Funded by the European Union Prohibition of tax

Funded by the European Union Prohibition of tax discrimination Course number: EUI 20/5 A-4 Lecturer: Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Aims of the lecture • To enhance the general knowledge of EU internal market, • To familiarize participants with the foundations of free movement of goods, • To allow participants to appreciate how free movement of goods has developed over the years, • To facilitate understanding of key concepts and rules underpinning the foundations of free movement of goods, • To allow participants to appreciate the relationship between primary and secondary legislation, on the one hand, and the case-law of Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • The EU Member States have a fair degree of flexibility when it comes to their national tax policies and law, • Harmonisation at EU level extends to indirect taxes, with a particular emphasis on VAT tax and excise duty, • The co-operation procedure applies, moreover unanimity is required in the Council of the European Union, • In general terms the Member States have wide discretion to determine the contents of their own taxation policy, • However, direct taxation may fall within the scope of EU law if it affects exercise of freedoms of internal market, • If that is the case Article 110 TFEU will not apply but relevant provisions on free movement of goods, free movement of persons, right of establishment, free movement of services or free movement of capital & payments. Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination Article 110 TFEU ‘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. ’ Article 111 TFEU ‘Where products are exported to the territory of any Member State, any repayment of internal taxation shall not exceed the internal taxation imposed on them whether directly or indirectly. ’ Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination Article 113 TFEU ‘The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition. ’ Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • Article 110 TFEU is capable of producing the direct effect, • The leading judicial authority is case 57/65 Alfons Lütticke Gmb. H v Hauptzollamt Sarrelouis, • The Court of Justice not only confirmed the direct effect but also excluded simultaneous application of Articles 30 and 110 TFEU to one and the same situation (Articles 12 -13 + 95 EEC Treaty at that time), • The aim of Article 110 TFEU is to ensure free movement of goods between the Member States in normal conditions of competition by the elimination of all forms of protection which result from the application of internal taxation which discriminates against products from other Member States and to guarantee the complete neutrality of internal taxation as regards Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • In general terms – any scheme of taxation, which makes a distinction between products based on objective criteria (not related to the origin of goods) is compatible with Article 110 TFEU, • However, if the policy choices are driven by discrimination on grounds of origin then Article 110 TFEU will apply, • According to the judgment of the Court of Justice in case 252/86 Bergandi, ECR [1988] 1343 the provision in question applies when “a fiscal levy is likely to discourage imports of goods originating in other Member States to the benefit of domestic production”, • Article 110 TFEU prohibits any internal taxation of any kinds in excess of that imposed directly or indirectly on similar domestic products, Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • Initially the Co. J applied a formal test – verifying whether particular goods fell under the same fiscal or customs classifications, • Later, the Court of Justice developed a new – general test taking into account a variety of factors, • The leading authority is case 106/84 Commission v. Denmark, ECR [1986] 867, • The judgment dealt with differential taxation of wine made of grapes and wine made of fruits, • In order to verify the similarity of products it is necessary to look whether: - they have similar characteristics, - meet the same needs from the point of view of Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • ‘IN ORDER TO DETERMINE WHETHER PRODUCTS ARE SIMILAR IT IS NECESSARY FIRST TO CONSIDER CERTAIN OBJECTIVE CHARACTERISTICS OF BOTH CATEGORIES OF BEVERAGES , SUCH AS THEIR ORIGIN , THE METHOD OF MANUFACTURE AND THEIR ORGANOLEPTIC PROPERTIES , IN PARTICULAR TASTE AND ALCOHOL CONTENT , AND SECONDLY TO CONSIDER WHETHER OR NOT BOTH CATEGORIES OF BEVERAGES ARE CAPABLE OF MEETING THE SAME NEED FROM THE POINT OF VIEW OF CONSUMERS’ (para 12) Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • In case 243/84 John Walker v. Ministeriet for Skatter og Afgifter, ECR [1986] 877 the Court of Justice was asked a number of questions with a view of assessing the compatibility of a system of differential taxation applied in Denmark to Scotch whisky and fruit wine of the liqueur type with Article 110 TFEU, • The Court of Justice endorsed a broad interpretation of the concept of similarity (see para. 11 of the judgment), • It concluded that the two products in question were not similar. Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • In case 243/84 John Walker v. Ministeriet for Skatter og Afgifter, ECR [1986] 877 the Court of Justice was asked a number of questions with a view of assessing the compatibility of a system of differential taxation applied in Denmark to Scotch whisky and fruit wine of the liqueur type with Article 110 TFEU, • The Court of Justice endorsed a broad interpretation of the concept of similarity (see para. 11 of the judgment), • It concluded that the two products in question were not similar. Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • The examples of direct discrimination include: - tax imposed on imported products only, - imported product taxed by a higher rate (however, reverse discrimination not prohibited – Case 86/78 SA des grandes distilleries Peureux v directeur des Services fiscaux de la Haute-Saône et du territoire de Belfort, ECR [1979] 897), - different conditions of payment. Directly discriminatory measures always breach Article 110 TFEU and cannot be saved on any grounds. • The leading judgment on indirect discrimination is case 112/84 Humblot, ECR [1985] 1375. Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • The leading judgment on indirect discrimination is case 112/84 Humblot, ECR [1985] 1375, • The question was raised in proceedings between Michel Humblot and the Director General of Revenue, in which the plaintiff sought repayment of a special tax imposed on certain vehicles, • At the material time the French law provided two types of tax that was due on annual basis on motor vehicles, • Bigger cars with more horsepower were subject to a higher rate of tax, • It turned out that the higher tax applied particularly to imported cars, not to domestically produced, • The Court of Justice held that the French legislation was in breach of Article 110 TFEU (see paras. 12 -15 of the Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • It is generally understood that indirectly discriminatory tax rules breaches Article 110 TFEU if it can be objectively justified by the Member States, • In case a prima facie case is established a Member State may have a recourse to a variety of national interests to justify its taxation policy, • This can be successful if: - national interest is unconnected with the origin of the product, - pursues an objective recognised by the EU as legitimate, - the steps taken to protect that interest are proportionate. Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Tax discrimination • Article 110(2) TFEU prohibits discrimination in case of products which are in competition, • Case 170/78 Commission v United Kingdom, ECR [1980] 417 is a very good example, • The plaintiff argued that by levying excise duty on light wines at a higher rate than on beer the United Kingdom was in breach of Article 110(2) TFEU, • The Court of Justice held that in order to verify similarity it was necessary to evaluate a number of factors listed in para. 7 of the judgment, • It was concluded that UK legislation was in breach of Article 110 TFEU. Implemented by a Consortium led by GFA Consulting Group Gmb. H

Funded by the European Union Points to remember • Free movement of goods is one of four freedoms of Internal Market, • It required abolition of customs duties as well as prohibition of charges having equivalent effect, • It also required prohibition of tax discrimination, quantitative restrictions and measures having equivalent effect, • All key provisions of TFEU regulating free movement of goods produce direct effect. Implemented by a Consortium led by GFA Consulting Group Gmb. H