Opinion of the Advocate-General
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Mr Lords,
1. The Supremo Tribunal Administrativo of Portugal seeks a preliminary ruling on the interpretation of Articles 9, 12 and 95 of the Treaty in proceedings relating to the lawfulness of the tax arrangements applicable to second-hand cars imported into Portugal from other Member States. A number of questions concerning the compatibility with those Treaty provisions of the Portuguese motor vehicle tax were referred to the Court in a previous case (Lourenço Dias (1)) but the Court declined to answer most of them on the ground that they bore insufficient relevance to the facts of the case.
2. On 10 August 1990 Mr Nunes Tadeu purchased in Belgium a motor car of type Peugeot 205 XS for BFR 200 000. The car had first been registered in Belgium on 11 February 1987. On 20 August 1990 Mr Nunes Tadeu took the car to Portugal and declared that he intended to import it definitively. In May 1991 the Oporto customs office charged motor vehicle tax in the amount of ESC 271 665. The tax was calculated in accordance with Article 1 of Decreto-lei 152/89 of 10 May 1989, as amended, which at the relevant time provided as follows:
"1. The motor vehicle tax is a domestic tax levied on light passenger motor vehicles imported new or second-hand, or assembled or manufactured in Portugal, and which have been duly registered.
2. ...
3. The tax is a specific single-stage tax varying according to cylinder capacity in accordance with the table which is annexed to this decreto-lei and forms an integral part thereof.
4. The amount of tax assessed on imported second-hand cars first registered more than two years earlier shall be reduced by 10% on the figures resulting from the application of the table referred to in the preceding paragraph."
3. Mr Nunes Tadeu paid the tax but subsequently brought proceedings to recover it before the Tribunal Fiscal Aduaneiro do Porto. He argued that the tax was contrary to certain provisions of Community law, in particular Article 95 of the Treaty. The Tribunal Fiscal Aduaneiro do Porto gave judgment in favour of Mr Nunes Tadeu, whereupon the Portuguese tax authority (the Fazenda Pública) appealed to the Supremo Tribunal Administrativo. By judgment of 26 May 1993, that court referred the following questions to the Court of Justice for a preliminary ruling:
"(1) Is the application of a motor vehicle tax with the characteristics described above on second-hand light motor vehicles imported from Belgium into Portugal compatible with the first and second paragraphs of Article 95 of the Treaty of Rome when other second-hand vehicles, whether imported new or assembled or manufactured in Portugal, are not subject to the tax?
(2) Is such taxation to be regarded as a charge having an effect equivalent to a customs duty on imports, which is prohibited by Articles 9 and 12 of the Treaty?"
The relevant Treaty provisions
4. Article 9(1) of the Treaty provides:
"The Community shall be based upon a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries."
5. Article 12 prohibits Member States from introducing between themselves any new customs duties on imports or exports or any charges having equivalent effect, or from increasing existing ones. Articles 13 to 15 required Member States to abolish existing duties on imports during the transitional period.
6. Article 95 provides:
"No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.
Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.
Member States shall, not later than at the beginning of the second stage, repeal or amend any provisions existing when this Treaty enters into force which conflict with the preceding rules."
The inapplicability of Article 9 et seq. of the Treaty
7. The first issue that arises is whether the motor vehicle tax charged on the importation of Mr Nunes Tadeu' s car is a customs duty within the meaning of Articles 9 and 12 of the Treaty or whether it is part of a general system of internal taxation which falls to be appraised under Article 95. That issue need not detain us for long, since it has already been resolved by the judgment in Lourenço Dias. There the Court held that a car tax which applies without distinction to vehicles assembled or manufactured in the Member State in which it is charged and to imported vehicles, both new and second-hand, cannot be regarded as a charge equivalent in effect to a customs duty prohibited by Article 12 of the Treaty. (2)
8. In Lourenço Dias the Court cited the Co-Frutta (3) judgment in which it confirmed its previous case-law concerning the demarcation between the scope of Articles 9 to 12 and that of Article 95. According to that case-law, "the prohibition laid down by Articles 9 and 12 of the Treaty in regard to charges having equivalent effect covers any charge exacted at the time of or on account of importation which, being borne specifically by an imported product to the exclusion of the similar domestic product, has the result of altering the cost price of the imported product, thereby producing the same restrictive effect on the free movement of goods as a customs duty. The essential feature of a charge having an effect equivalent to a customs duty which distinguishes it from an internal tax therefore resides in the fact that the former is borne solely by an imported product as such whilst the latter is borne both by imported and domestic products". (4)
9. On the other hand, a charge which is borne by a product imported from another Member State does not constitute a charge having equivalent effect, but internal taxation within the meaning of Article 95, if it relates to a general system of internal duties applied systematically to categories of products in accordance with objective criteria irrespective of the origin of the products. (5)
10. The tax in question is charged on "light passenger motor vehicles imported new or second-hand, or assembled or manufactured in Portugal and which have been duly registered". It thus forms part of a general system of internal taxation which applies to certain categories of products according to objective criteria and regardless of their origin. The Court was therefore right to hold in Lourenço Dias that such a tax cannot be classified as a customs duty or charge having equivalent effect and that its compatibility with Community law must be appraised under Article 95 of the Treaty. That finding is not affected by the fact that the tax is charged on imports of used cars but not on domestic transactions involving used cars. That difference is due to the fact that the tax is charged, once only, in respect of the first registration of a vehicle in Portugal. It would not be correct to say that a domestic transaction involving a used car is not burdened with the tax ° contrary to what is implied by the first question of the Supremo Tribunal Administrativo ° since a residual portion of the tax that was paid when the car was first registered continues to be incorporated in the value of the car.
The incompatibility of the motor vehicle tax with Article 95 of the Treaty
11. As the Commission observes, the purpose of Article 95 of the Treaty is to ensure "complete competitive neutrality" between domestic products and those imported from other Member States. It prohibits Member States from applying a discriminatory or protective tax system to the disadvantage of imported products. The Court has recognized, moreover, that Article 95 plays a fundamental role in the field of free movement of goods in so far as it complements the specific provisions governing that field. If Member States were free to subject imported goods to discriminatory taxation, the effectiveness of the Treaty provisions prohibiting customs duties and quantitative restrictions on trade between Member States would be seriously undermined.
12. For the purposes of the present case, it is important to appreciate that the concept of "domestic products" is not confined to goods actually produced in the Member State in question; the Court recognized in Commission v Denmark (6) that an imported product becomes a domestic product once it is imported and placed on the market. That circumstance is not usually significant as regards goods which are definitively consumed in a short period. It only becomes significant as regards goods (cars, for example) which are consumed over a relatively long period and which are frequently the subject of further transactions after first being placed on the market. It follows that the fiscal neutrality required by Article 95 must exist as between second-hand cars which are already on the market in Portugal (regardless of where they were manufactured) and second-hand cars which are imported from other Member States.
13. As to the question how such fiscal neutrality is to be attained, the answer may be sought in Commission v Denmark. In that case the Court held that Denmark had infringed Article 95 "by imposing a registration duty on imported used motor vehicles generally based on an estimated value which is higher than the real value of the vehicle with the result that imported used motor vehicles are taxed more heavily than used motor vehicles which are sold on the domestic market after being registered in Denmark". Under the Danish tax system an ad valorem registration duty was charged on motor vehicles when first registered in Denmark. The rate of duty on new cars was either 105% or 180% of the value of the vehicle. Duty was charged at the full rate on imported used vehicles less than six months old and at 90% of the full rate on imported used vehicles more than six months old. Such a system was held to be incompatible with Article 95 because no attempt was made by Denmark to calculate the tax on imported used cars on the basis of their actual value. In paragraph 20 of the judgment the Court stated that:
"... even if it appears that by reason of the very large amount of tax levied on new cars the portion of the duty still incorporated in the value of the vehicle is written off more slowly in Denmark than in other Member States which levy a lower duty, that does not prevent the levying of a registration duty for which the basis of assessment is at least 90% of the value of the car when new from constituting generally manifest over-taxation of the vehicles in comparison with the residual registration duty in the case of previously registered used cars bought on the Danish market, whatever their age or condition."
14. It is clear from Commission v Denmark that the tax charged on an imported used car must not exceed the residual tax incorporated in the value of a domestic used car of the same characteristics. In order to calculate the residual tax incorporated in the value of a domestic used car it is necessary to look at its market value, the assumption being that the amount of residual tax declines in direct proportion to the value of the car. Thus if the value of a new car placed on the market in Portugal in 1987 was ESC 1 000 000 including car tax of ESC 200 000, and if in 1990 the value of the car was ESC 600 000, the residual tax incorporated in that value amounts to ESC 120 000. That is the maximum amount of tax that may be charged when a comparable car is imported into Portugal. It may be noted that that method of calculating the residual tax is similar to the method approved by the Court, in the case known as Schul II, (7) for the purpose of calculating the residual amount of value added tax (VAT) incorporated in the value of goods. Although that case concerned a different issue (namely, whether and to what extent the State into which second-hand goods are imported should take into account, for the purpose of calculating VAT, the VAT paid in the exporting State), it seems logical to apply the same method of calculation, since in both cases it is a question of determining the residual amount of tax incorporated in the value of second-hand goods.
15. In the light of the Court' s judgment in Commission v Denmark it is difficult to see how the Portuguese legislation in force at the time when Mr Nunes Tadeu imported his car can be compatible with Article 95. Under that legislation, as under the Danish legislation at issue in Commission v Denmark, the tax on an imported used car can never be less than 90% of the tax on a new car, whereas the residual tax incorporated in the value of a domestic used car having the same characteristics will be less than that amount whenever the value of the imported car is less than 90% of the value of a new car.
16. The Netherlands Government, which submitted written observations, points out that the Portuguese vehicle tax differs, as regards its method of calculation, from the Danish registration tax. The former is based on the cylinder capacity of the car, whereas the latter is an ad valorem duty. The Netherlands Government suggests that that difference may be sufficient to render the Portuguese tax compatible with Article 95. I do not see how that can be so. Regardless of whether the tax is based on cylinder capacity or on the value of the vehicle, the fact remains that under the Portuguese system, as under the Danish one, the residual tax incorporated in the value of a domestic used car automatically decreases as the value of the car depreciates. The principle of fiscal neutrality enshrined in Article 95 requires that the tax charged on an imported used car should likewise vary in accordance with the value of the car.
17. The Portuguese Government argues that the contested tax system cannot have a protectionist intent or effect because the cost of an imported used car, even after the addition of vehicle tax, is lower than the cost of an equivalent domestic used car. The Portuguese Government defends the tax system applicable to used cars on the ground that it "merely seeks to ensure equality in principle between the commercial value of domestic and imported used cars". (8) That argument seems to be based on a misunderstanding of the requirements flowing from Article 95 of the Treaty. Those requirements are not satisfied simply because the price of an imported product, including tax, does not exceed the price of a similar domestic product. It may be that the pre-tax price of an imported product is significantly lower than the pre-tax price of a competing domestic product. A tax system which seeks to eliminate that competitive advantage is manifestly contrary to Article 95. What Article 95 requires is equivalence in the fiscal burden imposed on domestic and imported goods, not equivalence in the final selling price.
18. It should however be noted that the importing State is not required to base the tax on the price paid for the car by the importer or on its value in the exporting State; it is entitled to take into account the value in the importing State. That follows from the requirement that the tax charged in the importing State must not exceed the residual amount of tax incorporated in the value of a domestic used car of the same characteristics. If the importing State were required to base the tax on the lower value in the exporting State, that would not merely preserve any competitive advantage arising from that lower value but would in addition give the importer a fiscal advantage which would be inconsistent with fiscal neutrality.
19. At the hearing the Portuguese Government referred to certain practical difficulties that would ensue if the tax on imported used cars had to be based on their actual market value; that value might not be easy to determine, according to the Portuguese Government, since there are considerable discrepancies in the various lists of used car prices published in Portugal. That argument is unconvincing. If it were upheld, there would be no possibility of ensuring even a semblance of fiscal neutrality between domestic and imported second-hand goods. Moreover, the problem of estimating the value of imported second-hand goods is not a new one and arises whenever second-hand goods liable to an ad valorem tax, including value added tax, are imported. It raises a question of fact which does not seem exceptionally complex, and which may be resolved, if necessary, by recourse to the opinion of experts. Certainly, the question does not seem to be so overwhelmingly complex as to justify assessing tax on imported used cars on the basis of a system which seems to proceed on the unlikely assumption that a used car, regardless of its age, condition and mileage, can never be worth less than 9/10ths as much as a new car.
20. Since the facts of the present case occurred the legislation has been amended several times. The amount of tax charged on an imported used car is now reduced progressively in accordance with the age of the car. At the hearing the Commission informed the Court that, if the legislation now in force had been applicable when Mr Nunes Tadeu' s car was imported, the tax would have been reduced not by 10% but by 32%. It appears from the table in Annex V to the Portuguese Government' s observations that there is an increasing abatement for each year, rising to a maximum of 67% in the case of cars over 8 years old. The Commission seems to consider the new legislation satisfactory and informed the Court at the hearing that the infringement proceedings which it had commenced against Portugal have now been discontinued.
21. Notwithstanding the Commission' s view, it is questionable whether the current Portuguese legislation (whose compatibility with the Treaty is not of course in issue in these proceedings) satisfies the requirements of Article 95. Although that legislation now takes into account the age of the car, it disregards all the other factors that may affect the value of an imported car, such as the mileage, the condition and the model (since some models depreciate faster than others). Yet all those factors affect the value of a domestic used car and thus affect the amount of residual tax incorporated in that value. As a result there will still be cases in which fiscal neutrality is not ensured. If, for example, someone imports a car between 5 and 6 years old, he will be granted an abatement of 49%, which means that he will have to pay 51% of the tax that would be payable on a new car. But if the car has depreciated by more than 49%, which is surely possible, particularly if the car has higher than average mileage and is in relatively poor condition, then the tax charged will exceed the amount of the residual tax incorporated in the value of a domestic used car of identical characteristics.
22. Here it is useful to recall the well-established principle that Article 95 is infringed where the taxation on the imported product and that on the similar domestic product are calculated in a different manner on the basis of different criteria, which lead, if only in certain cases, to higher taxation being imposed on the imported product. (9) In the case of the Portuguese vehicle tax the imported product and the similar domestic product are in principle taxed on the basis of the same criterion (namely, cylinder capacity) but the incidence of the tax is not the same; the tax burden on a domestic used car diminishes as the car depreciates, whereas imported used cars are taxed under a flat-rate system. It is clear that fiscal neutrality between domestic and imported used cars cannot be ensured by a flat-rate system which takes into account only one of several factors that are liable to affect the value of a used car. The tax on an imported used car must be determined on the basis of its actual value because the tax on the similar domestic product inevitably depends on its actual value.
23. It is clear in any event that the legislation in force at the material time was capable of leading in certain cases to discriminatory taxation prohibited by Article 95. It is important to stress that that does not necessarily render the whole legislation inapplicable. (10) A national tax is contrary to Article 95 only to the extent to which it discriminates against imported goods. It is for the national court to decide, within the framework of its own legal system, whether the whole of the tax must be refunded or whether it is sufficient to refund only that part which exceeds the amount that would be payable on a similar domestic product. (11)
Conclusion
24. Accordingly, I am of the opinion that the questions submitted to the Court by the Supremo Tribunal Administrativo should be answered as follows:
(1) A motor vehicle tax which is charged on all cars registered in a Member State, whether manufactured in that State or imported new or second-hand, and the amount of which varies according to cylinder capacity, forms part of a general system of internal taxation and as such cannot be classified as a customs duty or charge having equivalent effect under Articles 9 and 12 of the Treaty.
(2) The charging of such a tax on imported used cars infringes Article 95 of the Treaty in so far as the amount charged exceeds the amount of residual tax incorporated in the value of a used car of the same characteristics which is already on the market in the Member State in question.
(*) Original language: English.
(1) ° Case C-343/90 [1992] ECR I-4673.
(2) ° Paragraph 55 of the judgment, cited in note 1 above.
(3) ° Case 193/85 [1987] ECR 2085.
(4) ° Paragraphs 8 and 9 of the judgment in Co-Frutta.
(5) ° Paragraph 10 of the judgment in Co-Frutta.
(6) ° Case C-47/88 Commission v Denmark [1990] ECR I-4509.
(7) ° Case 47/84 Staatssecretaris van Financiën v Schul [1985] ECR 1491, paragraph 34 of the judgment.
(8) ° See p. 14 of the observations of the Portuguese Government.
(9) ° See Case C-152/89 Commission v Luxembourg [1991] ECR I-3141, paragraph 20 of the judgment, and Case C-153/89 Commission v Belgium [1991] ECR I-3171, paragraph 12; see also the cases cited in paragraphs 23 and 24 of my Opinion in those cases and my comments in paragraphs 25 and 26 of that Opinion. The point was confirmed, in relation to the taxation of cars, in Case C-327/90 Commission v Greece [1992] ECR I-3033, paragraph 20 of the judgment.
(10) ° See paragraph 49 of the judgment in Lourenço Dias.
(11) ° Case 34/67 Lueck v Hauptzollamt Koeln [1968] ECR 245, p. 251; Case 74/76 Iannelli v Meroni [1977] ECR 557, paragraph 22 of the judgment.
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