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CASE-LAW

61970C0013

OPINION OF MR ADVOCATE-GENERAL DUTHEILLET DE LAMOTHE

DELIVERED ON 12 NOVEMBER 1970 ( 1 )

Mr President,

Members of the Court,

In order to have a proper understanding of the origin and scope of the present case it is necessary, I believe, to recall briefly the main features and the evolution of the German legislation relating to alcoholic drinks.

I must apologize to those of you who are familiar with this legislation, but perhaps you are not all familiar with the topic to the same degree.

The German legislation relating to alcoholic drinks is, like most European legislation, based upon a fundamental and simple distinction, the distinction between:

on the one hand, beverages obtained through natural fermentation, that is to say, essentially wines and beer; and

on the other hand, beverages obtained by distillation or, generally, by any process other than fermentation.

The essential difference between the legal systems applicable to these two categories of beverages is as follows :

The first category is marketed freely.

The second, on the other hand, is subject to a monopoly in the purchase of the raw product established by a law of 8 April 1922, which has since been frequently amended. The State buys the raw product, 'subjects it to a process known as ‘rectification’ and then sells it to the consumers.

For the products subject to the monopoly, the fiscal system is at present as follows:

1.

With regard to alcohols produced within the national territory the State has a monopoly in the purchase and treatment of the raw product but it may waive the exercise of that monopoly.

When it exercises its monopoly it levies a tax known as the Branntweinsteuer ánd when it exempts the producer from the obligation of delivery, it imposes a surtax called the Branntweinaufschlag.

2.

With regard to imports, the monopoly has the exclusive right to import raw or rectified alcohol apart from certain exceptions which are confined to a restricted list.

As for other spirits the purchasing monopoly does not apply, but a tax called the Monopolausgleich or monopoly equalization duty, which corresponds in principle to the fiscal charge imposed on domestic alcohols or potable spirits, is levied on such of these drinks as by their nature would come within the sphere of the monopoly if they were produced in Germany.

The essential element of the basis of these various taxes is the degree of percentage in ‘spirits of wine’ or ‘Weingeist’.

I must mention a small linguistic difficulty in this respect. In the 18th and 19th centuries the terms ‘Weingeist’ and ‘esprit-de-vin’ had an identical meaning in France and Germany: the alcohol resulting from distillation or a process other than natural fermentation. For example, Condorcet, in anticipation, one might say, of the present case, just before the French Revolution, emphasized the difficulties which arose regarding ‘duties on spirits of wine,… from the way the various degrees of strength in this liquid are taken into account in customs duties’. By the end of the 19th century the terminology had changed. The term remained in use in German legislation, whereas in France it became archaic. In German it became less precise, sometimes keeping its original meaning, sometimes, on the contrary, particularly with regard to the degree or percentage of spirits of wine, describing what in modern French terminology corresponds to the amount of pure alcohol in a drink, regardless of its origin (fermentation or distillation).

Having made that observation, it should immediately be mentioned that the German system which I have just briefly described, although apparently simple and coherent, has proved to be difficult to apply for certain products, particularly vermouths.

These drinks which since the 18th century have taken their French name from an old German word Wermut, meaning absinthe, are aperitifs with a wine base (white wine we have been told), in which various bitter substances have been infused (absinthe, cinnamon, orange peel, etc.), each brand having its own recipe. They are further characterized by a higher alcohol content than that which is normally obtained by natural fermentation, which induces manufacturers in most cases to add to the wine bases of various degrees a certain quantity of alcohol derived from distillation or a source other than natural fermentation.

By virtue of these characteristics, until recently, these drinks, upon their importation into Germany, escaped the Monopolausgleich.

The German tax authorities, considering that this situation resulted in discrimination to the detriment of German products, first tried to close this gap by resorting to the courts.

They asked the German financial courts to hold that when ‘spirits of wine’ were added to a wine base the product came within the scope of the monopoly and was subject to the monopoly equalization tax upon its importation.

However, this argument was not entirely accepted by the Bundesfinanzhof which, by two judgments of 27 March 1963, refused to accept that wines fortified by ‘spirits of wine’ were in all cases subject to the monopoly.

It decided that they were so only when this addition of alcohol caused them to lose their original nature as wine.

As it was extremely difficult, if not impossible, for the German authorities to establish that imported vermouths had lost their original character as wine, they then decided to settle the problem by means of legislation. But for that they were obliged to promote two successive legislative measures.

The first, adopted on 1 April 1966, brought within the scope of the monopoly all drinks with a wine base or assimilable to wine fortified by the addition of alcohol and fixed special methods of assessment for levying the Monopolausgleich on those drinks.

But this measure proved inadequate to achieve the desired result, for, in most cases, vermouth importers obtained from the country of origin certificates showing that the imported drinks had not had alcohol added.

The German tax authorities were not discouraged and in April 1967 obtained from Parliament a measure which proved to be perfectly effective.

This measure again amended Article 151 of the German law on the monopoly of alcohol and, combined with the reform already made in 1966, provided in essence:

(1)

that all drinks with a wine base were ‘deemed’ to have had alcohol added to them as soon as their alcohol content exceeded 10.5 %;

(2)

that all wines were also deemed to have had alcohol added if their alcohol content exceeded 14 %;

(3)

that for these two categories of drinks the monopoly equalization tax would be imposed on the basis of the extent to which the alcohol content exceeded 10.5 % in the first case and 14 % in the second case.

The combined effect of these two provisions closed the net, so to speak, on importers of vermouth who thus could in no case escape the monopoly equalization tax.

Thus the Saarland branch of Cinzano, having imported 1200 litres of vermouth of French origin with an alcohol content of 15.7 % in October 1967, was taxed for importing a product with a wine base and was assessed for the monopoly equalization tax calculated on the 5.2 % alcohol above the legal threshold of 10.5 %.

The company of course made the necessary administrative protest, then, not having obtained satisfaction, instituted proceedings in the German financial courts.

The court of first instance dismissed its application for reasons to which I shall return shortly.

Then, on appeal to the Bundesfinanzhof, that court suspended the proceedings and submitted to you the following question:

‘Is there an infringement of Article 37 (2) of the EEC Treaty when a Member State, in which imports of alcohol and potable spirits are subject to a State monopoly, imposes as from 1 April 1966 a tax (intended to offset the fiscal charge imposed on domestic alcohol and potable spirits) on drinks with a wine base imported from another Member State (for example vermouths) according to the content of spirits of wine exceeding a defined maximum, whilst previously as a general rule it levied that tax only in cases where the original product (for example wine) had lost its particular characteristics through the addition of spirits of wine?’

Faced with this question it appears to me that two preliminary remarks must be made:

(a)

The first is that you cannot, I believe, reply to this question in the terms in which it has been put to you.

It is settled case-law that in exercising jurisdiction in accordance with the requirements of Article 177 of the Treaty the Court cannot consider the compatibility of a national law with the provisions of the Treaty.

It can only do this within the scope of an application for failure to fulfil an obligation made either by the Commission or by a Member State under the conditions laid down in Articles 169 and 170.

But when it is seised under Article 177 of the Treaty, the Court has no power to make such a scrutiny.

You have stressed this in numerous decisions and particularly very recently in your decision of 21 October 1970, Transports Lesage & Cie v Hauptzollamt Freiburg [1970] E.C.R.

But, as you have done in that case and in many others, you can, I think, interpret the question put by the Bundesfinanzhof by assuming that that court only asks you to interpret a provision of Community law in order to put the national courts in a position to apply it correctly.

(b)

However, and this is my second preliminary observation, this necessary interpretation of the question raised must not, in my opinion, cause you to replace it or to extend it.

In this respect the present case gives rise to a special difficulty.

As you will have realized in the course of the oral hearing, there are important differences of view between the experts on the question whether the monopoly equalization tax is really a monopoly tax or whether it is not rather, despite its name, a tax on consumption, as the German Government maintains.

In the former case the Community provision to be considered chiefly is obviously Article 37 of the Treaty; in the latter case, it is Article 95 and possibly Article 12.

But the Bundesfinanzhof has submitted only one question to you, that concerning the scope of Article 37 of the Treaty.

In these circumstances :

Can you, on the one hand, deal with the character of the monopoly equalization tax and decide whether it is a monopoly tax or a tax on consumption?

Can you, on the other hand, possibly or alternatively interpret the provisions of Article 95 or other provisions which might be applicable if this tax is a tax on consumption?

I do not think that you can do so, mainly for the following reason:

The difficulty has by no means escaped the Bundesfinanzhof and it is intentional that that court has merely submitted to you the problem regarding the scope of Article 37.

In fact, at first instance, the finance court had formally come to a decision and, after holding that the monopoly equalization tax was in reality an internal tax within the meaning of Article 95 of the Treaty, declared, on the one hand, that the provisions of Article 37 did not apply to it since it was not a monopoly tax and, on the other hand, that the provisions of Article 95 of the Treaty did not constitute an obstacle to its imposition.

However, for the moment the Bundesfinanzhof does not wish to confirm this interpretation. On the contrary, in the order invoking your jurisdiction it has expressly reserved the question, indicating that it intends to submit to you only the problem raised by the interpretation of Article 37, regardless (I quote: ‘unbeschadet’) of the compatibility of the Monopolausgleich with the provisions of Article 12 and 95 of the EEC Treaty.

In these circumstances I do not think that you can either pronounce upon the nature of this tax or interpret Articles 12 and 95 of the Treaty in relation to it. You must, I think, reserve the problem, as the Bundesfinanzhof has done in the order by which it has made its reference to you.

At most, since in any event the measure in question is obviously of a fiscal nature, you may apply the principles developed by your case-law regarding the scope of Article 95 in order to interpret Article 37 in the present case.

I therefore propose, finally, to interpret the question raised by giving it a more abstract scope than that attributed to it by the Bundesfinanzhof and to formulate it as follows :

‘Does the “standstill” obligation laid down by Article 37 (2) of the Treaty establishing the European Economic Community prevent a Member State from imposing as from 1 April 1966 a monopoly tax intended to offset the tax burden borne by domestic alcohols and potable spirits on drinks with a wine base imported from another Member State (for example vermouths) by making the basis of this tax the “spirits of wine” content in these drinks in excess of a certain limit, when previously these drinks had usually only been subject to this tax if through the addition of “spirits of wine” the original product (for example wine) had lost its character as such?’

I believe that you must give an answer to this question on three points.

The first is to reiterate the general scope of the ‘standstill’ obligation laid down in Article 37 (2).

The second is to develop this reminder of the general principles by indicating to the German court that as a general rule they are not an obstacle to the institution of a new tax to the extent to which the only purpose and the only effect of this tax is to put imported goods on the same footing with regard to taxation as similar domestic products.

Lastly the thirdpoint in your answer should, I think, give the court some indication of the circumstances in which a tax such as that at issue may be regarded as having solely the purpose and effect of ending discrimination penalizing domestic products.

I shall now turn to each of these points.

I

In my opinion the first point presents the least difficulty.

According to your previous case-law, and particularly in your judgments of 15 June 1964 in Flaminio Costa v ENEL [1964] E.C.R. 585 and of 4 February 1965SARL Albatros v Société des Pétroles et des Combustibles liquides (Sopéco) [1965] E.C.R. 29, you have already developed the following principles :

1.

Article 37 (2) constitutes in all its provisions a rule of Community law capable of creating individual rights which national courts must protect.

2.

That provision has as its object the prohibition of any new measure contrary to the principles of Article 37 (1), that is any measure having as its object or effect a new discrimination between nationals of Member States regarding the conditions in which a product is procured and marketed, which is capable of being the subject of trade and exchange between States, either through quantitative restrictions or by the introduction of new customs duties or taxes having an equivalent effect, or lastly by the increase of such duties or taxes.

You must, I think, recall these principles because they appear to me to be fully applicable to the present case for two reasons :

(a)

The German alcohol monopoly is certainly one of the commercial monopolies envisaged by Article 37 of the Treaty and is not a monopoly of a fiscal nature such as those governed by Article 90 of the Treaty.

The German Government has never disputed this; it has itself described it as a commercial monopoly when it declared its existence to the Commission.

The Commission recognized that it was of this nature in the recommendation which it addressed to the Federal Republic of Germany on 26 November 1963 concerning the adjustment of this monopoly. (OJ, 10.12.1963, p. 2857).

That agreement between the national authorities and the Community authorities on the nature of this monopoly corresponds, in my opinion, to a precise appreciation of its nature which the Court, in my view, can only confirm.

(b)

The ‘standstill’ obligation contained in Article 37 (2) can indeed be applied to the present case.

It is true that the purpose of the German alcohol monopoly, at least in part, is to facilitate the marketing of or of obtaining the best return from agricultural products and therefore appears prima facie to come within the scope of Article 37 (4). But, as the Commission reminded the Government of the Federal Republic of Germany in the recommendation which I have just mentioned as well as in two other recommendations of 22 March and 22 December 1969, the very wording of paragraph 4 clearly provides that the obligations laid down in Article 37 (2) apply to monopolies relating to agricultural products and that the purpose of paragraph 4 is merely to lay down certain special rules concerning the conditions for the progressive adjustment of this category of monopolies for the full application of the provisions of Article 37.

I think therefore that the first point of the reply which you have to give to the Bundesfinanzhof will be to remind it of the principles already developed by your case-law concerning the scope of Article 37 (2), which, as I have just said, appear to be applicable in the present case.

II

The second point of your reply now poses a more delicate problem.

As you have heard during the oral hearing, one of the main points in the arguments of the German Government consists in maintaining, on the one hand, that the legislative provision which from April 1966 subjected drinks with a wine base, and more particularly vermouths, to the monopoly equalization tax was not, strictly speaking, a new measure but merely, in a way, a provision interpreting the previous legislation and on the other hand and above all, that in any case that measure was not contrary to Article 37 (2) because neither its purpose nor its effect was to cause discrimination to the detriment of importers, but merely to abolish discrimination which until then had penalized the manufacturers of vermouth using alcohol produced in Germany.

I do not consider that the first point in this argument can be accepted.

It is impossible, in my opinion, to hold that the measure which entered into force in Federal Germany in April 1966 was a mere interpretation of the previous legislation.

As I have just said when setting out the history of the problem, it was precisely because the German authorities could not manage to impose the Monopolausgleich on imported vermouths that they promoted and obtained a legislative provision which was not an interpretative provision but a supplementary provision. Therefore it was certainly a new measure.

On the other hand, the second part of the German Government's argument seems to me to be acceptable, at least in principle, as the Commission, moreover, suggests to you.

In fact, I think that the institution of a new measure does not infringe the ‘standstill’ obligation imposed by Article 37 (2) when the sole purpose and effect of the new measure is not to create discrimination to the detriment of the importer but to put an end to discrimination which existed to the detriment of the domestic producer.

That argument, I freely admit, is not obvious and it meets with at least two objections which made me hesitate before presenting it to you.

The first objection is that the ultimate aim of Article 37 of the Treaty is the adjustment of State monopolies. One may therefore wonder whether or not the elimination of discrimination penalizing the domestic product by reason of the very existence and the very rules of the monopoly ultimately has the effect of crystallizing and confirming this monopoly in its pre-Community rigidity, whereas the intention of the signatories of the Treaty was precisely to see it gradually adjusted.

However, I think that this objection may easily be dismissed.

In fact, the Treaty, in Article 37, as, furthermore, in many other articles, distinguishes clearly between the long-term objectives and the obligations which bind the Member States in any event before these long-term objectives are attained.

Consequently the possible and indirect effect which a measure taken during the transitional period might have on the attainment of the long-term objectives cannot I think in itself vitiate that measure with illegality if in other respects it conforms to the objectives laid down in the Treaty and to the obligations which the Treaty imposes on the Member States.

However and this is the second objection which I considered before proposing that you should adopt the contention put forward by the Commission, is a measure the object and effect of which is to eliminate an existing discrimination to the detriment of domestic producers in conformity with the objective of the Treaty and compatible with the obligations accepted by the States?

At first sight one may doubt it. In fact, one of the objects of the Common Market, and particularly that which implies prohibiting or eliminating discriminations existing in a State to the detriment of importers, is the development of trade among the Member States.

It is certainly true that the effect of the abolition of discrimination existing in a country to the detriment of domestic producers is not necessarily to develop imports and may, on the contrary, in many cases result in restricting them at least sectionally, partially or temporarily.

One might therefore wonder whether such a measure really conforms to the objectives which the signatory States to the Treaty of Rome fixed in common, but, in my view, the wording of the Treaty itself gives the answer to the question raised.

One of the principal objectives of the Common Market is that set out both in the preamble and in Article 3 (f) of ‘ensuring that competition in the Common Market is not distorted’.

The development of trade between the Member States is merely one of the means to attain this end.

I also consider that when this competition is distorted by the existence of a system which is discriminatory to the detriment of domestic producers, it becomes part of the objectives of the Common Market and part of the obligations of the Treaty to eliminate this discrimination since it impairs fairness of competition just as discriminations prejudice importers.

Ultimately it is essentially the interest of the consumer, that is to say, the citizen, which is the supreme law in the present case and consequently when that interest may be served by a measure capable of ensuring fairness of competition, such a measure is certainly in accordance with the objectives of the Treaty.

It may obviously be said that in the present case the consumer who is ultimately being protected, that is to say, the consumer of vermouth, is not socially and morally particularly worthy of attention.

However, that is a problem which is outside the scope of the question with which you are concerned today.

The rules of the Common Market are just as applicable to alcoholic drinks as to to other products. And if, as I hope, there is one day a Community campaign against alcoholism, it can only be achieved by Community rules on excise duties, rules which, furthermore, it appears are being considered.

In these circumstances, I think that the second point of the reply which you will make to the Bundesfinanzhof must be to indicate to that court that Article 37 (2) of the Treaty, although prohibiting any new discriminatory measure against importers, does not prevent the elimination of discrimination which exists to the detriment of domestic producers.

III

However, must you confine your reply to that, as the Commission suggests?

I do not believe so and I think that, after raising questions of principle thus in the two first points of your reply, you must indicate at least in outline to the Bundesfinanzhof the conditions which must be fulfilled in order that a tax such as the one in the present case may be regarded as having solely as its purpose and effect the ending of discrimination which penalized domestic products.

In my opinion such conditions are twofold and are precisely those which you have already discerned for the application of Article 95.

The first condition is that the tax in question must not be greater than that imposed directly or indirectly on similar domestic products.

In order to determine whether this is fulfilled, the Bundesfinanzhof must decide upon a certain number of delicate questions and consider in particular whether or not the methods of assessing that tax, which, as I have said, include an element which is to a certain extent of a flat-rate nature, have a discriminatory effect in certain circumstances.

The representative of Cinzano submitted to you that these methods of assessment were intended to offset not tax discrimination suffered in the past by German producers, but the ‘handicap’ created for them by the degree of natural formation of alcohol in German wines being in general less than that in certain foreign wines.

That is the point which the Bundesfinanzhof must decide.

Similarly, a recent decision of the Commission (OJ L 214 of 29. 9.1970, p. 8) allowed Federal Germany to import from Algeria at a tariff lower than the Common Customs Tariff 17000 hectolitres of wine intended for the preparation of vermouths. As this wine is almost certainly of a very high alcohol content, it will be for the Bundesfinanzhof to determine the tax burden to be borne, when they are marketed, by two vermouths with the same alcohol content and prepared from a wine base of the same degree, when one is imported from abroad as a finished product and the other has alcohol added in Germany by means of ‘spirits of wine’ obtained from the monopoly.

It is only after making such examinations that the Bundesfinanzhof will be able to decide whether or not the first condition which I have just mentioned is fulfilled.

Finally, it should be noted that for the comparisons which must be made the concept of ‘similar products’ must, in my view, be strictly construed in the present case.

What is to be compared is the situation of vermouths tasting very similar which are sold with a similar alcohol content and prepared according to very similar principles, if not methods, of manufacture.

And this leads me to mention the second condition which must also be fulfilled in order that the tax in question may be regarded as having as its sole purpose and effect the ending of a discrimination which previously penalized domestic products.

It is necessary that the tax under consideration should not be capable of indirectly protecting other German domestic products.

If the Bundesfinanzhof discovered that the measure introduced into German legislation in 1966 has the effect of favouring the production of some other alcoholic drink, aperitifs with a wine base or other aperitifs, to the detriment of vermouths, it would clearly be difficult to maintain that this measure was compatible with the obligations arising both from Article 37 and from Article 95 of the Treaty.

To sum up therefore, in my opinion the Court should hold that:

(1)

Article 37 (2) of the Treaty constitutes in all its provisions a rule of Community law capable of creating individual rights which national courts must protect.

(2)

Article 37 (2) of the Treaty, although prohibiting any new discriminatory measure which restricts the scope of the articles dealing with the abolition of customs duties and quantitative restrictions between Member States, does not prevent the elimination of discrimination which might exist to the detriment of domestic producers.

(3)

The extension to new products of a monopoly tax can only be regarded as having solely as its object and effect the elimination of discrimination penalizing domestic products if, on the one hand, it does not result in a charge on imported products higher than that imposed directly or indirectly on similar domestic products and if, on the other hand, it does not have the result of indirectly protecting other domestic products.


( 1 ) Translated from the French.

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