OPINION OF MR ADVOCATE-GENERAL ROEMER

DELIVERED ON 8 FEBRUARY 1968 ( 1 )

Mr President,

Members of the Court,

The series of requests for preliminary rulings on the interpretation of Articles 95 and 97 of the EEC Treaty in relation to the German turnover equalization tax (Cases 7, 13, 20, 25, 27, 28 and 31/67), which were considered by the Court in December last year and on which my colleague Mr Gand gave his opinion on 25 January 1968, has been extended by the addition of another case with an identical or similar theme, in a reference from the Finanzgericht, Düsseldorf. Here are the facts which gave rise to it. The plaintiff in the main action imported tomato puree and tinned pears and beans from Italy into the Federal Republic. When they were cleared through customs, turnover equalization tax was levied at 6 % on the tinned pears and beans and on tomato puree in packages weighing less than 1 kg and at 4 % on tomato puree in packages weighing more than 1 kg. The plaintiff appealed against this assessment to tax to the Hauptzollamt (Principal Customs Office) Cologne-Rheinau, and, when that was unsuccessful, to the Finanzgericht, Düsseldorf.

In the proceedings before that court it relied, with regard to the high rate of the turnover equalization tax, (especially the rate of 6 %) on the principles contained in Articles 95 and 97 of the EEC Treaty, claiming that they had been infringed. It claimed that whilst the legal rate was 4 %, tinned fruit and vegetables from domestic producers were in fact charged turnover tax at only 2.7 %, if one took into account certain tax exemptions, in particular those for exports. Since therefore in its case the rate of the turnover equalization tax was not justified by the taxation imposed directly on similar domestic products, the decisive factor must be their indirect taxation at a previous stage, so that the question arises, whether this means only the turnover tax levied on the basic and semi-finished products used in the manufacture of the tinned foods, or includes in addition (the plaintiff thinks, unlawfully) the turnover tax imposed on the means of production and working materials employed in the manufacture of the tinned foods as well as the services used. If it were to be found that the 6 % and 4 % rates are incompatible with Articles 95 and 97 of the Treaty, the Finanzgericht, far from being able to fix any other rates of turnover equalization tax, would have to annul the disputed notices of assessment to tax and the tax would have to be fully reimbursed.

The defendant Hautpzollamt s argument against this was that the German rates of turnover equalization tax were average rates within the meaning of Article 97 of the Treaty. Consequently the Finanzgericht was not in a position to judge their compatibility with the principles of the Treaty (since the said provision is not directly applicable); only the Commission, according to Article 97, had the power to take certain measures where infringements were found to exist. Besides that, the correct view was that all turnover taxes imposed at a previous stage on similar domestic products should be considered as capable of being offset, that is to say, including the indirect taxation on the necessary means of production and working materials used in the manufacture of a product. Lastly, as regards tomato puree it should be noted that this was not produced domestically at all, and that the turnover equalization tax levied on its importation did not serve to protect other domestic products indirectly. This showed that the turnover equalization tax on tomato puree was covered neither by Article 95 nor by any other articles of the Treaty.

The Finanzgericht, Düsseldorf, considers the legal questions raised in this way to be relevant to its decision. Because it does not think that an answer to them can be expected in the other cases referred for preliminary rulings already mentioned {inter alia because those, unlike the present case, are not concerned with industrial products) it has complied with the plaintiff's request and suspended the proceedings by an order by 6 September 1967, and referred the following questions of interpretation to the European Court of Justice:

‘1. Does the expression “imposed directly”, referring to taxation on domestic products relate to the tax burden resulting from the rate of tax as fixed by law, or the true rate which results when the average exemptions enjoyed by similar products or groups of similar products are taken into account?

2. To what extent is internal taxation “imposed indirectly” on similar domestic products capable of being offset in the case of industrial products? Does it include the turnover tax affecting, for instance, auxiliary materials, packaging material, working materials and means of production and taxation resulting from the finishing processes and carriage effected by third parties?

3. What effect does the recognition of the priority of the directly applicable rules of Article 95 of the EEC Treaty have on provisions of national law which conflict with them? Can such provisions simply be repealed or (in view of the third paragraph of Article 95 of the Treaty) are they void as from 1 January 1962?’

On the other hand, the Finanzgericht did not think it necessary ‘to refer again to the Court the question of the direct rights of individuals to plead before national courts Article 97 in conjunction with Article 95 of the Treaty’, since in its opinion Article 97 is ‘not an independent provision, but merely a special rule for adapting Article 95’, and accordingly ‘in no way modifies the rights enjoyed by persons concerned under Article 95’.

Written observations were submitted on the order for reference from the Finanzgericht in accordance with Article 20 of our Rules of Procedure by the plaintiff in the main action, the Federal Government, the Netherlands Government, and the Commission of the European Communities. All these parties (except the Netherlands Government) also participated in the oral proceedings.

On the basis of the foregoing let us now see in the context of the present case what must be added, on the subject of the questions raised, to the considerations called forth by Cases 13, 25 and 28/67 (extensively referred to the parties), or, as it may be, what can be said about the differences between this case and those.

Legal consideration

Preliminary remarks

First a brief comment needs to be made on the question, expressly put aside by the court making the reference, of the ‘Justitiabilität’ of Article 97, the main issue in this case; in other words, the question of its direct application by national courts. Contrary to what the Düsseldorf judges thought (apparently agreeing with the plaintiff in this respect) this question was not decided — at least not in the same sense — in Case 57/65, where the only question dealt with was the application of Article 95, but has yet to be clarified. Such clarification will of course be obtained in the other cases referred, of which mention has been made above. However, since the question is obviously one which must be decided before judgment can be given in the case before the Finanzgericht, Düsseldorf, I think it proper that there should be a ruling on it in the judgment in the present case (for example, on the ground that the question of the direct applicability of Article 97 can be considered as implied). To be more precise: we should point out that Article 97 — even if it has to be regarded as supplementing Article 95 — is, properly understood, not directly applicable in the sense that the citizens of the Community can plead rights derived from it their national courts; it only provides for measures to be taken by the Commission (decisions or directives), in the event of the national legislature's infringing the rules for the introduction of average rates of turnover equalization tax. I need not give more detailed reasons for this argument. Instead, it is sufficient for me to refer to the observations of the Federal Government and the Commission (submitted in the other cases referred for preliminary rulings) and to the convincing reasons for the same conclusion given by my colleague Mr Gand (in speaking of the discretion allowed to national legislatures in Article 97) in his opinion of 25 January.

If, in spite of this statement of principle concerning Article 97, we nevertheless proceed to examine the questions put by the Finanzgericht, Dusseldorf (considering that no decision has yet been given by the Court of Justice on Article 97, and knowing that Article 97 is perhaps not the only decisive factor for the national court), then the following considerations arise.

1. First question

The first question seeks the clarification of the concept of taxation ‘imposed directly on domestic products’. The plaintiff thinks that a distinction must be made between the legal rate of tax to be applied to a similar domestic product, and the actual burden of taxation, found by taking into account the tax exemptions granted for similar products and the tax repayments allowed on exports of such products. Only the actual tax borne (better, perhaps: the average direct tax burden) should be taken into account in making a comparison under Article 95. This argument has already provoked astonishment on the part of the Federal Republic and the Commission, as expressed in the written observations. Both agree — rightly, I think,—that the concept in question presents no difficulty. They correctly point out that its purpose is to guarantee equality of competition for similar products in the country of destination, so it concerns only the charge to tax of goods remaining in the national territory, and indeed the charge to turnover tax on sales by the manufacturer at the rate fixed by law which must therefore be considered as being imposed on the products because it is passed on to the buyer.

As far as the internal tax exemptions are concerned, they in fact cause no difficulty in our case: in so far as they apply (for instance in the case of deliveries of agricultural products by the producers) there is no direct taxation on the product concerned, and therefore no element of taxation which can be taken into account under Article 95.

As regards the repayments of drawback on export, however,—which are (since turnover tax does not apply to exports) repayments of the indirect tax payable on a product at a previous stage — there is good reason for saying that in principle they cannot be considered under the comparison of taxes under Article 95 (or, consequently, be deducted as a lump sum). According to the ‘country of destination’ principle only the exported product benefits from them, since it is subject on importation into other countries to countervailing taxation. It is of course conceivable that undertakings producing goods both for the domestic market and for export might perform a kind of mixed calculation, that is to say, by spreading the total burden of turnover tax as finally ascertained (after taking into account any repayments allowed on exports) more or less evenly over those products intended for the interal market and those intended for export, with the result that the former will be subject to a lower rate of taxation than that fixed by law. Whether this is in fact possible depends not least on the prevailing prices in the export markets and the amount of turnover tax applied there. Nevertheless I think it is quite inconceivable that contingencies of this kind should be introduced into the comparison of taxes under Article 95. The legislature would have to undertake extraordinarily difficult economic research, and in view of the very varied economic behaviour of producers even within a particular sphere, the complex calculation of average rates under Article 97 would become even more difficult than it is already (and this would be bound to have its effect on the possibility of verifying that calculation).

There seems no need to go into the judgment of the Bundesverfassungsgericht (Federal Constitutional Court) on turnover tax, referred to by the plaintiff, which dealt only with the question of the average aggregate taxation imposed on all industrial undertakings in the form of turnover tax (in particular as regards the different treatment given to single- and multi-stage undertakings) and which obviously throws no light on the quite different problem of Article 95. The answer to the first question can be stated as follows: the taxation imposed directly on domestic products corresponds to the turnover tax applied to them at the rate fixed by law. Tax exemptions and payments such as those of drawback on exports are not included in calculating the direct taxation.

2. Second question

The second question concerns the concept of an indirect charge to tax on domestic products. It asks to what extent turnover tax levied at previous stages can be taken into account, whether in fact — as the plaintiff believes — only tax on raw and auxiliary materials (and then only in the sense of taxation imposed at a single previous stage) is to be taken into account, or the total charge to tax of all the stages of production and marketing including capital goods, means of production, working materials, packaging material, etc.?

This question too — like the preliminary question dealt with above — forms the subject-matter of other cases referred for preliminary rulings (Cases 13, 24, 28/67). In fact there is on this point no difference conceptually between industrial products and agricultural produce (but at most a difference in the actual amount of the indirect taxation), and so it is possible to apply what emerges from these cases to the present one.

I shall do this, using the relevant parts of the opinion delivered by my colleague, Mr Advocate-General Gand. These make it unmistakably clear (and are supported by the Federal Government and the Commission) that the point of taking indirect taxation into account is to create the same conditions of competition for both imported and domestic products. For this reason the total charge to turnover tax must be taken into account, that is to say, it is necessary to attempt to achieve as close an equalization as possible. One need only mention in passing that this is also in the interests of the tax authorities (which cannot be entirely ignored when interpreting Articles 95 and 97). That is why one cannot speak of taxation imposed solely at a single previous stage (‘einstufige Mittelbarheit’) which in the plaintiff's opinion is the deciding factor. At the same time it cannot be accepted that only the taxes imposed at previous stages of production on raw and auxiliary materials ‘affect the actual product’. On the contrary, any turnover tax levied on the genesis of a product and reflected in the price as a cost factor must be taken into account; so this must include — as in the Commission's draft directive concerning a common method of calculating the average rates provided for in Article 97 — indirect taxes imposed at previous stages on raw and auxiliary materials as well as on semi-finished products, turnover taxes on means of production and working materials, finishing processes, carriage effected by third parties, etc. I do not attempt to give a complete list here, but refer the Court to the technical classification in the written observations of the Commission and the Federal Government.

It is also made clear in the same opinion that this interpretation does not conflict with the judgment in Case 45/64 regarding Article 96 of the Treaty. As regards the question which indirect taxes may be taken into account in allowing drawback on exports, the Court in that case was chiefly concerned to exclude classes of tax which are, by their nature, imposed on the undertaking as such, and not to give an exhaustive definition of what may be considered to be indirect taxation.

— This leaves only two supplementary points — not really decisive — to be made in the present proceedings, first on the taking into account of turnover equalization tax imposed on imported raw materials, and second on the way in which Netherlands foreign trade laws deal with indirect taxation, from which the plaintiff seeks to draw some of its arguments in this case. With regard to the first point, the Commission rightly emphasizes (contrary to what the plaintiff believes) that amounts of turnover equalization tax levied on imported raw materials obviously must also be taken into account for the purposes of the comparison of taxation, since those represent, like the turnover tax itself on domestic raw materials, an indirect tax on the finished product.

— The necessary explanation of the legal position in the Netherlands comes to us from an authoritative source namely, a memorandum from the Netherlands Foreign Ministry. This says that in the Netherlands, which has had a cumulative multistage turnover tax since 1940, in fixing the payments of drawback on the export of fruit and vegetables it is true that originally only the taxes applied to raw materials and, since 1954, the taxes on auxiliary materials were to be taken into account. The reasons for this were, however, purely practical and had nothing to do with the EEC Treaty, which did not then exist. Moreover — and this is important — the Netherlands Government now intends to bring the taxation of capital goods and services into the scheme of equalizing taxation applicable on the importation and exportation of goods. A draft law to that effect has already been approved by the Second Chamber of the States General and submitted to the Commission. One can only conclude from that that the Netherlands Government, too, considers that to include such indirect taxation in the calculations is perfectly compatible with the provisions of the EEC Treaty.

To summarize, I would submit the same answer to the second question as that proposed by my colleague Mr Gand, that is to say, that a full offsetting of taxes is permissible.

3. Third question

The third question touches on a subject which in its present form does not appear in the other cases referred for preliminary rulings. The Düsseldorf court wishes to know the effect of the priority given to Article 95, which is directly applicable, over national laws conflicting with it: can they simply be repealed, or are they automatically void as from 1 January 1962?

The Federal Government has declared that this question is inadmissible because its answer is to be found in the national constitutional law and therefore lies outside the interpretative jurisdiction of the Court of Justice. The Commission, too, has doubts as to the admissibility of the question, at least as it is interpreted in the plaintiff's statements (to which I will come presently), although it does think certain aspects of it are admissible when the general scope of the question is considered.

Let us now look more closely to see what conclusions may be drawn.

It is quite reasonable to take the view that to acknowledge that a rule of law laid down by Treaty must be applied directly by the courts in Member States and takes precedence over national law (as the Düsseldorf court has done with regard to Article 95) does not exhaust all that there is to be said from the point of view of Community law on the way in which such a rule of law produces its effects, that is to say, on its precedence over national law. On the contrary, it remains open to the Court to give a more detailed explanation, and to exercise its interpretative jurisdiction accordingly. This is so in so far as the authors of the Treaties cannot have intended that the provisions of Community law should all have the same force: for one it may suffice to refrain from applying conflicting national laws whilst others must entail the absolute nullity of the national law (even with retroactive effect and applying even to case-law which has acquired the force of res judicata). A priori the question cannot, therefore, be declared inadmissible.

However, it must be said at once that there is nothing in the present case which would lead one to believe that considerations of this kind could have any importance for the national court. In fact from the point of view of Community law it need do no more than state that since 1 January 1962 there has been a directly applicable provision taking precedence over national law (in so far as, despite the grave doubts expressed by the Bundesfinanzhof, the Court adheres to its finding with regard to Article 95, as stated in the judgment in Case 57/65 in conjunction with the findings of principle in other cases referred for preliminary rulings — particularly Case 6/64) that is to say, the Court has to apply, not the national law contrary to the Treaty, but — by substitution — Community law, yet without expressly annulling the national law.

However, if the intention really was to give the question referred the meaning the plaintiff attributes to it, that is to say, to obtain an explanation whether precedence and direct applicability entail the final and complete abolition of the conflicting national law (with the result that it cannot later be restored and that it cannot be applied even if there is no conflict — in the present case, if the bounds of Article 95 are not exceeded), then in that case, in my opinion, the question must in fact be held to be inadmissible. As the Gederal Government rightly emphasizes, such effects are wholly without importance for the purposes of Article 95 since in the present case it is sufficient that Community law and its principles, instead of the national law, are fully and effectively applied by the national court in the case in point. That is why, properly understood, a ruling on the question of full and definitive elimination of conflicting national law, which also makes it possible to decide whether the disputed notices of assessment must be completely annulled and the taxes levied reimbursed, cannot be given under Community law, but in accordance with the principles of national constitutional law. But it is quite clear that the Court has no jurisdiction under Article 177 of the Treaty to undertake such an interpretation.

To summarize, my conclusion as to the third question is that the Court of Justice must refrain from answering it either because (in so far as it may be competent to extend its interpretation beyond the conclusions already reached) the question has no relevance for the court making the reference (and therefore may be taken as not intended by that court) or because, in so far as it is given the meaning assigned to it by the plaintiff, it cannot be answered on the basis of Community law and is therefore to be regarded as inadmissible.

Conclusion

In view of the foregoing the questions referred by the Finanzgericht should be answered as follows:

1. Article 97 of the EEC Treaty is not a directly applicable rule of law in the sense that individuals may plead rights derived from it before national courts.

2. Direct taxation of domestic products means the taxes imposed at the rate fixed by law irrespective of exemptions.

3. Indirect taxation of domestic products must be given the widest possible interpretation so as to ensure that the equalization of taxes is as complete as possible.

4. The fourth question, as it is interpreted by the plaintiff in the main action, is to be regarded inadmissible; the Court has no jurisdiction to interpret it.

( 1 ) Translated from the German.