C-170/78

FURTHER OPINION OF MR ADVOCATE GENERAL REISCHL DELIVERED ON 16 JUNE 1982 ( ) Mr President, Members of the Court, This procedure for a declaration that a Member State has failed to fulfil its obligations under the Treaty on which I am today to give an opinion was commenced in 1976. At that time, the Commission informed the United Kingdom that in its opinion the considerable difference between the rate of excise duty on wine produced in other Member States and the rate of excise duty on beer produced in the United Kingdom afforded indirect protection for domestic beer, in infringement of the second paragraph of Article 95 of the EEC Treaty. The United Kingdom disputed that contention and the Commission finally brought an action against the United Kingdom in which the Italian Government intervened in support of the Commission. In my Opinion of 28 November 1979 to which I would refer in this respect, I found in principle in favour of the applicability of the second paragraph of Article 95 of the EEC Treaty to the taxation of beer and wine but finally argued that. the application should be dismissed, as in my view the Commission had not succeeded in proving that the differential taxation of beer and wine was of such a nature as to afford indirect protection, within the meaning of that provision, to the domestic production of beer. Indeed, the Court of Justice detected with regard to the development of the tax systems for beer and wine a protective trend against importers of wine into the United Kingdom but, in view of the uncertainties relating both to the characteristics of the competitive relationship between wine and beer and to the question of the appropriate tax ratio between the two products from the point of view of the whole of the Community, considered that it was not in a position to come to a decision on the - alleged failure by the United Kingdom to fulfil its obligations under the Treaty and therefore delivered an interlocutory judgment on 27 February 1980, which provided as follows: “The Court... hereby: Orders the parties to reexamine the subject-matter of the dispute in the light of the legal considerations set out in this judgment and to report to the Court on the result of that examination before 31 December 1980. The Court will give final judgment after that date after examining the reports which have been submitted to it or in the absence of those reports.” That date was extended several times, finally to 31 January 1982, without settlement of the dispute, and the main parties as well as the intervener again presented their views. The Court of Justice finally decided to reopen the oral procedure. That resumption of the proceedings is the reason for this further Opinion, in relation to which I would refer for the facts to my abovementioned Opinion and also to the interlocutory judgment cited. In relation to the facts, it is necessary to add only that since 1977 the divergence of the taxation curves for beer and wine has diminished, in so far as the taxation on beer has arisen proportionately more steeply than that on wine with the result that the two curves now run more or less parallel to one another. With regard to the law I can also refer to a great extent to my comments at that time. I shall therefore confine myself to a brief summary of the questions to which a preliminary answer was given by the interlocutory judgment but which are still open, in order to consider then whether or not, after an examination of the legal considerations set out in that judgment, the new observations now justify a declaration that the United Kingdom has failed to fulfil its obligations under the Treaty. 1.  In relation to the interpretation of Article 95, the Court of Justice first confirmed that the first paragraph thereof prohibited any tax provision whose effect was to impose, by whatever means, higher taxation on imported goods than on similar domestic products. The second paragraph was to apply to the treatment for tax purposes of products “which, without fulfilling that criterion of similarity, are nevertheless in competition, either partially or potentially, with certain products of the importing country.” In order to determine the existence of potential competition, as the Court of Justice expressly pointed out, “it is necessary to consider not only the present state of the market but also the possibilities for development within the context of free movement of goods at the Community level and the further potential for the substitution of products for one another which may be revealed by intensification of trade.” 2.  With regard to the factual criterion of “protective effect” alluded to in the second paragraph of Article 95 of the EEC Treaty, the Court of Justice further explained that it was impossible to require in each case that the protective effect should be shown statistically, but it was sufficient for the purposes of the application of that provision “for it to be shown that a given tax mechanism is likely, in view of its inherent characteristics, to bring about the protective effect referred to by the Treaty” (“... est susceptible d'entraîner l'effet protecteur...”; “... die ... Schutzwirkung zur Folge haben kann ...”). After examining those criteria the Court then stated in relation to the competitive situation between wine and beer that “it is impossible to deny that to a certain extent the two beverages in question are capable of meeting identical needs, so that it must be acknowledged that there is a certain degree of substitution for one another.” That statement confirms the more recent case-law of the Court of Justice according to which, to determine whether goods are similar or may be substituted for one another, it is necessary to consider whether the products concerned “have similar characteristics and meet the same needs from the point of view of consumers” (cf. Case 45/75, REWE ( )); further, the second paragraph of Article 95 is applicable if an imported product is, by reason of one or more economic uses to which it may be put, in competition with the protected domestic product (cf. Case 27/67, Fink-Frucht. ( ) At the same time the Court explained in its interlocutory judgment in this case that the tax policy of a Member State should not crystallize given consumer habits so as to consolidate an advantage acquired by national industries whose task it was to provide for them. 3.  If it must therefore be accepted that the taxation of beer and wine should in principle be measured by the standard contained in the second paragraph of Article 95 of the EEC Treaty, it is nevertheless undeniable, as is also pointed out in the interlocutory judgment, that there are considerable differences between wine and beer in relation to the manufacturing processes, the natural properties of those beverages and their price structures which make comparisons from the point of view of taxation particularly difficult in spite of the competitive relationship between the finished products. On account of the different taxation of wine and beer in the individual Member States — in the winegrowing countries, wine production is, unlike that of beer, entirely exempt from excise duty or subject to a purely nominal rate — and so that it would be able to assess the effects of a decision on the treatment for tax purposes of the two products throughout the Community, the Court of Justice therefore considered that it was necessary for the Commission to state what tax ratio it considered to be appropriate in view of the uncertainties mentioned. The ratio of the taxation on wine to that on beer varies according to the criteria for comparison which are applied. With regard to the individual bases of calculation put forward by the parties, the Court stated the explanations supplied showed that neither a simple consideration of volume nor a comparison between the typical units of consumption, nor a comparison between the ratio of tax to selling price of the two types of beverages could provide a suitable basis for comparison. Of the criteria put forward by the parties the only factor which, albeit inadequate, may enable an appropriate, though scarcely objective, comparison to be made consists “in the appraisal of the incidence of the tax burden in relation to the alcoholic strength of the beverages in question”. By application of that criterion it may be ascertained that wine is at present subject in the United Kingdom to a tax which is approximately 50% higher than that on beer, assuming that the alcoholic strength of the beverages is respectively 11o to 12o to 3.7o, although the disparity is greater if the alcoholic strength of ordinary table wine with which it is in competition is taken into consideration. 4.  If against that background the new submissions of the parties are assessed, it is at first striking that, if I understand it correctly, it is no longer seriously contended by any of the parties to these proceedings that the two types of beverages are partially or potentially in competition with one another. Moreover, all the parties seem to agree that the differences in relation to the manufacturing processes and natural properties of those beverages in principle justify a difference in taxation. Consequently they concentrate mainly on the question of the tax ratio of the two products, which is closely connected with the method of comparison chosen. In that regard it was confirmed that on account of the special features of viticulture in relation to the different methods of cultivation, linked to the distinctive features of the region and climatic factors, it was extremely difficult, if not impossible, to make a precise statement on the influence of conditions of production on the price structure of wine. 5.  Further information is, on the other hand, available on the question left open in the interlocutory judgment concerning the tax ratio which the Commission considers appropriate for the two types of beverages. In its opinion the Member States may in accordance with the case-law of the Court of Justice lay down differing tax arrangements even for identical products so long as, in doing so, they are pursuing, on the basis of objective criteria, legitimate objectives of economic or social policy which are compatible with Community law. If, in the Member States which produce an appreciable quantity of wine, wine is wholly free of excise duty or subject only to a symbolic rate whilst beer is subject to tax, that is an expression of a legitimate choice of economic policy and does not constitute discrimination within the meaning of Article 95, as both imported wines and imported beers are treated in the same way as the corresponding domestic products. The relationship between the excise duty on wine and excise duty on beer must in the last resort be established by means of harmonization pursuant to Article 99 of the Treaty. In any event Article 95 does not require the establishment of a ceiling for excise duty on beer in relation to the corresponding duty on wine. The position is different, however, if in a Member State there is no appreciable wine production and imported wine is therefore in competition with domestic beer. In that case the duty on a given volume of imported wine and the corresponding duty on domestic beer may not exceed the ratio resulting from a comparision of the respective alcoholic strengths of the beverages. The ratio between the most popular beer with an alcoholic strength of 3.5o to 3.6o and the most popular table wine with an alcoholic strength of 10o to 12o is between 1 :2.8 and 1 : 3.4. By application of an average alcoholic strength of 3.6o for beer and 10o for wine, a ratio of 1 :2.8 is obtained. If that ratio is exceeded, as in this case, there is a presumption that indirect protection is being afforded to domestic beer as against imported wine. The United Kingdom on the other hand points out first that the protective trend observed by the Court as a result of the different rates of duty on wine and beer has meanwhile been eliminated. As before, it takes the view that consumers' behaviour is ultimately determined chiefly by the selling price of the products concerned, not by the ratio of the price to the alcoholic strength. The incidence of tax on the price of the products therefore represents a better basis for comparison than the incidence of tax per degree of alcohol of the beverages in question. Such a method of comparison shows, however, that the taxation of wine in the United Kingdom is not of such a nature as to afford indirect protection to domestic beer production Furthermore, there is no evidence of such an illicit protective effect, even if the incidence of tax per degree of alcohol of the beverages in question is accepted as the basis for comparison. The Italian Government also considers, on the same grounds as those put forward by the United Kingdom, that the incidence of tax per degree of alcohol is not a suitable criterion for comparison. Indeed, in its opinion it is in principle for the Member States to determine at their discretion the criterion of taxation which they consider appropriate. However, once the Member States have decided, as in the case of the United Kingdom, to adopt taxation by volume, only that criterion may in principle be applied as a basis for comparison of the tax burden. It may in this regard be accepted at the most that according to experience about one and a half times as much beer as wine is consumed under comparable circumstances. Consequently, in this case a tax ratio of 1 : 1.5 may at best be accepted as appropriate. In the assessment of those new arguments, it is necessary first to recall the judgments of the Court of Justice, according to which it is not prohibited for the Member States to treat differently with regard to tax even goods which must be regarded as similar within the meaning of the first paragraph of Article 95 of the EEC Treaty, provided that there has been no harmonization of the taxes concerned. In this way, as emerges particularly from the judgments in the cases of Hansen & Balk, Chemial Farmaceutici and Vinal ( ) legitimate objectives of economic or social policy may be pursued, provided only that objective criteria are respected and that those objectives are compatible with Community law. Such a possibility of laying down differential tax arrangements must apply all the more to products which must be regarded merely as interchangeable for the purpose of the second paragraph of Article 95 of the EEC Treaty. As the Court of Justice pointed out in its judgments of 27 February 1980 ( ) on the tax arrangements applicable to spirits, it is necessary only that the differential taxation should not discriminate or afford protection against imported products. On the. basis of those judgments no objection may therefore in principle be made if, although from the point of view of the consumer beer and wine may serve the same purposes, they are taxed differently, for, as has been shown, they exhibit a number of considerable differences with regard to manufacturing processes, alcoholic strength, price structure and not least elements of taste. On the one hand, therefore, such differential taxation justified on objective grounds does not constitute indirect protection of national beer production within the meaning of the second paragraph of Article 95, on the sole ground that the United Kingdom has no appreciable wine production. On the other hand, it cannot be denied that precisely in cases of that kind there is a risk that taxation may be used as a means of discriminating against imported competing products. That is all the more valid here as, in contrast to the Vinal case, ( ) which is not comparable in this respect, the taxation of wine may not be regarded as the reason why it has not been possible to develop appreciable wine production in the United Kingdom. Within that framework, it is necessary to examine up to what limit the ratio between the taxation of wine and that of beer may still be described as “appropriate” within the meaning of the interlocutory judgment. As inter alia the Italian Government correctly points out, it cannot be the task of the Court of Justice in that regard to determine in the framework of the second paragraph of Article 95 of the EEC Treaty the correct method for the comparison of the two products. The consideration of individual methods of comparison, which are in part discussed and rejected in the interlocutory judgment, in this respect can serve only as an indication as to whether differences in taxation are objectively justified and compatible with the objectives of Community law. In its interlocutory judgment, the Court regarded the appraisal of the incidence of the tax burden per degree of alcohol oi the beverages in question as the only criterion of those put forward by the parties which might make possible an appropriate comparison, albeit scarcely objective and therefore not fully adequate, and applying that basis for comparison the Court ascertained that, taking into consideration an average difference in the alcoholic strength in the ratio of 1 : 3, the tax burden on wine in the United Kingdom was approximately 50% higher than that on beer. The same also applies to the present situation, even if a ratio of 1 : 2.8 were to be regarded as appropriate, as the Commission suggests, for by that criterion, as we have heard, the taxation on beer and wine in the United Kingdom is at present in the ratio of 1 :4.2. Accordingly even now it must suffice to determine that, as the Court of Justice has already ascertained in its interlocutory judgment, according to that criterion wine is subject in the United Kingdom to a tax burden which is relatively heavier than that imposed on beer. 6.  As before, however, I have considerable doubts as to whether that statement alone is sufficient to establish that there has been an infringement of the second paragraph of Article 95 of the EEC Treaty. For that to be true it would in fact be a precondition that it should be proved that the taxation system in question was “of such a nature as to afford indirect protection” to the production of the importing Member State. In this regard, however, the Commission has essentially put forward no fresh arguments. Indeed, there is support for the criterion of alcoholic content, on which the Commission now relies for the determination of a ceiling for taxation, in the fact that comparison is based on objectively-ascertainable comparative values. In my opinion it follows from that, and I would make this comment on the view expressed by the Italian Government, that taxation of wine and beer which remains within that purported framework is as such objectively justified and therefore cannot be regarded as an infringement of the Treaty. Nevertheless, that basis of comparison, as the Court stated in its interlocutory judgment, is “imperfect” for an apprehension of the complex competitive situation between wine and beer. In relation to that method it is questionable, to start with, whether and how far alcoholic content has a decisive effect on consumer behaviour, in view of the other considerable differences between wine and beer, and whether that is not ultimately influenced only by the selling price of the beverages in question. Moreover, that method is based on a comparison of the alcoholic content of “average wine” and “average beer”, and that does not mean that only those two average products are in fact in competition with one another. If, on the other hand, a comparison is made by that method between a lighter beer and a heavy wine, the resulting ratio is close to the taxation arrangements of the United Kingdom. Furthermore, in relation both to wine and to beer there is not always a fixed ratio between the alcoholic content of those beverages and their price. Those considerations in my view show that the relatively heavier taxation of wine as opposed to that on beer, which has been described, does not in itself justify with sufficient certainty the assumption that those tax arrangements are of such a nature as to afford indirect protection to domestic beer production. In this regard it should not be overlooked that, until the taxation of beer and wine is harmonized throughout the common market, the requirement that there should be an “appropriate tax ratio” offers the Member States in the framework of autonomy with regard to taxation a discretion limited only by the fact that the tax arrangements in question may not be discriminatory or protective in nature in relation to imported interchangeable products. The limits of that discretion are naturally wider, the smaller or more partial the possible degree of interchangeability between the two products. In view of the fact that beer and wine are only partly interchangeable and of the considerable differences described between those two beverages, it therefore seems to me in this case that it has still not been proved that those limits have been exceeded. There is in my view support for the opposite opinion above all, in the fact that, both according to the criterion for comparison used by the Commission and on the basis of other methods of comparison, substantial grounds emerge which are still capable of justifying tax arrangements of that kind and that the Commission has not succeeded in proving that the tax arrangements in question lead with a certain degree of probability to indirect protection of British beer production against wine imported from other Member States. 7.  I therefore conclude once again that the application must be dismissed as unfounded and that the Commission must be ordered to pay the costs. ( ) Translated from the German. ( ) Judgment of 17 February 1976 in Case 45/75 REWE-Zentrale des Lebensmittel-Großhandels GmbH v Hauptzolhmt Landau/Pfalz [1976] ECR 181, p. 194. ( ) Judgment of 4 April 1968 in Case 27/67 Fink-Frucht GmbH v Hauptzollamt München-Landsberger Straße, [1968] ECR 333. ( ) Judgment of 10 October 1978 in Case 148/77 H. Hamen & O. C. Balle v Hauptzollamt Flensburg [1978] ECR 1787; Judgment of 14 January 1981 in Case 140/79 Chemial Farmaceuti v DAF [1981] ECR 1; Judgment of 14 January 1981 in Case 46/80 SpA Vinal v SpA Orbat [1981] ECR 77, with further references. ( ) Judgment of 27 February 1980 in Case 168/78 Commission v French Republic [1980] ECR 347; Judgment of 27 February 1980 in Case 169/78 Commission v Italian Republic [1980] ECR 385; Judgment of 27 February 1980 in Case 171/78 Commission v Kingdom of Denmark [1980] ECR 447; Judgment of 27 February 1980 in Case 55/79 Commission v Ireland [1980] ECR 481 ; Judgment of 27 February 1980 in Case 68/79 Hans Just v Danish Ministry for Fiscal Affairs [1980] ECR 501.