CJEC, September 17, 1987, No 433-85

THE COURT

1 By an order dated 19 december 1985, which was received at the court on 30 december 1985, the tribunal de grande instance (regional court), Mulhouse, referred to the court for a preliminary ruling under article 177 of the eec treaty a question on the interpretation of article 95 of that treaty.

2 The question was raised in proceedings between jacques Feldain and the directeur general des impots (director-general of revenue). Mr Feldain, who owns a car with a power rating for tax purposes higher than 16 CV, was obliged to pay the special tax imposed in respect of such vehicles by article 1007 of the code general des impots (general tax code). The tax was charged at a flat rate and its amount was considerably higher than that of the differential tax applicable to vehicles whose power rating for tax purposes was less than 16 CV.

3 On 5 september 1984 mr Feldain applied for reimbursement of the difference between the amount of the special tax which he had had to pay for 1983 and 1984 and the amount of the differential tax applicable to vehicles within the 12 to 16 CV tax band. His application was unsuccessful, and on 20 november 1984 he brought an action before the tribunal de grande instance, Mulhouse.

4 By judgment of 9 may 1985 (case 112-84 humblot ((1985)) ecr 1367, at p. 1375), the court of justice ruled that "article 95 of the eec treaty prohibits the charging on cars exceeding a given power rating for tax purposes of a special fixed tax the amount of which is several times the highest amount of the progressive tax payable on cars of less than the said power rating for tax purposes, where the only cars subject to the special tax are imported, in particular from other member states ".

5 On 11 july 1985, before the tribunal de grande instance, Mulhouse, had delivered its judgment, law no 85-695 (journal officiel de la republique francaise of 12 july 1985, p. 7855) was adopted, abolishing the special tax and replacing it by a differential tax. That law created nine tax bands, namely: up to 4 CV, from 5 to 7 CV, 8 and 9 CV, 10 and 11 CV, from 12 to 16 CV, 17 and18 CV, 19 and 20 CV, 21 and 22 CV, and 23 CV and above. For each of those bands there is a coefficient, namely: 1, 1.9, 4.5, 5.3, 9.4, 14.1, 21.1, 31.7 and 47.6. The amount of the differential tax is arrived at by multiplying a basic tax, fixed each year by the conseils generaux of the various departements, by the coefficient corresponding to the tax band concerned.

6 Under the french provisions, the power rating for tax purposes is calculated on the basis of several factors. First of all, the power rating depends on whether the vehicle uses petrol or diesel fuel. Secondly, it is linked to the cylinder capacity of the vehicle. The cylinder capacity is divided by a factor, known as factor k, which is equal to the "average of the speeds which would in theory be attained by the vehicle concerned at an engine speed of 1*000 revolutions per minute for each ratio of the gearbox ". However, for vehicles whose actual power rating exceeds 100 KW, the factor k is subject to a ceiling of 21. For vehicles with an automatic gearbox the factor k was originally calculated for all the gearbox ratios. However, following the issue of an administrative circular in april 1983, where an automatic gearbox has four ratios only three of them are taken into account. Thirdly, the result of the division of the cylinder capacity by the factor k is raised to the power of 1.48.

7 The law of 11 july 1985 provided that, in pending cases, owners who had had to pay the special tax and had instituted proceedings before 9 may 1985, the date of the judgment in Humblot, cited above, were entitled to reimbursement of the difference between the special tax and the amount of the new differential tax applicable to vehicles of the type in question. Nevertheless, mr Feldain maintained that he was entitled to a refund of the difference between the amount of the special tax and that of the differential tax applicable to vehicles in the 12 to 16 CV band. In his view, the new law also infringes article 95 of the treaty and therefore should be declared inoperative. For their part, the tax authorities consider that the reimbursement should be limited in the manner laid down by the new law.

8 In those circumstances, the tribunal de grande instance, Mulhouse, submitted the following question to the court:

"does article 95 of the treaty of rome forbid the imposition, on motor vehicles exceeding a certain power rating for tax purposes, of a differential tax which increases exponentially according to that rating, where the rating is arrived at by means of a formula which has the effect of subjecting to the said exponential increase any vehicle of a given cylinder capacity and such vehicles are manufactured in certain other countries, in particular those of the community, and not in France?"

9 To clarify its question, the national court drew attention, in its reasons for judgment, to the points on which the french rules might be incompatible with article 95 of the treaty. In the first place, the progression of the multiplier coefficient, that is to say the relationship between each of the successive coefficients, becomes exponential beyond the 12 to 16 CV tax band, which is the last one to include vehicles manufactured in France. Secondly, the rules place five power ratings, namely those from 12 to 16 CV, in a single tax band, whereas the higher tax bands, which affect only imported vehicles, comprise only two or three power ratings. Thirdly, the national court draws attention to the limitation of the factor k, which gives rise to discrimination against imported vehicles. Fourthly, it considers that the way in which the factor k is calculated for automatic gearboxes may also have a discriminatory effect.

10 Reference is made to the report for the hearing for an account of the observations submitted by the plaintiff in the main proceedings, the french government, the united kingdom and the commission.

11 As a preliminary point it should be borne in mind that in its judgment of 9 may 1985 in Humblot, cited above, the court recognized that "as community law stands at present the member states are at liberty to subject products such as cars to a system of road tax which increases progressively in amount depending on an objective criterion ". The court made clear, however, that such a system of domestic taxation is "compatible with article 95 only in so far as it is free from any discriminatory or protective effect ". The court ruled that that was not true of a special tax where liability thereto entailed "a much larger increase in taxation than passing from one category of car to another in a system of progressive taxation embodying balanced differentials ".

12 It is necessary to establish whether rules of the type challenged before the national court satisfy those principles.

13 In the first place, the factor of progression of the coefficients is between 1.2 and 2.4 for the tax bands below 16 CV, whilst it is 1.5 for higher tax bands. Thus, the progression of the coefficients does not display any significant difference of such a kind as to indicate that there is any discriminatory or protective effect in favour of cars manufactured in France.

14 Secondly, the rules at issue for the most part establish tax bands comprising two or three power ratings for tax purposes. The only exception affects vehicles with a power rating of between 12 and 16 CV, which fall within a single tax band that is much wider. The normal progression of the tax is thus checked for the cars within that tax band which have the highest power rating. It appears from information provided by the national court in its judgment submitting the question that the 12 to 16 CV tax band is the last band which includes vehicles manufactured in France and that only vehicles imported from other member states come within tax bands above 16 CV. The result of that arrangement of the tax bands is that top-of-the-range cars of french manufacture are protected from the normal progression of the tax. It thus exhibits a discriminatory or protective effect within the meaning of article 95 of the treaty in favour of cars manufactured in France.

15 Thirdly, with regard to the method of calculating the power rating for tax purposes of motor vehicles, by limiting the factor k to a maximum of 21 for vehicles whose real power output exceeds 100 KW the rules at issue have the effect of attributing to cars with a manual gearbox and a cylinder capacity exceeding 3*109.7 cc a power rating which exceeds 16 CV. Moreover, where the factor k is limited the cylinder capacity alone determines the power rating for tax purposes. Since the cylinder capacity is raised to the power of 1.48, the result of any increase in cylinder capacity is to bring those cars within the highest tax bands.

16 It appears from information provided to the court by the plaintiff in the main proceedings, which has not been challenged by the french government, that no french-manufactured car has a cylinder capacity exceeding 3*109.7 cc. Consequently, the effect of limiting the factor k to 21 is to place in the higher tax bands only imported vehicles, whereas, without such a limitation, those cars would be given lower power ratings for tax purposes. Such a limitation is not justified by considerations relating to fuel consumption. There is no significant difference in that respect between vehicles affected by the limitation of the factor k and other comparable cars not affected by it. It must therefore be held that that method of determining the power rating for tax purposes is not objective in character and favours cars manufactured in France.

17 Fourthly, with respect to the method of calculating the factor k for cars with an automatic gearbox, it appears from the documents before the court that the french rules were amended to take account of the introduction of four-ratio automatic gearboxes, which appeared on the market subsequently. It does not, however, appear that those new calculation methods have any discriminatory or protective effect in favour of vehicles manufactured in France, in so far as the latter are affected to the same extent as vehicles imported from other member states.

18 In those circumstances, it must be concluded that the method of calculating the differential tax is such that only cars imported from other member states are placed in the most heavily taxed categories, without any justification based on an objective criterion. Since that situation causes the owners of such vehicles to bear higher costs, consumers are encouraged to purchase top-of-the-range cars manufactured in France rather than those imported from other member states.

19 In view of the foregoing considerations, it must be stated that a system of road tax in which one tax band comprises more power ratings for tax purposes than the others, with the result that the normal progression of the tax is restricted in such a way as to afford an advantage to top-of-the-range cars of domestic manufacture, and in which the power rating for tax purposes is calculated in a manner which places vehicles imported from other member states at a disadvantage has a discriminatory or protective effect within the meaning of article 95 of the treaty.

Costs

20 The costs incurred by the french government, by the united kingdom and by the commission of the european communities, which have submitted observations to the court, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings 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 reply to the question submitted to it by the tribunal de grande instance, Mulhouse, by judgment of 19 december 1985, hereby rules:

A system of road tax in which one tax band comprises more power ratings for tax purposes than the others, with the result that the normal progression of the tax is restricted in such a way as to afford an advantage to top-of-the-range cars of domestic manufacture, and in which the power rating for tax purposes is calculated in a manner which places vehicles imported from other member states at a disadvantage has a discriminatory or protective effect within the meaning of article 95 of the treaty.