Flashback on ECJ cases – C-347/95 (Fazenda Pública v UCAL) – Product-specific charge is not a turnover tax

Facts

• UCAL, the União das Cooperativas Abastecedoras de Leite de Lisboa, UCRL, was a union of dairy cooperatives operating in Portugal. The dispute concerned charges imposed on the marketing of dairy products under Article 1 of Portuguese Decree-Law No 309/86 of 23 September 1986. The charge applied to dairy products of both domestic and imported origin intended for public consumption. It amounted to ESC 4 per kilogram for butter and ESC 1 per litre for flavoured milk and chocolate milk. [eur-lex.europa.eu], [eur-lex.europa.eu]
• The proceedings concerned UCAL’s failure to pay ESC 16,810 in marketing charges relating to dairy products for August 1991. The Instituto Regulador e Orientador dos Mercados Agrícolas, or IROMA, initiated fiscal enforcement proceedings to recover the unpaid amount. [eur-lex.europa.eu], [eur-lex.europa.eu]
• The revenue from the charges had originally accrued to the Junta Nacional dos Produtos Pecuários. Following Portugal’s accession to the European Communities, its rights and powers were transferred to IROMA. Subsequent reforms allocated the proceeds among IROMA, the Instituto Nacional de Intervenção e Garantia Agrícola, or INGA, and the Direcção-Geral dos Mercados Agrícolas e da Indústria Agro-Alimentar, or DGMAIAA. Those bodies performed functions relating to the management, coordination and stabilisation of agricultural markets and the implementation of national and Community aid schemes. [eur-lex.europa.eu], [eur-lex.europa.eu]
• UCAL contested the enforcement order before the Tribunal Tributário de Lisboa, arguing that the charges were unconstitutional. The national court upheld UCAL’s challenge, not on constitutional grounds, but because it considered the charges incompatible with Articles 9 and 12 of the EC Treaty, which prohibited customs duties and charges having equivalent effect between Member States. [eur-lex.europa.eu], [eur-lex.europa.eu]
• The Fazenda Pública appealed to the Supremo Tribunal Administrativo, Portugal’s Supreme Administrative Court. That court stayed the proceedings and, by judgment of 11 October 1995, referred three questions to the ECJ concerning Articles 9, 12 and 95 of the EC Treaty and Article 33 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes, Common system of value added tax: uniform basis of assessment.
• Article 33 of the Sixth Directive allowed Member States to maintain or introduce taxes, duties or charges that could not be characterised as turnover taxes. Its current equivalent is Article 401 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. That provision permits Member States to maintain or introduce taxes on insurance contracts, betting and gambling, excise duties, stamp duties and other taxes, duties or charges that cannot be characterised as turnover taxes, provided that they do not create border-crossing formalities in trade between Member States.

Issue

The Supremo Tribunal Administrativo referred the following three questions:

1. Are the charges described, which have the characteristics of taxes described by the referring court, contrary to Article 95 of the EC Treaty?
2. Are they to be regarded as charges having an effect equivalent to customs duties on imports, prohibited by Articles 9 and 12 of the EC Treaty?
3. Are they to be regarded as turnover taxes within the meaning of Article 33 of the Sixth Directive, without prejudice to Article 378 of the Act of Accession or any other provision of Community law? [eur-lex.europa.eu], [eur-lex.europa.eu]

Decision

A charge levied without distinction on domestic and imported products constitutes a charge having an effect equivalent to a customs duty, prohibited by Articles 9 and 12 of the Treaty, if the revenue from it is intended to finance activities benefiting only the taxed domestic products and if the resultant advantages fully offset the burden which the latter products bear; if those advantages only partly offset the burden borne by the domestic products, the charge constitutes discriminatory internal taxation prohibited by Article 95of the Treaty and must be reduced proportionally.

(b) If the activities financed by the charge benefit domestic products and taxed imported products but the former obtain a proportionally greater advantage from them, the charge constitutes, to that extent, a charge having an effect equivalent to a customs duty or discriminatory internal taxation, depending on whether the advantage accruing to the taxed domestic products fully or only partly offsets the burden which they bear.

2. It is for the national court to undertake the verifications necessary for determining how the contribution in question is to be characterized in law. In so doing, it will consider:

(a) whether the revenue from the charge is used for stabilization only oftrade with the other Member States in the products on which the charge is imposed;

(b) whether the institutional integration of the organizations representing the economic agents concerned and the implementation of the national and Community aid schemes and financial and fiscal incentives in favour of the agri-foodstuffs industry and the distribution of agri-foodstuffs, to which part of the revenue from the charges in question is appropriated, benefit only domestic production or whether they benefit such production proportionally more than imported products.

3. A tax levied only on certain products, which is not proportional to the price of those products, is not charged at each stage of the production anddistribution process and is not imposed on the added value of the products ,is not in the nature of a turnover tax within the meaning of Article 33 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes— Common system of value added tax: uniform basis of assessment.

The Court rules that a charge on the marketing of dairy products levied without distinction on domestic and imported products constitutes a charge having equivalent effect to a customs duty, prohibited by Articles 9 and 12 of the EC Treaty, where its revenue finances activities benefiting only the taxed domestic products and the resulting advantages fully offset the burden imposed on those products. If the advantages offset only part of the burden, the charge constitutes discriminatory internal taxation prohibited by Article 95 and must be reduced proportionally. The national court must determine the actual use of the revenue and the benefits received. The Court further rules that Article 33 of the Sixth Directive does not preclude a charge applied only to certain products that is not proportional to their price, is not charged at every stage of production and distribution and is not imposed on the added value of the goods. [eur-lex.europa.eu], [eur-lex.europa.eu]

Argumentation (Key Points)

• A charge cannot fall simultaneously within both Treaty categories. The provisions governing charges having equivalent effect and those governing discriminatory internal taxation are mutually exclusive. A single charge cannot at the same time constitute both a charge having equivalent effect under Articles 9 and 12 and internal taxation under Article 95. The correct classification depends on the structure and economic effect of the charge. The Court referred in this respect to Case 10/65, Deutschmann, Case 57/65, Lütticke and https://curia.europa.eu/juris/liste.jsf?num=C-266/91. [eur-lex.europa.eu], [eur-lex.europa.eu]
• The use of the revenue is decisive. Although the dairy charge applied according to the same criteria to domestic and imported products, apparent equality was not sufficient. The national court had to examine whether the revenue financed activities that benefited domestic production exclusively or proportionally more than imported products. If the benefit completely offset the burden on domestic products, the net economic burden fell on imports and the charge was equivalent to a customs duty. If the offset was only partial, the charge constituted discriminatory internal taxation. [eur-lex.europa.eu], [eur-lex.europa.eu]
• The national court must assess the allocation and benefits. In particular, it had to determine whether the revenue was used only to stabilise trade with other Member States in the products subject to the charge. It also had to examine whether the institutional integration of representative organisations and the implementation of national and Community aid schemes and financial or fiscal incentives benefited domestic production exclusively or to a proportionally greater extent than imported products. [eur-lex.europa.eu], [eur-lex.europa.eu]
• Article 33 protects the functioning of the common VAT system. The purpose of Article 33 of the Sixth Directive was to prevent Member States from introducing taxes, duties or charges that burdened the movement of goods and services in a manner comparable to VAT and therefore jeopardised the functioning of the common system. The legal designation of a national charge was not decisive. Its essential characteristics had to be compared with those of VAT. [eur-lex.europa.eu], [eur-lex.europa.eu]
• The dairy charge lacked the essential characteristics of VAT. It applied only to specific dairy products, was calculated by weight or volume rather than proportionally to price, was not charged at every stage of production and distribution, and was not imposed on the added value generated at each stage. It therefore did not apply generally to transactions involving goods and services and could not be characterised as a turnover tax prohibited by Article 33. [eur-lex.europa.eu], [eur-lex.europa.eu]
• Historical context. The Advocate General noted that the Portuguese dairy charge had been introduced before 1974 and subsequently amended several times. The Court’s analysis nevertheless focused on the charge as applied in 1991 and on the purposes for which its revenue was allocated following Portugal’s accession to the European Communities. [eur-lex.europa.eu]
• Anti-abuse, anti-evasion and fiscal-neutrality considerations. These principles did not form part of the Court’s reasoning. The case concerned the free movement of goods, discriminatory taxation and the concept of a turnover tax, rather than VAT deduction, avoidance or evasion.

Source

• Full ECJ judgment in Case C-347/95, Fazenda Pública v UCAL [eur-lex.europa.eu]
• Opinion of Advocate General Tesauro delivered on 23 January 1997 [eur-lex.europa.eu]
• Sixth Council Directive 77/388/EEC of 17 May 1977
• Council Directive 2006/112/EC, including Article 401

Similar ECJ Cases

• C-266/91 – A charge imposed on domestic and imported products may be discriminatory because of the destination of its revenue. [eur-lex.europa.eu]
• C-78/90 – Charges financing benefits for domestic products may amount to charges having equivalent effect or discriminatory internal taxation. [eur-lex.europa.eu], [eur-lex.europa.eu]
• C-17/91 – The classification of a parafiscal charge depends on whether its revenue benefits taxed domestic products and offsets their burden. [eur-lex.europa.eu], [eur-lex.europa.eu]
• C-72/92 – The national court must determine whether benefits financed by a charge offset fully or partly the burden on domestic production. [eur-lex.europa.eu], [eur-lex.europa.eu]
• C-28/96 – The parallel Portuguese case concerned comparable marketing charges imposed on meat and other animal products; Advocate General Tesauro addressed both cases in a joined Opinion. [eur-lex.europa.eu]

Reference to the Case in the Other EU Member States

The UCAL judgment is part of the established EU case law distinguishing charges having equivalent effect to customs duties from discriminatory internal taxation. Its treatment of Article 33 of the Sixth Directive also contributes to the case law defining when a national levy has the characteristics of a turnover tax. EUR-Lex records a subsequent judgment of the Portuguese Supremo Tribunal Administrativo dated 29 March 2000 in the national proceedings underlying Case C-347/95. No specific applications of the UCAL judgment in the national jurisprudence of other Member States were identified in the authorised public sources reviewed. [eur-lex.europa.eu]