, is determined by the manufacturers of these products who are established in the state or by the importers of the same products, in particular from other Member States.

44. Next it is asked whether such rules only constitute such a measure when it is in fact certain that it can hinder Community trade directly or indirectly, actually or potentially, a matter which must be determined by the National Court in each case.

45. Finally the question asks whether the position is different if, after notification of a price increase and after compliance with a specified waiting period, the member state permits the producers and importers to fix freely the prices, including the retail prices, but publishes the prices and, by means of the above-mentioned measure, ensures compliance with them.

46. Article 30 of the treaty prohibits in trade between Member States all measures having an effect equivalent to quantitative restrictions.

47. For the purpose of this prohibition it is sufficient that the measures in question are likely to hinder, directly or indirectly, actually or potentially, imports between Member States.

48. It should be pointed out that, as stated in commission directive No 70-50 of 22 December 1969 (OJ, English special edition 1970 (I), p. 17), ' measures, other than those applicable equally to domestic or imported products, which hinder imports which could otherwise take place, including measures which make importation more difficult or costly than the disposal of domestic production ' are measures which have an effect equivalent to a quantitative restriction on imports.

49. However, the ' measures having equivalent effect ' referred to in the directive do not include measures which by having such effect hinder trade between Member States but which are specifically referred to elsewhere in the treaty, in particular as fiscal measures, or are per se permitted as being the visible or hidden expression of powers retained by the Member States.

50. Article 99 of the treaty, which imposes on the commission the duty to look for ways of harmonizing the legislation of the Member States on this point in the interest of the common market, in conjunction with Article 100 on the approximation of laws, relates to the obstacles to trade resulting from indirect taxes.

51. On the basis of the aforementioned Articles, the Council adopted Directive No 72-464, which is the subject of the fourth question, precisely because it considered that it was in the interest of the common market that the rules for taxes affecting the consumption of manufactured tobacco should be harmonized, in order progressively to eliminate from the national systems those factors which were likely to hinder free movement and distort the conditions of competition.

52. Although a maximum price applicable without distinction to domestic and imported products does not in itself constitute a measure having an effect equivalent to a quantitative restriction, it may have such an effect, however, when it is fixed at a level such that the sale of imported products becomes, if not impossible, more difficult than that of domestic products.

53. On the other hand a system whereby the prices are freely chosen by the manufacturer or the importer as the case may be and imposed on the consumer by a national legislative measure, and whereby No distinction is made between domestic products and imported products, generally has exclusively internal effects.

54. However, the possibility cannot be excluded that in certain cases such a system may be capable of affecting intra-Community trade.

55. As has already been stated, imports and exports of manufactured tobacco are subject to obstacles inherent in the different methods of fiscal control which are used by the Member States in particular to ensure collection of the taxes on those products.

56. Accordingly, in order to assess whether rules in a member state whereby a fixed price is imposed for the sale to the consumer of manufactured tobacco, namely the price which has been freely chosen by the manufacturer or importer, may constitute a measure having an effect equivalent to a quantitative restriction, the National Court must establish, taking into account the fiscal obstacles affecting the sector of the products in question, whether such a system of fixed prices is in itself likely to hinder, directly or indirectly, actually or potentially, imports between Member States.

The fourth question

57. This question asks, first, whether the provisions of Article 5 of Council Directive No 72/464 have direct effect, so that individuals can rely on them before National Courts, and, secondly, whether the Member States are prohibited from introducing or maintaining in force a legislative measure whereby a selling price, stated on the tax label, is imposed for the sale to the consumer of imported or home-produced tobacco products, in that it is not possible to exceed the maximum and it is not permissible to sell the product at a lower price.

58. The second part of this question must be considered first, since if it was answered in the negative, there would be No need to answer the first part.

59. Council Directive No 72-464, based on Articles 99 and 100 of the treaty, as were the directives of 11 April 1967 on the harmonization of turnover taxes (OJ, English special edition 1967, pp. 14 and 16), sets out the basic rules for the first stage of the harmonization of excise duties on manufactured tobacco.

60. In the preamble to the directive, the Council first of all states as a matter of principle that, as regards manufactured tobacco, achievement of an economic union within which there is healthy competition and whose characteristics are similar to those of a domestic market, presupposes that the application in the Member States of taxes affecting the consumption of products in this sector does not distort conditions of competition and does not impede their free movement within the Community.

61. Article 1 of the Directive lays down the principle that the structure of the excise duties on manufactured tobacco shall be harmonized in several stages and Article 4 lays down a system of excise duties comprising a proportional component and a specific component.

62. Article 5 (1) of the directive provides that :

' Manufacturers and importers shall be free to determine the maximum retail selling price for each of their products. This provision may not, however, hinder implementation of the national systems of legislation regarding the control of price levels or the observance of imposed prices '.

63. Taking the view that the essential requirements of competition imply a system of freely formed prices for all groups of manufactured tobacco, the Council provided in Article 5 (1) of the Directive that manufacturers and importers shall be free to determine the maximum retail selling price for each of their products.

64. Taken in context, the second sentence of Article 5 (1) cannot be interpreted as aiming to prohibit the Member States from introducing or maintaining in force a legislative measure whereby a selling price, namely the price stated on the tax label, is imposed for the sale to the consumer of imported or home-produced tobacco products, always provided that that price has been freely determined by the manufacturer or importer.

65. In view of the answer given to the second part of the fourth question, there is No need to answer the first part thereof.

Costs

66. The costs incurred by the Government of the kKngdom of Belgium, the Government of the Grand Duchy of Luxembourg, the Government of the Kingdom of the Netherlands, the Government of the Italian Republic, the Council of the European Communities and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable.

67. 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 National Court, 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 Belgian Hof van Cassatie by a judgment of 7 January 1977, hereby rules :

1. Article 86 of the EEC treaty prohibits any abuse by one or more undertakings of a dominant position, even if such abuse is encouraged by a national legislative provision.

2. In order to assess the compatibility with Article 86 of the treaty, in conjunction with Article 3 (f) and the second paragraph of Article 5 of the treaty, of the introduction or maintenance in force of a national measure whereby the prices determined by the manufacturer or importer must be adhered to when tobacco products are sold to a consumer, it must be determined, taking into account the obstacles to trade which may result from the nature of the fiscal arrangements to which those products are subject, whether, apart from any abuse of a dominant position which such arrangements might encourage, such introduction or maintenance in force is also likely to affect trade between Member States.

3. Rules in a member state whereby a fixed price is imposed for the sale to the consumer of either imported or home-produced tobacco products, namely the price which has been freely chosen by the manufacturer or importer, constitute a measure having an effect equivalent to a quantitative restriction on imports only if, taking into account the obstacles inherent in the different methods of fiscal control which are used by the Member States in particular to ensure collection of the taxes on those products, such a system of fixed prices is likely to hinder, directly or indirectly, actually or potentially, imports between Member States.

4. Article 5 of Council Directive No 72-464-EEC of 19 December 1972 on taxes other than turnover taxes which affect the consumption of manufactured tobacco does not aim to prohibit the Member States from introducing or maintaining in force a legislative measure whereby a selling price, namely the price stated on the tax label, is imposed for the sale to the consumer of imported or home-produced tobacco products, provided that that price has been freely determined by the manufacturer or importer.