CJEC, April 4, 1968, No 27-67

The court

By an order of 12 july 1967 which reached the court on 24 july 1967, the finanzgericht, munich, asked for a preliminary ruling under article 177 of the treaty establishing the european economic community on a number of questions involving the interpretation of articles 95 and 30 of the said treaty in connexion with the imposition of the turnover equalization tax on the importation of certain goods.

Applicability of articles 95 and 30 in the absence of any competition between imported and domestic products (question 1)

The court making the reference asks whether the first paragraph of article 95 prohibits a member state from imposing turnover equalization tax on products imported from another member state where there are no similar or comparable domestic products, and whether the equalization tax in such cases amounts to a measure having equivalent effect to quantitative restrictions within the meaning of article 30.

The first and second paragraphs of article 95 prohibit member states from imposing on imports from other member states any internal taxation in excess of that imposed on similar domestic products, or of such a nature as to afford indirect protection to other domestic products. Article 95 is intended to remove certain restrictions on the free movement of goods. But to conclude that it prohibits the imposition of any internal taxation on imported goods which do not compete with domestic products would be to give it a scope exceeding its purpose. Internal taxes, and turnover tax in particular, are essentially fiscal in purpose. There is therefore no reason why certain imported products should be given privileged treatment because they do not compete with any domestic products capable of being protected. Where such a tax is imposed at the import stage, even on products which do not compete with domestic products, its purpose is to put every kind of product, whatever its origin, in a comparable fiscal situation in the territory of the state imposing the tax. It must therefore be concluded that article 95 does not prohibit member states from imposing internal taxation on imported products when there is no similar domestic product, or any other domestic products capable of being protected.

Nor does internal taxation imposed under the conditions set out above come within the prohibition on quantitative restrictions and measures having equivalent effect, within the meaning of article 30 of the treaty. Such restrictions, which are intended to limit the quantities imported, are in fact different both in their purpose and the way in which they operate from measures of a fiscal nature. Furthermore, since article 30 et seq., on the one hand, and article 95, on the other, lay down different periods of time and different procedures for the elimination of the restrictions to which they refer, it would be difficult to concede that one and the same tax could be both a measure having an effect equivalent to a quantitative restriction and internal taxation.

The direct effect of the second paragraph of article 95 (question 3)

In its third question the court making the reference asks the court of justice to rule whether ' the second paragraph of article 95 has direct effects and creates individual rights which national courts must protect '.

This provision contains a straightforward prohibition against protection which is the necessary complement to the prohibition set out in the first paragraph of the article. The obligation which results from that prohibition is unconditional, and no action is required on the part of the institutions of the community or the member states for its implementation or its entry into force. The prohibition is therefore self-sufficient and legally complete, and is thus capable of having direct effects on the legal relationships between member states and those subject to their jurisdiction. Although this provision involves the evaluation of economic factors, this does not exclude the right and duty of national courts to ensure that the rules of the treaty are observed whenever they can ascertain, in the light of the interpretation given below in answer to questions 2, 4 and 5, that the conditions necessary for the application of the article are fulfilled. The answer to this question, therefore, must be that the provision in question is capable of producing direct effects and creating individual rights which national courts must protect.

The concept of ' similar products ' in the first paragraph of article 95, the relationship between the first and second paragraphs and the interpretation of the second paragraph (questions 2, 4 and 5)

The object of questions 2, 4 and 5 is, in substance, to establish the conditions under which an imported product, as compared with a domestic product, comes within one or other of the situations referred to in the first two paragraphs of article 95, and also to have the conditions under which the second paragraph applies and its effects defined.

Under the terms of article 95 no member state shall impose, directly or indirectly, on the products of other member states internal taxation of any kind in excess of that imposed directly or indirectly on ' similar domestic products '. Similarity between products within the meaning of the first paragraph of article 95 exists when the products in question are normally to be considered as coming within the same fiscal, customs or statistical classification, as the case may be.

In addition to the prohibition imposed in the first paragraph of article 95, the second paragraph of the same article forbids the imposition on imported products of any form of taxation ' of such a nature as to afford indirect protection to other products '. Such protection would occur in particular if if intenal taxation were to impose a heavier burden on an imported product than on a domestic product with which the imported product is, by reason of one or more economic uses to which it may be put, in competition, even though the condition of similarity for the purposes of the first paragraph of article 95 is not fulfilled. Even if there is no direct competition of any sort with a domestic product, such protection would still exist if it were established that the imported product bore a specific fiscal charge because of its state of manufacture or distribution or because of any other economic circumstance in such a way as to protect certain activities distinct from those used in the manufacture of the imported product. In the interests of legal certainty, however, it is necessary for the various economic relationships covered by the second paragraph of article 95 to be not merely fortuitous, but lasting and characteristic.

The effects of a tax on the economic relationships referred to in the second paragraph of article 95 must be assessed in the light of the objectives of article 95, which are to ensure normal conditions of competition and to remove all restrictions of a fiscal nature capable of hindering the free movement of goods within the common market. Whereas the first paragraph of article 95 only prohibits taxation in so far as it exceeds a clearly defined level, the prohibition laid down in the second paragraph is based on the protective effect of the taxation in question to the exclusion of any exact standard of reference. A tax must therefore be considered as incompatible with the treaty if it is capable of having the effect referred to above. In fact the treaty does not prevent national courts from deciding, where necessary, the level below which the tax in question would cease to have the protective effects prohibited by the treaty and from drawing all appropriate conclusions therefrom.

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, a step in the action pending before the finanzgericht, munich, the decision on costs is a matter for that court.

The court

In answer to the questions referred to it by the finanzgericht, munich, by an order of that court of 12 july 1967 hereby rules:

1. Neither article 95 nor article 30 of the treaty establishing the european economic community prohibits member states from imposing internal taxation on products imported from other member states when there are no similar domestic products or other domestic products capable of being protected;

2. The second paragraph of article 95 of the treaty is capable of producing direct effects and creating individual rights which national courts must protect;

3. (a) Similarly between products within the meaning of the first paragraph of article 95 exists when the products in question are normally to be considered as coming within the same fiscal, customs or statistical classification, as the case may be;

(b) The second paragraph of article 95 is complementary to the first. It prohibits the imposition of any internal taxation which imposes a higher charge on an imported than on a domestic product which competes with the imported product, although it is not similar to it within the meaning of the first paragraph of article 95. The prohibition also applies in the absence of direct competition where the internal taxation subjects the imported product to a specific fiscal charge in such a way as to protect certain activities distinct from those used in the manufacture of the imported product;

And declares:

The decision on costs in these proceedings is a matter for the finanzgericht, munich.