OPINION OF ADVOCATE GENERAL

SIR GORDON SLYNN

delivered on 27 March 1985

My Lords,

This application by the Commission under Article 169 of the EEC Treaty is for a declaration that Italy is in breach of Article 95 of the Treaty, which prohibits internal taxation on the products of other Member States in excess of that imposed on similar domestic products, or which is of such a nature as to afford indirect protection to other products.

The case is concerned with liqueur wines, and in particular with Marsala which is made in Italy. Italian legislation imposes a manufacturing tax on nationally-produced wine alcohol and it imposes an import tax on imported wine alcohol. Basically, the two taxes are of the same amount. There is, however, an exception contained in Article 29 of Decree Law No 1200 of 6 October 1948, as modified by Law No 891 of 22 December 1980 (GU No 233 of 6 October 1948 and No 355 of 30 December 1980) in favour of wine alcohol which is used in the production of the liqueur Marsala. The tax on wine alcohol used for that purpose is reduced by 60% of the basic amount.

The Commission's case is that this legislation discriminates against imported liqueurs in favour of Marsala, which has sufficiently analogous qualities and uses to be regarded as similar to imported liqueurs. Moreover, the legislation, it is said, gives protection to Marsala against other products which are in competition with it.

By letter of 21 September 1982, the Commission invited the Italian Government to forward its observations, on the attitude which the Commission had formed, in accordance with Article 169 of the Treaty. Having considered the Government's reply, the Commission issued a reasoned opinion on the matter on 22 September 1983. The Government's rejoinder to that was a request for a delay of one month to be given in order that the necessary measures should be adopted. Nothing else having been notified to the Commission, these proceedings were begun on 14 December 1983.

When the matter first came for oral hearing before the Court, it was said that the Italian Parliament had adopted law No 408 of 28 July 1984, which provided by Article 4 (a): ‘the reduction of the manufacturing tax on spirits provided for the preparation of Marsala wine by Article 29 of the Decree Law of 1948 is hereby extended to all liqueur wines and all aromatic wines, including those produced in the Member States of the European Community and imported into Italy’.

It was, however, necessary that that law should be brought into effect by the adoption of decrees made by the appropriate Ministers. The hearing was adjourned in order that the Government might provide up-to-date and more precise information as to the position.

The Court has today been told that instructions have been given for the decrees to be implemented, and that they have in part been drafted. It is thought that they will be brought into effect in the course of the current year, and in any event before 31 December.

There is no reason to doubt that this will be done, but it seems to me that it is now appropriate that a ruling should be made on the Commission's application. Indeed, the Italian Government has argued the points of principle before the Court today.

I turn then to the questions of principle. The Government asks that the application should be dismissed for a number of reasons. In the first place, it is said that imported liqueurs are treated on the same basis as all other Italian liqueur wines, save Marsala. Imports cannot claim to be given the most favourable tax treatment. It is enough if they are treated like other Italian liqueurs.

The Court has recognized that Member States may introduce differential taxes on certain products, so long as they are not discriminatory or protectionist. It is argued that this tax is neither discriminatory nor protectionist. There are good reasons, it is said, for treating Marsala separately. It is subject to special rules contained not only in the decree law dealing with tax, but in other legislation, which lays down strict rules as to the vines which may be used, as to where they must be grown, and where and how the wine must actually be manufactured, namely in the west part of Sicily (Law No 1069 of 4 November 1950; Presidential Decrees of 20 October 1961 and 2 April 1969). Moreover, the Italian Government attaches great importance to the fact that the cost of complying with these rules, and of ensuring that they are observed, is borne by the winemakers themselves. The particular area where Marsala is produced is an underdeveloped area economically and it is argued that to give support to the region by this tax differential is fully justified if regard is had to the provisions of Article 92 of the Treaty dealing with State aids. It also shows that it is not discriminatory.

Then, it is said that this wine is made by a special process in that the grape must is directly heated, whereas other wines are made by a different process, so that Marsala should be recognized as being distinct from other liqueur wines.

The effect of the tax differential is, in any event, said to be insignificant, since, in the end result, it makes a difference of only LIT 122 per litre of Marsala wine.

These arguments, although they may explain the tax reduction, do not, in my opinion, justify it in the context of Article 95 of the Treaty.

It is plain, as the Commission contends, that Marsala is one of a range of liqueurs which can broadly be regarded as similar and in competition. It is also plain that, as compared with Marsala, there is a higher tax on imports even if that tax is also charged on other nationally produced liqueurs.

It seems to me that the fact that imports are not at a disadvantage when compared with other liqueurs does not prevent them from being at a disadvantage compared with Marsala, not least if the Commission is right, and its evidence was unchallenged, that Marsala represents more than 90% of domestic production of Italian liqueurs, with a specified denomination of origin.

It does not seem to me that the factors relied on to explain the tax reduction prevent it from being discriminatory; nor do they amount to the kind of objective criteria which the Court has recognized as justifying a tax differential. They are peculiarly linked to the need to encourage and protect the Marsala wine producers (see Joined Cases 142 and 143/80 Essevi (1981) ECR 1413).

Moreover, even if they are in the nature of an aid within the meaning of Article 92 of the Treaty, they are not thereby prevented from being in breach of Article 95, as the Court recognized in Case 73/79 Commission v Italy (1980) ECR 1533 at p. 1547. There the Court stated that the fact that an aid may fall within Article 92 does not prevent the same measure from being a discriminatory tax for the purposes of Article 95.

Finally, the fact that the tax reduction results in the wine being only LIT 122 cheaper does not mean that it is not in breach of Article 95. It is still capable of having a protective effect.

Accordingly, it is my view that the Commission was entitled to take the attitude it took when the proceedings were commenced and which it maintains today. It is accordingly entitled to a declaration that in applying a manufacturing tax on wine alcohol used for the production of the liqueur Marsala, which is lower than the tax imposed on wine alcohol used in the production of liqueurs imported from other Member States, the Republic of Italy is in breach of its obligations under Article 95 of the Treaty. The Commission is also entitled to its costs of these proceedings.