CELEX: 61981CC0216
Language: en
Date: 1982-06-10
Title: Opinion of Mr Advocate General Reischl delivered on 10 June 1982. # COGIS (Compagnia Generale Interscambi) v Amministrazione delle Finanze dello Stato. # Reference for a preliminary ruling: Tribunale civile e penale di Milano - Italy. # Tax treatment of whisky. # Case 216/81.

OPINION OF MR ADVOCATE GENERAL REISCHL
      DELIVERED ON 10 JUNE 1982 (
            1
         )
      
         Mr President,
      
      
         Members of the Court,
      
      The plaintiff in the main action imponed whisky from the United Kingdom into Italy from the year 1963 to 1974 (in the order making the reference the former date is given as 1956, which is clearly an error). Since whisky, in accordance with the Italian provisions, constituted spirits in the first category — spirits which are produced from materials other than wine, marc, waste from the production of wine and fruit — the frontier surcharge (sovimposta di confine) and the State tax [diritto erarile] were charged on it at the full rate, on the basis of the content of pure spirit.
      The importer considers that taxation — at any rate in so far as it concerns imports after the accession of the United Kingdom to the European Economic Community — to be an infringement of Article 95 of the EEC Treaty because domestic products are to be regarded as similar or competing goods for the purposes of Article 95, were at that time liable only to lower duties, that is — in so far as distilled spirits from marc or from domestic wine are concerned — a frontier surcharge corresponding to the manufacturing tax at a reduced rate and no State tax at all, or — in so far as the products concerned were not those of the so-called second category, such as spirits produced from dates, raisins, figs, carob beans and other fruit and cenain products in the first category (spirits distilled from molasses, cane sugar and sorghum) — a State tax at a reduced rate.
      Since the undertaking Cogis considered that imponed whisk\qualified for the same tax treatment as Italian spirits distilled trom wine, and in reliance on the case-law of this Coun on Article 95, it brought an action in 1976 for the refund ol the frontier surcharge and the State tax which in its view had been unlawfully imposed.
      The court before which the action was brought considers ihat it must accept that, in the light of that case-law. there is a case of discrimination against the imponed products. Nevertheless, since it considers that the application of the principle laid down in the judgment in Case 169/78 (
            2
         ) on the one hand and in the judgment in Case 28/69 (
            3
         ) on the other produced different results it stayed the proceedings by order of 9 July 1981 and referred the following question for a preliminary ruling:
      “Has the Italian State, by applying to imports of whisky from the United Kingdom a system of taxation comprising the State tax which is not charged on domestic spirits distilled from wine and the frontier surcharge at the full rate, when the manufacturing duty on domestic spirits distilled from wine is payable at a reduced rate, infringed Article 95 of the Treaty?”
      My opinion on this question is as follows:
      
               1. 
            
            
               It is clear that the Coun cannot answer the question as it has been worded.
               We are not concerned with an action under Article 169 of the EEC Treaty for a declaration that there has been a failure to fulfil an obligation under the Treaty, but with a procedure under Article 177 of the EEC Treaty which — if the matter of the validity of the acts of the institutions, which is not at issue here, is disregarded — is concerned exclusively with the interpretation of Community law. It is therefore not permissible for us to say anything which directly refers to the compatibility of Italian tax law with Community law as this would not be interpretation but application of the law. It falls to us instead to indicate entena for the interpretation of Article 95 in relation to certain facts which have been notified to us, namely the charging of taxes on imported whisky on the one hand and the taxation of Italian spirits distilled from wine on the other, which will then enable the national court to arrive at a judgment of the compatibility of certain national provisions with Community law and, as the case may be, to draw inferences as to the degree to which it is permissible to tax imported products.
               That task will certainly be rendered easier by the fact that there is already in existence a considerable body of case-law on Article 95 of the EEC Treaty which really only requires to be viewed in a systematic context and clarified in a few places.
            
         
               2. 
            
            
               
                  The first paragraph of Article 95 prohibits the imposition on the products of other Member States of any internal taxation in excess of that imposed on similar domestic products.
               The plaintiff in the main action, like the United Kingdom Government, is of the opinion that that provision applies to its case. As identity is not a condition the only important factor is that the products in question should be similar, that is to say, they should display common characteristics, as is the situation in this case in regard to alcohol content. In support of its point of view the plaintiff refers to the notes to Article III (2) of the GATT, which corresponds to Article 95, according to which products are similar when they are substitutable and in direct competition. Another important factor in its opinion is that the relevant products fall within the same heading of the Common Customs Tariff (heading 22.09 C) and that in accordance with the Iulian Law of 7 December 1951 they belong to the same tax category.
               On the other hand the Italian Government takes the view that it is in no circumstances permissible to determine the question of similarity in quite so an abstract a fashion and reliance should instead be placed in this matter on the specific categories adopted by the legislature. Under the general system for the taxation of spirits in Italy whisky, like other products, is in fact placed in the first category and spirits distilled from wine in the second category.
               In the earlier case-law on this point it was indeed originally a matter of importance whether the products came within the same tax category (cf. judgment in Case 28/69 (
                     4
                  )) or whether they came within the same heading of the Common Customs Tariff (cf. judgment in Case 45/75 (
                     5
                  )). It is, however, my impression that subsequently the Court of Justice has moved away from such a formal view, which, furthermore, from the outset was not to be understood as implying that similarity existed only in the case of the same classification for the purposes of customs law. It was in fact expressly stated in Case 168/78 (
                     6
                  ) that the Common Customs Tariff was not decisive for the purposes of the question of similarity and it was also emphasized in the judgment in Case 169/78 (
                     6
                  ) that for this question neither classification in the Common Customs Tariff nor treatment within the framework of customs statistics is decisive.
               According to this more recent case-law the first paragraph of Article 95 must in principle be interpreted widely and the question of similarity is to be treated flexibly (Case 169/78 (
                     7
                  )) The decisive factor with regard to spirits is not whether the same raw materials were used but whether the products have the same characteristics from the point of view of the consumer and meet the same needs, that is to say, whether it is possible to perceive a similar application (judgment in Case 169/78 (
                     7
                  )). The further point was made in the judgment in Case 170/78 (
                     8
                  )) that it is not permissible to take consumer habits in a single country as the sole basis for judgment and that products may be considered as similar when they are in large measure comparable.
               The foregoing observations should cover all that needs to be said in regard to the abstract interpretation of the first paragraph of Article 95. In any event, nothing has emerged in this case which might contribute any further to the interpretation of that provision.
               It is for the national court to decide in accordance with that interpretation whether spirits distilled from cereals and spirits distilled from wine in fact constitute similar products. I would merely like to recall that in my opinion in Case 169/78 (
                     7
                  ) I considered thai argument to be valid although the Court of Justice was not prepared to take such an unequivocal view and instead in its judgment in that case merely found that spirits distilled from cereals and spirits distilled from wine must be considered as similar orat any rate as in competition.
               Should my view be correa, then it would in principle be clear, so far as the main action is concerned, that it was not permissible to subject imponed whisky to heavier taxation than domestic spirits distilled from wine. That conclusion can, moreover, in no way be altered by the Italian Government's point that other spirits, which are also similar, such as genever, are subject to higher taxation in Italy than spirits distilled from wine. One reason for this is that for the application of Article 95 it is naturally indicated to have regard only to the principle domestic products to be taken into consideration for the purposes of comparison and not to wholly secondary categories in respect of which the national legislature undoubtedly remains free “to discriminate”.
            
         
               3. 
            
            
               According to the second paragraph of Article 95, to which the order making the reference also has regard, it is, furthermore, not permissible to impose on products of other Member States internal taxation of such a nature as to afford indirect protection to other domestic products.
               In this connection it was clearly stated in the judgment in Case 169/78 (
                     7
                  ) that it was sufficient if imported products and domestic products were in competition at least partially, indirectly or potentially and if such a competitive relationship had to be taken to exist in relation to one or more economic applications of the product. It had to be presumed that such a competitive relationship in fact existed in the case of all spirits and that presumption applied particularly to spirits distilled from wine and marc on the one hand and spirits distilled from cereals on the other (judgment in Case 169/78 (
                     9
                  ); corresponding statements are to be found in the judgment in Case 168/78 (
                     10
                  ) on the relationship between whisky and cognac).
               On that basis it was found in Case 169/78 (
                     9
                  ) that the Italian tax banderoles were of a protectionist nature because a higher rate of duty was applied to products which were almost exclusively imported and the domestic production of which was only minimal and, moreover, consisted of blends whose manufacture involved the use of a considerable proportion of domestic spirits. The same must also apply to the taxes at issue in this case as a comparison of the relevant figures — they were provided by the Commission in Case 169/78 (
                     9
                  ) — shows that the taxation of Italian spirits distilled from wine results in a wholesale price of LIT 265000 — in relation to the alcohol percentage — whilst the taxation on imported spirits distilled from cereals produces a wholesale price of LIT 317000.
               The Italian Republic's objection to the effect that the consumption of whiskv has nevertheless increased more than that of spirits distilled from wine can certainly not succeed in upsetting that finding. A similar objection was in fact declared to be irrelevant in Case 168/78 (
                     10
                  ) and it was stated in that case that a protective effect was not to be ruled out merely because it was possible to establish that there had been an increase in imports.
               Nevertheless it must also be added in this connection that the second paragraph of Article 95 does not require that imported products and domestic products in competition with them should be subject to the same taxation. As was made clear in Case 68/79 (
                     11
                  ) that provision merely requires that a rate of tax should be applied to imported products which, in relation to domestic production, does not have a protective effect. All that is required is that between such products there should be an appropriate tax ratio. a point which remains to be dealt with in Case 170/78 (
                     12
                  ), in relation to the taxation of beer and wine in the United Kingdom. In this connection it may well be that differing production costs are relevant, as was made clear in Case 21/79 (
                     13
                  ) in connection with regenerated petroleum products after the refusal in earlier cases — Cases 28/79 (
                     14
                  ) and 45/75 (
                     15
                  ) — to have regard to manufacturing costs and to consider the effects of taxation on the retail selling price in relation to Article 95.
            
         
               4. 
            
            
               Even if, in view of the foregoing observations, there are in fact strong grounds for concluding that the Italian system of taxation — in so far as it is concerned, on the one hand, with the taxation of spirits distilled from cereals which are almost entirely imported and, on the other, with the taxation of spirits distilled from wine, a typical Italian product — is not in accordance with Article 95 it is however still necessary, before a final judgment is possible, to examine certain additional considerations which have been put forward by the Italian Government. The Italian Government referred to the fact that according to the case-law of the Court a differentiation in taxes and the application of reduced rates for certain types of products or classes of producers is permitted — as was emphasized in the judgment in Case 148/77 (
                     16
                  ), for legitimate economic or social purposes, such as encouraging the use of certain raw materials, favouring the production of particular spirits of high quality or the maintenance in business of certain undertakings. In this connection, according to more recent decisions (see the judgment in Case 140/79 (
                     17
                  )) the primary requirement is that objective criteria, such as the raw materials used or the production processes employed, should be applied and it is furthermore necessary to have regard only to the point whether the pursuit of certain objectives of economic policy is compatible with Community law.
               From the point of view of that case-law, according to the Italian Government, the relevant parts of the Italian tax system applicable to spirits are not in fact objectionable. In this connection, when low taxes are imposed on spirits distilled from wine it is clear that a prominent factor in this is the idea of providing support for viticulture, an area in which there is constant overproduction. By means of the tax system — and in view of the fact thai the costs are higher than in the production of spirits from cereal — an incentive is in fact created for the use of certain agricultural products, and this must thus be considered as compatible with the Treaty because the effects of such a policy are in accordance with the obiectivcs of Article 39 (ensuring a fair standard of living for the agricultural community; stabilization of markets). Furthermore it cannot be said, according to the haiian Government, that the system involves discrimination which, according to the case-law which has been cited, must alwavs be avoided. The reason which it gives for this view is that, although the svstem hampers the importation of spirits distilled from cereals, an equivalent effect is also to be noted on the corresponding domestic production which is perfectly possible owing to the existence of the necessary raw materials but is rendered virtually impossible by that very system of taxation.
               I have, however, very serious objections to that view.
               In the judgment in Case 148/77 (
                     16
                  ), in which the lawfulness of tax advantages for specific products is mentioned, it is also stressed that those advantages must be extended to imponed products when they are to be considered similar or fulfil the criteria laid down in the second paragraph of Article 95 which, as has been shown, is the case for whisky and spirits distilled from wine.
               Furthermore the argument that tax advantages for spirits distilled from wine are justified on grounds of economic and social polio.- has already been advanced in the proceedings concerned the banderole tax in Case 169/78 (
                     18
                  ). In its judgment the Court of Justice did not consider it and thus by implication disregarded it as irrelevant. Thai cannot simply be explained, as the Italian Government is now seeking to do, on the basis that the banderole tax is in any case of such little importance that it cannot contribute to the effective pursuit of objectives of economic policy.
               It is of prime importance not to overlook the nature of the facts in Cases 140/79 (
                     19
                  ) and 46/80 (
                     20
                  ), the judgments in which the Italian Government has primarily relied upon in support of its view. These cases concerned the taxation of spirits from petroleum derivatives on the one hand and of spirits from agricultural products on the other. It was found in this connection that the particular objective which was pursued through the different rates of tax was to hamper the production of spirits from petroleum derivatives in order that that material, which had to be imported, should be applied primarily to another end and at the same time it was intended to favour agricultural raw materials for the purpose of Community preference. It could therefore be said that a legitimate objective of industrial policy was being pursued and that this did not conflict with the rules of Community law or the requirements of a policy decided within the tramework of the Community.
               There are very considerable differences between the facts in this case and the situation just described. This case is in fact concerned exclusively with the taxation of spirits obtained from agricultural products. Vhat is concerned is thus not the pursuit of objectives of industrial policy but the placing of emphasis within the framework of the agricultural policy. With good reason the case-law of the Court provides no support for the argument that in this field national measures of tax policy might be permissible. Even though no common organization of the market in spirits is yet in existence it must not in fact be forgotten that the basic materials for the production of the spirits of the kind in question constitute products coming within common organizations of the market and that in both cases there are problems of overproduction, albeit perhaps on differing scales. It must also not be forgotten that at Community level special measures are regularly taken to reduce surpluses of one of these very products, namely wine. Measures for the distillation of spirits from wine are repeatedly promoted with the help of subsidies from the European Agricultural Guidance and Guarantee Fund. I therefore find it inconceivable that in this field, where the Treaty in principle makes provision for a common policy, supplementary national tax measures which could bring about a deflection from the course intended by the Community might be declared lawful.
               It is not possible to deduce from aforesaid judgments which in fact, contran to the views of the Italian Government, may not be interpreted widely, any arguments for the purposes of the problem with which we are at present concerned, namely the taxation of spirits distilled from cereals and spirits distilled from wine. For that reason it is also unnecessary to consider the point whether those judgments provide a basis for the argument to the effect that, for the purpose of judging whether discrimination exists, it is sufficient that there should be a potential for national production. The matter may in fact rest with the findings made initially in connection with the first and second paragraphs of Article 95.
            
         
               5. 
            
            
               In view of all the foregoing considerations the only answer which in my opinion can be given to the question put by the Tribunale di Milano is as follows:
               
                        (a)
                     
                     
                        With regard to the question whether products are similar within the meaning of the first paragraph of Article 95 of the EEC Treaty the decisive point is whether they are considered by consumers as possessing the same characteristics and whether they satisfy the same requirements, that is to say, whether they are put to broadly comparable uses. Where such a similarity exists it follows that the same tax treatment must be accorded.
                     
                  
                        (b)
                     
                     
                        For the application of the second paragraph of Article 95 of the EEC Treaty it is sufficient that the products under consideration should be in competition, at least partially, indirectly or potentially with each other and that a competitive relationship should exist in the case of one or more of the economic uses to which those products are put. In such a case imponed goods may be taxed only to a degree which does not result in any protective effect for the benefit of domestic products.
                     
                  
                        (c)
                     
                     
                        Differentiated taxation is lawful only if it is applied in accordance with objective criteria, if it is not related to discriminatory or protectionist arrangements and if it is used as an instrument for the pursuit of economic objectives which do not conflict with Community law.
                     
                  
         (
            1
         )	Translated from the German.
      (
            2
         )	Judgment of 27 February 1980 in Case 169/78 Commission v Italian Republic [1980] ECR 385
      (
            3
         )	Judgment of 15 April 1978 in Case 28/69 Commissiion
            Italian Republic [1970] ECR 187.
      (
            4
         )	Judgment of 15 April 1970 in Case 28/69 Commission v Italian Republic [1970] ECR 187.
      (
            5
         )	Judgment of 17 February 1976 in Case 45/75 REWE-Zentrale des Lebensmittel-Großhandels GmbH v Hauptzollamt Landau-Pfal [1976] ECR 181.
      (
            6
         )	Judgment of 27 February 1980 in Case 168/78 Commission v French Republic [1980] ECR 347.
      (
            7
         )	Judgment of 27 February 1980 in Case 169/78 Commission v Italien Republic [1980] ECR 385.
      (
            8
         )	Judgment of 27 February 1980 in Case 170/78 Commission v United Kingdom of Great Britain and Nortnem Ireland [1980] ECR 417.
      (
            9
         )	Judgment of 27 February 1980 in Case 169/78 Commission v Italian in Republic [1980] ECR 385
      
      (
            10
         )	Judgment of 27 February 1980 in Case 168/78 Commission v French Republic [1980] ECR 347.
      (
            11
         )	Judgment of 27 February 1980 in Case 68/79 Hans Just I/S v Minustry for Fiscal Affaire (1980) ECR 501.
      (
            12
         )	Judgment of 27 February 1980 in Case 170/78 Commission v United Kingdom at Creat Bnuin and Sonhem Ireland [1980] ECR 417.
      (
            13
         )	Judgment of 8 January 1980 in Case 21/79 Commission v Italian Republic [1980] ECR 1.
      (
            14
         )	Judgment of 4 October 1979 in Case 28/79 La Providence Agricole de la Champagne v Council [1979] ECR 3091.
      (
            15
         )	Judgment of 17 February 1976 in Case 45/75 REWE-Zentrale des Lebensmittel-Großhandels GmbH v Hauptzollamt Landau-Pfalz [1976] ECR 181.
      (
            16
         )	Judgment of 12 October 1978 in Case 148/77 H. Hansen jun. & O. C. Balle GmbH & Co. v Hauptzollamt: Flensburg [1978] ECR 1787.
      (
            17
         )	Judgment of 14. February 1981 in Case 140/79 — Chemial Farmaceutici SpA v DAF SpA [1981] ECR 1.
      (
            18
         )	Judgment of 27 february 1982 in case 169/72 Commission v italian - Republic [1980] ECR 385
      
      (
            19
         )	Judgment of 14 January 1981 in Case l48/79 Chemial Farmaceutici SpA v DAF SpA [1981] ECR 1
      
      (
            20
         )	judgment of 14 Junuary 1981 in Case 46/82 Vinal v SpA Orbat [1981] ECR 77.