CJEC, April 4, 1968, No 34-67

P.250

By an order dated 6 September 1967, received at the Court on 5 October 1967, the finanzgericht (finance Court), duesseldorf, referred for a preliminary ruling under article 177 of the eec treaty three questions concerning the interpretation of article 95 of that treaty. It is apparent from the order making the reference that the dispute in the main action concerns the application of average rates, within the meaning of article 97 of the treaty, by a member state applying, at the time when the dispute arose, a turnover tax according to the cumulative multi-stage tax system. Consequently, while the questions referred only involve the application of article 95 indirectly through article 97 of the treaty, the order making the reference has not put to the Court a question whether the provisions of article 97 are capable of creating individual rights which national Courts must protect. In fact, the Court making the reference held that article 97 is no more than a special rule concerned with the adaptation of article 95 and, consequently, does not in any way affect the rights which those concerned may derive from the latter.

In its judgment delivered on 3 April 1968 in case 28-67, on a reference from the bundesfinanzhof (federal finance Court), the Court ruled that article 97 does not create individual rights which national Courts must protect. Accordingly it is appropriate that the finanzgericht, duesseldorf, should be asked to refer to the interpretation given in that judgment, and that only the first and third questions contained in the reference should now be considered.

P.251

The first question asks whether by the concept of taxation imposed directly on domestic products article 95 refers to the burden resulting from the rate fixed by law, or the actual burden which results when average exemptions enjoyed by similar products or groups of similar products are taken into account. The question relates in particular to the exemptions or payments of drawback on domestic products intended for export, the grant of which has the effect of lightening the aggregate burden of taxation on domestic production of similar products.

Article 95 prohibits the placing of products originating in other member states in a disadvantageous position as compared with products from the importing country which are marketed in the territory of that country. It is therefore necessary to exclude from the comparison any domestic production to the extent to which it is exported and does not take part in competition within the national territory. Thus only taxation affecting domestic products marketed in the national territory may be taken into consideration in ascertaining what taxation is imposed on domestic products and constitutes the ceiling allowed by article 95 of the treaty. The taxation imposed on domestic products within the meaning of article 95 of the treaty is therefore that which results from the application of the rate of tax fixed by law.

The third question seeks a clarification of the consequences of the precedence of community law, that is to say, in the present case, article 95 of the treaty, with regard to the provisions of national law incompatible with it. The point of the question is in particular whether the national Court must hold such provisions inapplicable to the extent to which they are incompatible with community law or whether it must declare them void as from the expiry of the period prescribed by the third paragraph of article 95.

Although article 95 of the treaty has the effect of excluding the application of any national measure incompatible with it, the article does not restrict the powers of the competent national Courts to apply, from among the various procedures available under national law, those which are appropriate for the purpose of protecting the individual rights conferred by community law. Particularly when an internal tax is incompatible with the first paragraph of article 95 only beyond a certain amount, it is for the national Court to decide, according to the rules of its national law, whether the illegality affects the whole tax or only so much of it as exceeds that amount. Accordingly, it is for the Court making the reference to choose a solution from among those suggested in the question and, indeed, any others.

The costs incurred by the governments of the federal republic of Germany and the kingdom of the Netherlands 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, Düsseldorf, the decision on costs is a matter for that Court.

The Court

In answer to the questions referred to it by the finanzgericht, Düsseldorf, by order of that Court of 6 September 1967, hereby rules:

1. The first paragraph of article 97, applicable where member states levying a turnover tax calculated on a cumulative multi - stage tax system in fact exercise the option which it gives to them, does not create rights which national Courts must protect;

2. Taxation imposed on a domestic product within the meaning of article 95 of the treaty means taxation imposed at the rate which results from the application of the law;

3. Article 95 of the treaty does not restrict the powers of the competent national Courts to apply, from among the various procedures available under national law, those which are appropriate for the purpose of protecting the individual rights conferred by community law.

The decision as to costs in these proceedings is a matter for the Court making the reference.