OPINION OF MR ADVOCATE-GENERAL GAND

DELIVERED ON 29 APRIL 1969 ( 1 )

Mr President,

Members of the Court,

I

The case on which I have today to deliver my opinion belongs to a long series of decisions in which, at the request of finance courts of the Federal Republic of Germany, the Court has had to interpret the provisions of Articles 95 and 97 of the EEC Treaty. More precisely, it is a question of delimiting, as accurately as possible, the respective rights and duties of the Member States, of those subject to their authority and of the Community institutions in relation to turnover tax calculated on a cumulative multi-stage tax system.

We know how the proceedings commenced. An importer of slaughtered poultry from the Netherlands was required by the competent customs office in 1967 to pay turnover equalization tax at the rate of 4 %. He claimed that the imposition made at this rate was unlawful on the ground that similar domestic products were not subject to turnover tax or were subject to it only at a lower rate, and that this therefore amounted to an infringement of Articles 95 and 97 of the Treaty. By an order of 19 June 1967, registered as No 25/67, the Finanzgericht of the Saarland submitted to the Court twelve questions, some of which were identical to, or analogous with, those which have been submitted to you by the Bundesfinanzhof, or by other German finance courts.

Furthermore, the judgment of the Court of 4 April 1968 (Rec. 1968, p. 305) must be compared with the judgment in Case 28/67 of the previous day, whose findings it merely repeated on the main points in issue. Doubtless, also, the desire not to make the judgment over-long led the Court to concentrate particularly on what it considered to be the crux of the case — that is, on the fact that Article 97 is not directly applicable, and on the concept ‘average rate’—and to restrict its reply to what it regarded as absolutely necessary.

If for the moment one leaves aside the grounds upon which that judgment is based, the operative part of the judgment contains in particular the following two propositions:

— The first paragraph or Article 97, which applies where Member States operating a turnover tax according to the cumulative multi-stage tax system have actually exercised the right therein granted to them, does not create individual rights which national courts must protect;

— In States which have exercised the power made available to them by Article 97 rates are considered as ‘average rates’ if they are established as such by the States in question, without prejudice to the operation of the second paragraph of that article.

Were these answers, in view of their brevity, sufficiently enlightening to satisfy all those concerned in the outcome of the case? It does not appear so, since as long ago as 2 May 1968 Milch-kontor asked you to ‘fill in the lacunae’ in your judgment so as to decide a certain number of questions which had been submitted to you by the Finanzgericht and which appeared to the applicant to remain open. The order of the Court of 16 May 1968 rejected this application and re-affirmed that, in view of the special purpose of the procedure under Article 177, it was not for the parties before national courts, but for the latter alone to decide whether they considered themselves sufficiently enlightened by the preliminary ruling given at their request, or whether it appeared necessary to make a further reference to the Court.

That is exactly what happened, for the Finanzgericht of the Saarland once more suspended the proceedings and, by an order of 4 October 1968, submitted a certain number of questions which were put before the Court at the oral hearing. How does it justify making this reference? In a general way, on the basis that the outcome of the proceedings depends upon the question whether the Federal Republic has properly exercised the power made available to it by Article 97 of the Treaty, and has fixed an ‘average rate’ for the group of products to which the product in the present case belongs. If the answer is in the affirmative, the action will have to be dismissed, but, if such is not the case, the national court itself will have to consider whether the rate applied is compatible with Article 95 of the Treaty. The Finanzgericht does not fail to appreciate that the judgments given by the Court in April contained decisions in respect of Article 97, but it considers that the scope of certain concepts has not been sufficiently defined and it asks the Court to give certain supplementary details.

There is nothing in the procedure under Article 177 to militate against the admissibility of such a request. It is for the Court to decide whether it must refer the questioner to its previous reply, or whether it is appropriate to develop and supplement the latter. For my part, the fact that certain points have already been dealt with in connexion with Cases 28/67 and 25/67 will enable me to be brief, although I shall take care to put forward my opinion in the light of what may be considered to have been decided either expressly or by implication in the judgments of the Court of April 1968.

II

I shall commence by examining the first two questions put by the Finanzgericht, relating to the concept ‘average rates’.

The Court is asked first for the interpretation of the wording of Article 97 according to which the Member States ‘may … establish average rates … provided that there is no infringement of the principles laid down in Article 95 …’, and in particular whether it may be stated that a rate imposed at one stage of production established before the entry into force of the Treaty constitutes an average rate in accordance with Article 97.

Then the Court is questioned on the procedural requirements in accordance with which a Member State must take the decision to establish an average rate. Does a mere declaration by the body competent under the legal system of such State suffice? Or, in addition to the legal formalities, must the intention of the competent body within the State radically to change the existing situation appear in the declaration procedure? Finally, must it appear that the competent body was in a position, on the basis of the available material, and had the intention to establish an average rate in accordance with the principles of Article 95?

I have already had the opportunity in connexion with earlier cases to express my views on some of these points. Replying to the argument of the German Government, I said that for the establishment of average rates one could not be satisfied by an overall and arbitrary estimate of the burden borne by similar domestic products, but that calculations were necessary, without however necessarily excluding recourse to flat-rate calculations of indirect taxes which represent only a very small percentage of the total burden. These calculations should be verifiable, in order to allow the Commission to perform the task assigned to it by the second paragraph of Article 97; they have to be sufficiently recent to remain representative. Finally, I did not a priori exclude the possibility that a general rate of taxation, established before the entry into force of the Treaty and remaining unchanged, could be an average rate within the meaning of Article 97; I considered that it depended on the circumstances of each particular case.

I must say that these observations were not fully accepted by the Court. Your judgments in Cases 28/67 and 25/67 were confined to defining an average rate as that established ‘as such’ by a State exercising the power conferred by Article 97, without prejudice to the application of the second paragraph of the same article, but that very laconic definition may be elucidated to a certain extent by the grounds on which it was based.

The Court stated that, in the first place, the decision to establish average rates was a matter for the Member State, and that it was only the Commission which could, within this framework, intervene to enforce observance of the principles of Article 95 (possibly also, the other States by means of Article 170). On the other hand, the application of Article 97 is subject to the double condition that the Member State should operate a turnover tax in accordance with the cumulative multi-stage tax system, and that it should actually have exercised the power made available by this article and established average rates. In another part of the judgment in Case 28/67, the Court alluded to the case of a State which has ‘used this power properly’, a phrase of which, I must say, I do not very clearly see the meaning.

Finally, although the Court denied national courts the right to decide whether the establishment of average rates conformed to the principles of Article 95, it did not exclude the possibility that in certain cases they might find themselves in the position of having to decide whether or not they were dealing with an average rate within the meaning of Article 97.

It may be doubted whether these remarks are sufficient to enable the Court to restrict its decision to referring to its previous interpretation, for this itself has been quite differently ‘interpreted’ by the Bundesfinanzhof in its judgment of 11 July 1968, delivered after the decision in Case 28/67, and by the Finanzgericht, as may be seen from the arguments accompanying its order.

The difficulty is as follows:

When the Court states that an average rate is a rate established ‘as such’ by a Member State, does it suffice, in order to fulfil this condition, that the legislative measure was valid from the formal point of view? The Finanzgericht does not think so; it considers, on the contrary that, in exercising the power made available by the Treaty, the competent body must have, in addition, the intention materially to change the existing legal position in such a way ‘either that the procedure for introducing average rates should lead to the express and intentional establishment of a new average rate within the meaning of Article 97 of the EEC Treaty, or that a rate laid down during a previous legislative procedure which, by reason of the circumstances under which it was created, its function and its amount, corresponds materially to the requirements of Article 97 of the EEC Treaty, should be defined as an average rate by a formal act which could take the form of a simple declaration’.

This is, of course, essentially the case of rates existing when the Treaty came into force, and, as its further arguments show, the Finanzgericht is particularly anxious to know whether the declaration contained in the seventeenth law amending the German turnover tax was sufficient to make these rates average rates within the meaning of Article 97. However, the Commission very rightly underlined at the hearing that the interpretation given must be valid for all Member States operating a cumulative multi-stage tax system and cannot be limited to the specific case of the Federal Republic. It further stated that it is necessary to distinguish questions concerning Community law from those falling within the sphere of national law.

That having been said, it must here be observed that, due to their intentional brevity, the Court's judgments of 1968 leave the establishment of average rates in practice to the Member State concerned and concede to the Commission alone the right to determine whether in so doing the Member State has observed the principles of Article 95. Certain procedures for prior consultation were indeed laid down in the Decision of 21 June 1960 of the representatives of the Governments of the Member States meeting as the Council, in order to restrict changes made in these rates. On the other hand, the Directive of the Council of 30 April 1968, issued after the initiation of the present proceedings, introduced a common method for the calculation of average rates established after its entry into force. However, with these reservations it appears to ensue from your case-law that the only obligation imposed on the State concerning the point raised by the Finanzgericht is that it should clearly display its intention to introduce such rates, whether by a formal declaration or otherwise. Unfortunately it is not possible to be more precise, particularly as the questions put by the German court include aspects which relate solely to national law. This is the case, for example, with the definition of the authority competent to take the decision on behalf of the State: according to the constitutional systems concerned this may be the legislature or the Government. The same is true of the point raised in Question 2, as to how the intention to change the existing system is to be displayed in the internal procedure.

Finally, and still on the question of average rates, the Finanzgericht asks whether a tax rate at a particular stage which was established before the entry into force of the EEC Treaty may be considered as an average rate.

That this rate was in existence when the Treaty came into force does not create difficulties: old regulations regarding cumulative multi-stage taxation could persist if they conformed with the provisions of Article 97. But since this rate was designed solely to equalize the burden of turnover tax at a single stage one might wonder whether it is in the nature of an average rate within the meaning of Article 97. Nevertheless, the extremely wide terms in which the Court couched its judgments of April 1968 do not seem to me capable of denying Member States the power to introduce a rate of this kind as an average rate.

III

A second series of questions is put by the Finanzgericht. It deals with the concept ‘group of products’ (third question) and more particularly (fourth question) with the problem as to whether all the goods which correspond to identical or comparable domestic products and for which the rate of turnover equalization tax does not differ from the normal rate may form a group of products.

The Commission emphasizes the importance which it attaches, if only for the purpose of fulfilling its tasks, to the answers to these questions, which have already been raised in Case 25/67, although only as a subsidiary matter, which dispensed the Court from the necessity of deciding them.

For the Federal Republic a group of products within the meaning of Article 97 consists of all those products which the Member State grouped together when it established average rates. That State must enjoy the same freedom as is granted to it to create these rates, subject solely to the condition of respecting, under the exclusive supervision of the Commission, the principles of Article 95. In other words it is necessary only that the average rate applicable to a group of products should not lead to a tax burden greater than the average burden to which domestic products included in the group are subject by way of turnover tax. Consequently, a group of products may be wholly composed of goods which correspond to similar or comparable products and for which the rate of equalization tax applicable does not differ from the general rate.

This concept has the disadvantage or allowing manipulation of average rates by means of skilful re-groupings. The example given once again by the Commission of a group composed of iron ore and machine-tools clearly shows the danger of the system. These products represent respectively the first and last links in a chain of manufacture, but are subject to turnover tax at different rates: 1 % for example in the first case, and 10 % for the second. If they were brought together to form a group of products with an average rate of 5.5 %, this would certainly be done in disregard of Article 97.

It seemed to me therefore that the only rule which could be suggested was that only ‘comparable’ products could be brought together in the same group, and I admitted the necessarily imprecise nature of this criterion.

The Finanzgericht wonders whether the criterion should he in the common physical properties of the products, the number of stages of their production or their ultimate purpose; as to Milchkontor, it considers that only products satisfying all these criteria can be placed in the same group.

Unfortunately I think it is not possible to answer the questions of the Finanzgericht with the degree of precision which it requires, for economic realities do not necessarily fit into the uniform pattern required by lawyers. It may be that what matters in constituting groups may be similarity of ultimate purpose in certain cases, or of common physical properties in others. The only requirement which it seems to me must be fulfilled in all cases is that the products should be subject to approximately the same rate, although even here precise figures cannot be given. That said, in respect of the fourth question, it does not appear that the fact that certain products are uniformly subject to the normal tax rate is sufficient reason for all those products to form a ‘group of products’ within the meaning of Article 97.

IV

In case there should be a negative reply to this fourth question, the Finanzgericht repeats the eighth, ninth and tenth questions which it put in its previous order making the reference. They dealt with taxes on similar domestic products which are used for the calculation of the permissible equalization rate, and have already been the subject of the judgments in Cases 28/67 and 13/67.

First, (Question 8) how far must the concept of taxation imposed indirectly on products be extended? Does it merely include amounts of turnover tax which fall on the same products at one or more earlier marketing stages; or those which are imposed by the same tax on the raw materials or semi-finished products which are used in the manufacture of similar products, the accessory or auxiliary materials; or finally the means of production, transport costs and sales costs? In the second place (Question 9) do the words ‘imposed directly’ mean that only the first previous stage through which the similar domestic product has passed is to be taken into account, or must one go back several stages of marketing or of production? In the grounds of the judgment in Case 28/67, the Court said that the words ‘directly or indirectly’ must be interpreted widely. The first paragraph of Article 95 refers to all taxation which is actually and specifically imposed on the domestic product at all earlier stages of its manufacture and marketing or which correspond to the stage at which the product is imported from other Member States. Nevertheless, the incidence of this taxation diminishes as one goes further back and tends rapidly to become negligible; Member States must therefore take that aspect into account in calculating indirect taxation.

It appears to me that this reply is as precise as it is possible to be in such a matter, and the Court may confine itself to referring the Finanzgericht to it.

Question 10 relates to the particular circumstances of the importation made, which concerns slaughtered poultry. The court wishes to know whether it is necessary to take account of the tax levied on intermediate products and the means of production (in this case, eggs for hatching and brood hens). The logic of the system leads to an affirmative answer, with the rider that in fact the incidence of this charge is in the present case almost negligible.

V

A last point must be mentioned.

The arguments in the order making the reference conclude with the following passage:

‘The Senate considers that the infringement of Article 7 and of the second subparagraph of Article 40(3) of the EEC Treaty alleged by the plaintiff does not exist.’

And after having given the reasons for this finding the Finanzgericht adds:

‘Should the Court of Justice not share this view [the Finanzgericht] asks further, as a subsidiary matter, for an answer to the questions concerning Articles 7 and 40 of the EEC Treaty.’

But what are these questions? The order does not say what they are. At most, all we can say is that they were formulated by Milchkontor in a document appearing in the file of the German court. They relate to the problem whether Articles 7 and 40 of the Treaty contain provisions which are directly applicable, creating individual rights and duties, and whether Articles 95 et seq. constitute ‘leges speciales’ in relation to Article 7 or Article 40. However liberal the Court may generally be with regard to the manner in which questions may be phrased, I do not think that in the present case it can consider that it has been validly seized of these matters.

In the first place, because the questions are not even formulated in the order and because the Court can only reconstruct their content by referring to the pleadings of a party to the proceedings before the court making the reference.

But also because they are submitted only in case you should hold, contrary to the opinion of the Finanzgericht, that the tax imposed amounts to an infringement of the Treaty; in other words, the question of interpretation submitted as a subsidiary matter is inseparable from the question of application, in which you have no jurisdiction. For these two reasons it does not seem to me possible that the Court should hold that it is validly and actually seized of these questions, and I shall abstain from going into the substance of the matter.

In conclusion, without rigorously following the wording and order of the various questions submitted by the Finanzgericht, it seems to me that the points on which your previous rulings could be supplemented are as follows:

— In order validly to create an average rate within the meaning of Article 97 it is necessary for the Member State clearly to have made known its intention of establishing it as such, but the form and conditions under which this intention is manifested depend upon national law;

— A rate of tax imposed at one stage which was introduced before the entry into force of the Treaty may nevertheless constitute an average rate;

— Groups of products may be formed only from amongst those which are comparable in one respect or another and which in any case bear approximately similar charges;

— Finally, I consider that nothing need be added to the definition which the Court has already given of charges direcdy or indirecdy borne by similar domestic products.

( 1 ) Translated from the French.