C-299/86 Drexl

Judgment of the Court (Sixth Chamber) of 25 February 1988. - Criminal proceedings against Rainer Drexl. - Reference for a preliminary ruling: Corte d'appello di Genova - Italy. - Turnover tax levied on the importation of goods by private individuals. - Case 299/86. European Court reports 1988 Page 01213 Swedish special edition Page 00413 Finnish special edition Page 00419

Summary Parties Grounds Decision on costs Operative part

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1 . TAX PROVISIONS - HARMONIZATION OF LEGISLATION - TURNOVER TAXES - COMMON SYSTEM OF VALUE-ADDED TAX - VALUE-ADDED TAX LEVIED ON THE IMPORTATION OF PRODUCTS BY A PRIVATE INDIVIDUAL FROM OTHER MEMBER STATES - METHOD OF CALCULATION

( EEC TREATY, ART . 95; COUNCIL DIRECTIVE 77/388 )

2 . TAX PROVISIONS - HARMONIZATION OF LEGISLATION - TURNOVER TAXES - COMMON SYSTEM OF VALUE-ADDED TAX - NATIONAL RULES FOR PENALIZING TAX AVOIDANCE - DIFFERENCE BETWEEN RULES REGARDING IMPORTATION AND THOSE REGARDING DOMESTIC TRANSACTIONS - PERMISSIBLE - CONDITION - NO DISPROPORTION BETWEEN THE PENALTIES

( EEC TREATY, ART . 95; COUNCIL DIRECTIVE 77/388 )

1 . ARTICLE 95 OF THE TREATY MUST BE INTERPRETED AS MEANING THAT IN THE CASE OF THE IMPORTATION FROM ANOTHER MEMBER STATE BY A PRIVATE INDIVIDUAL OF GOODS IN RESPECT OF WHICH THERE HAS NOT BEEN GRANTED EITHER TAX RELIEF ON EXPORTATION OR TAX EXEMPTION IN THE IMPORTING MEMBER STATE, THE VALUE-ADDED TAX CHARGED ON IMPORTATION MUST TAKE INTO ACCOUNT THE RESIDUAL AMOUNT OF VALUE-ADDED TAX PAID IN THE MEMBER STATE OF EXPORTATION WHICH IS STILL CONTAINED IN THE VALUE OF THE GOODS AT THE TIME OF IMPORTATION, IN SUCH A WAY THAT THAT RESIDUAL AMOUNT IS NOT INCLUDED IN THE TAXABLE AMOUNT AND IS DEDUCTED FROM THE VALUE-ADDED TAX PAYABLE ON IMPORTATION .

2 . ALTHOUGH OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON IMPORTATION AND THOSE CONCERNING THE PAYMENT OF THE SAME TAX CHARGED ON DOMESTIC SALES OF GOODS ARE DISTINGUISHED BY DIFFERENT CIRCUMSTANCES WHICH CONCERN BOTH THE CONSTITUENT ELEMENTS OF THE OFFENCE AND THE GREATER OR LESSER EXTENT OF THE DIFFICULTY OF DISCOVERING IT AND WHICH MEAN THAT THE MEMBER STATES ARE NOT REQUIRED TO HAVE THE SAME SYSTEM OF RULES FOR THE TWO CATEGORIES OF OFFENCES, A MANIFEST DISPROPORTION IN THE SEVERITY OF THE PENALTIES LAID DOWN FOR THE TWO CATEGORIES OF OFFENCES IS NOT JUSTIFIED . SUCH A DISPROPORTION EXISTS WHERE THE PENALTY PROVIDED FOR IN THE CASE OF IMPORTATION INVOLVES, AS A GENERAL RULE, A TERM OF IMPRISONMENT AND THE CONFISCATION OF THE GOODS PURSUANT TO THE RULES LAID DOWN TO COMBAT SMUGGLING WHEREAS COMPARABLE PENALTIES ARE NOT PROVIDED FOR, OR ARE NOT GENERALLY IMPOSED, IN THE CASE OF OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON DOMESTIC TRANSACTIONS . A SITUATION OF THAT KIND, WHICH IS CAPABLE OF JEOPARDIZING THE FREE MOVEMENT OF GOODS WITHIN THE COMMUNITY, IS INCOMPATIBLE WITH ARTICLE 95 OF THE EEC TREATY .

IN CASE 299/86

REFERENCE TO THE COURT UNDER ARTICLE 177 OF THE EEC TREATY BY THE CORTE D' APPELLO DI GENOVA ( COURT OF APPEAL, GENOA ) FOR A PRELIMINARY RULING IN THE CRIMINAL PROCEEDINGS PENDING BEFORE THAT COURT

AGAINST

RAINER DREXL

ON THE INTERPRETATION OF ARTICLE 95 OF THE EEC TREATY,

THE COURT ( SIXTH CHAMBER ),

COMPOSED OF : O . DUE, PRESIDENT OF CHAMBER, T . KOOPMANS, K . BAHLMANN, C . KAKOURIS AND T . F . O' HIGGINS, JUDGES,

ADVOCATE GENERAL : M . DARMON

REGISTRAR : J . A . POMPE, DEPUTY REGISTRAR

AFTER CONSIDERING THE OBSERVATIONS SUBMITTED ON BEHALF OF

MR DREXL, THE APPELLANT IN THE MAIN PROCEEDINGS, BY GIUSEPPE CONTE AND GIUSEPPE MICHELE GIACOMINI, OF THE GENOA BAR,

THE GOVERNMENT OF THE ITALIAN REPUBLIC, BY LUIGI FERRARI BRAVO, HEAD OF THE DEPARTMENT FOR CONTENTIOUS DIPLOMATIC AFFAIRS, ACTING AS AGENT, ASSISTED BY MARCELLO CONTI, AVVOCATO DELLO STATO,

THE COMMISSION OF THE EUROPEAN COMMUNITIES, BY GIULIANO MARENCO AND JOHANNES FOENS BUHL, ACTING AS AGENTS,

HAVING REGARD TO THE REPORT FOR THE HEARING AND FURTHER TO THE HEARING ON 27 OCTOBER 1987

AFTER HEARING THE OPINION OF THE ADVOCATE GENERAL DELIVERED AT THE SITTING ON 8 DECEMBER 1987,

GIVES THE FOLLOWING

JUDGMENT

Grounds

1BY AN ORDER OF 12 NOVEMBER 1986, WHICH WAS RECEIVED AT THE COURT REGISTRY ON 1 DECEMBER 1986, THE CORTE D' APPELLO DI GENOVA REFERRED TO THE COURT FOR A PRELIMINARY RULING UNDER ARTICLE 177 OF THE EEC TREATY THREE QUESTIONS CONCERNING THE INTERPRETATION OF ARTICLE 95 OF THE TREATY IN ORDER TO DETERMINE THE COMPATIBILITY WITH THAT PROVISION OF THE ITALIAN LEGISLATION ON THE CHARGING OF VALUE-ADDED TAX ON PRODUCTS IMPORTED FROM ANOTHER MEMBER STATE BY PRIVATE INDIVIDUALS .

2THE QUESTIONS AROSE IN CRIMINAL PROCEEDINGS AGAINST RAINER DREXL, A GERMAN NATIONAL RESIDING IN LOANO, ITALY, WHO IS CHARGED WITH THE OFFENCE OF SMUGGLING OR ILLEGALLY IMPORTING A MOTOR CAR FROM THE FEDERAL REPUBLIC OF GERMANY BY BRINGING IT INTO ITALIAN TERRITORY AND USING IT THERE WITHOUT COMPLYING WITH THE PROVISIONS ON TEMPORARY IMPORTATION .

3IT IS APPARENT FROM THE ORDER FOR REFERENCE THAT THE DEFENDANT PURCHASED IN THE FEDERAL REPUBLIC OF GERMANY A SECOND-HAND VOLKSWAGEN GOLF MOTOR CAR REGISTERED IN THAT COUNTRY WHILST CONTINUING TO RESIDE IN ITALY WHERE HE WAS WORKING AS A DENTAL TECHNICIAN .

4THE PRETORE D' ALBENGA ( MAGISTRATE' S COURT, ALBENGA ), THE COURT OF FIRST INSTANCE, ASSESSED THE AMOUNT OF VALUE-ADDED TAX EVADED AT LIT 1 134 000, EQUAL TO 18% OF THE UNDISPUTED VALUE OF THE SECOND-HAND CAR . TAKING ACCOUNT OF MITIGATING CIRCUMSTANCES, THE COURT IMPOSED A SUSPENDED FINE OF LIT 1 600 000 ON MR DREXL AND ORDERED THE CONFISCATION OF THE CAR .

5ON APPEAL, THE DEFENDANT CONTENDED, AMONGST OTHER THINGS, THAT THE CAR HAD BEEN DULY PURCHASED AND REGISTERED IN THE FEDERAL REPUBLIC OF GERMANY WHERE VALUE-ADDED TAX AT THE RATE OF 13%, AMOUNTING TO DM 2 148.57, HAD BEEN PAID .

6IT WAS IN THOSE CIRCUMSTANCES THAT THE CORTE D' APPELLO DI GENOVA STAYED THE PROCEEDINGS AND SUBMITTED TO THE COURT THE FOLLOWING QUESTIONS FOR A PRELIMINARY RULING :

"1 . DO THE COMMUNITY RULES ON THE HARMONIZATION OF THE LEGISLATION OF THE MEMBER STATES RELATING TO TURNOVER TAX ( ARTICLE 95 OF THE EEC TREATY ) PROHIBIT THE MEMBER STATES FROM LEVYING VALUE-ADDED TAX ON IMPORTS FROM ANOTHER MEMBER STATE OF MOTOR VEHICLES PURCHASED SUBJECT TO THE PAYMENT OF VALUE-ADDED TAX IN THAT STATE AND REGISTERED IN THAT STATE WITHOUT TAKING ACCOUNT OF THE RESIDUAL VALUE-ADDED TAX PAID IN THE MEMBER STATE OF EXPORTATION AND STILL INCLUDED IN THE VALUE OF THE GOODS AT THE TIME OF THEIR IMPORTATION?

2 . DOES THE VALUE-ADDED TAX LEVIED BY A MEMBER STATE UPON THE IMPORTATION OF GOODS WITHOUT TAKING INTO ACCOUNT THE RESIDUAL TAX STILL INCLUDED IN THE VALUE OF THE GOODS, WHERE NO SUCH TAX IS CHARGED UPON SALES OF THE SAME GOODS BY PRIVATE INDIVIDUALS WITHIN THAT STATE, CONSTITUTE AN INTERNAL TAX IN EXCESS OF THAT IMPOSED ON SIMILAR DOMESTIC PRODUCTS AND AS SUCH PROHIBITED UNDER ARTICLE 95 OF THE EEC TREATY?

3 . DO THE PROVISIONS OF COMMUNITY LAW WHICH SUBJECT IMPORTS AND DOMESTIC SALES OF A PRODUCT TO THE SAME RATE OF TAX PRECLUDE THE APPLICATION OF NATIONAL RULES LAYING DOWN, IN THE EVENT OF NON-PAYMENT OF THE TAX UPON IMPORTATION, PENALTIES DIFFERING IN NATURE AND SEVERITY FROM THOSE IMPOSED FOR NON-PAYMENT OF THE TAX ON DOMESTIC TRANSACTIONS? IN PARTICULAR, DO THE PROVISIONS OF COMMUNITY LAW REGARDING A HARMONIZED TAX SYSTEM AND THE ELIMINATION OF CUSTOMS DUTIES WITHIN THE COMMUNITY, IN CONJUNCTION WITH THE PRINCIPLES OF PROPORTIONALITY AND NON-DISCRIMINATION DEVELOPED BY THE COURT OF JUSTICE, PRECLUDE THE APPLICATION OF A PROVISION OF NATIONAL LAW ( ARTICLE 70 OF PRESIDENTIAL DECREE NO 633 OF 26 OCTOBER 1972 ) WHICH TREATS OFFENCES INVOLVING THE PAYMENT OF VALUE-ADDED TAX ON IMPORTS FROM OTHER MEMBER STATES AS SMUGGLING OFFENCES AND IMPOSES THE PENALTIES - INCLUDING THE CRIMINAL PENALTIES - WHICH ARE LAID DOWN IN THE CUSTOMS LEGISLATION IN RELATION TO CUSTOMS DUTIES AND WHICH ARE DIFFERENT FROM THOSE IMPOSED FOR COMPARABLE OFFENCES INVOLVING DOMESTIC SALES OF THE SAME GOODS ( ARTICLE 50 OF THE PRESIDENTIAL DECREE )?"

7REFERENCE IS MADE TO THE REPORT FOR THE HEARING FOR A FULLER ACCOUNT OF THE RELEVANT LEGISLATION AND THE FACTS OF THE CASE, WHICH ARE MENTIONED OR DISCUSSED HEREINAFTER ONLY IN SO FAR AS IS NECESSARY FOR THE REASONING OF THE COURT .

8THE FIRST TWO QUESTIONS, WHICH SHOULD BE CONSIDERED TOGETHER, CONCERN THE AMOUNT OF VALUE-ADDED TAX ON IMPORTATION WHICH A MEMBER STATE MAY IMPOSE ON AN INDIVIDUAL WHO HAS IMPORTED USED GOODS FROM ANOTHER MEMBER STATE . THE THIRD QUESTION CONCERNS A DIFFERENT MATTER, NAMELY THE PENALTIES FOR OFFENCES INVOLVING VALUE-ADDED TAX, WHICH ARE MORE SEVERE IN THE CASE OF IMPORTS THAN IN THE CASE OF DOMESTIC TRANSACTIONS .

THE FIRST AND SECOND QUESTIONS

9IT MUST BE POINTED OUT IN THE FIRST PLACE THAT A COMMON SYSTEM OF VALUE-ADDED TAX WAS ESTABLISHED BY COMMUNITY DIRECTIVES ON THE BASIS OF ARTICLES 99 AND 100 OF THE TREATY . ARTICLE 2 OF THE SIXTH COUNCIL DIRECTIVE OF 17 MARCH 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 ( OFFICIAL JOURNAL 1977, L 145, P . 1 ) PROVIDES THAT NOT ONLY THE SUPPLY OF GOODS OR SERVICES EFFECTED FOR CONSIDERATION WITHIN THE TERRITORY OF A COUNTRY BY A TAXABLE PERSON BUT ALSO THE IMPORTATION OF GOODS, WHETHER BY A TAXABLE PERSON OR A PRIVATE INDIVIDUAL, ARE TO BE SUBJECT TO VALUE-ADDED TAX . THE IMPOSITION OF VALUE-ADDED TAX ON IMPORTATION IS DESIGNED, IN ORDER TO ENSURE THE NEUTRALITY OF THE COMMON SYSTEM WITH REGARD TO THE ORIGIN OF GOODS, TO PLACE IMPORTED PRODUCTS IN THE SAME POSITION AS SIMILAR DOMESTIC PRODUCTS WITH REGARD TO THE TAX BURDENS BORNE BY THOSE TWO CATEGORIES OF GOODS .

10ACCORDING TO AN ESTABLISHED BODY OF CASE-LAW OF THE COURT, THE IMPOSITION OF VALUE-ADDED TAX ON IMPORTATION MUST NOT CAUSE AN IMPORTED PRODUCT TO BE TAXED TWICE, SINCE SUCH A RESULT IS CONTRARY TO ARTICLE 95 OF THE TREATY . THAT PROBLEM ARISES IN PARTICULAR WHERE A PRIVATE INDIVIDUAL IMPORTS GOODS FROM ANOTHER MEMBER STATE WITHOUT A TAX EXEMPTION SINCE SUCH GOODS ALREADY ATTRACT VALUE-ADDED TAX IN THAT MEMBER STATE UNLESS RELIEF IS GRANTED ON EXPORTATION, AS IS DONE IF THE EXPORTER IS A TAXABLE PERSON .

11THE COURT CAME TO THE CONCLUSION THAT, IF NO TAX RELIEF IS GRANTED ON EXPORTATION, THE IMPORTATION OF GOODS FROM ANOTHER MEMBER STATE BY A PRIVATE INDIVIDUAL MAY NOT GIVE RISE TO THE LEVYING OF VALUE-ADDED TAX ON IMPORTATION EXCEPT TO THE EXTENT TO WHICH THE RESIDUAL PART OF THE VALUE-ADDED TAX PAID IN THE MEMBER STATE OF EXPORTATION AND STILL CONTAINED IN THE VALUE OF THE PRODUCT WHEN IT IS IMPORTED IS TAKEN INTO ACCOUNT .

12IN ITS JUDGMENT OF 21 MARCH 1985 IN CASE 47/84 STAATSSECRETARIS VAN FINANCIEN V GASTON SCHUL DOUANE-EXPEDITEUR BV, (( 1985 )) ECR 1491, THE COURT STATED THAT IN SUCH A CASE THE AMOUNT OF VALUE-ADDED TAX PAYABLE ON IMPORTATION MUST BE CALCULATED BY TAKING INTO ACCOUNT THE AMOUNT OF VALUE-ADDED TAX PAID IN THE MEMBER STATE OF EXPORTATION WHICH IS STILL CONTAINED IN THE VALUE OF THE PRODUCT, IN SUCH A WAY THAT THAT AMOUNT IS NOT INCLUDED IN THE TAXABLE AMOUNT AND IS IN ADDITION DEDUCTED FROM THE VALUE-ADDED TAX PAYABLE ON IMPORTATION .

13IN THE LIGHT OF THE FOREGOING CONSIDERATIONS, THE ANSWER TO THE FIRST AND SECOND QUESTIONS SHOULD BE THAT ARTICLE 95 OF THE EEC TREATY MUST BE INTERPRETED AS MEANING THAT IN THE CASE OF THE IMPORTATION FROM ANOTHER MEMBER STATE BY A PRIVATE INDIVIDUAL OF GOODS IN RESPECT OF WHICH THERE HAS NOT BEEN GRANTED EITHER TAX RELIEF ON EXPORTATION OR TAX EXEMPTION IN THE IMPORTING MEMBER STATE, THE VALUE-ADDED TAX CHARGED ON IMPORTATION MUST TAKE INTO ACCOUNT THE RESIDUAL AMOUNT OF VALUE-ADDED TAX PAID IN THE MEMBER STATE OF EXPORTATION WHICH IS STILL CONTAINED IN THE VALUE OF THE GOODS AT THE TIME OF IMPORTATION, IN SUCH A WAY THAT THAT RESIDUAL AMOUNT IS NOT INCLUDED IN THE TAXABLE AMOUNT AND IS DEDUCTED FROM THE VALUE-ADDED TAX PAYABLE ON IMPORTATION .

THE THIRD QUESTION

14BY ITS THIRD QUESTION THE NATIONAL COURT SEEKS TO ASCERTAIN WHETHER A SYSTEM OF PENALTIES UNDER WHICH OFFENCES CONCERNING VALUE-ADDED TAX ON IMPORTATION ARE PENALIZED MORE SEVERELY THAN THOSE CONCERNING VALUE-ADDED TAX ON DOMESTIC TRANSACTIONS IS CONTRARY TO ARTICLE 95 OF THE TREATY, THE PRINCIPLE OF EQUAL TREATMENT AND THE PRINCIPLE OF PROPORTIONALITY .

15IT IS APPARENT FROM THE DOCUMENTS BEFORE THE COURT THAT IN ITALIAN LAW A DISTINCTION IS DRAWN BETWEEN THOSE TWO CATEGORIES OF OFFENCES . IN THE CASE OF OFFENCES RELATING TO VALUE-ADDED TAX ON IMPORTATION, THE PROVISIONS OF CUSTOMS LEGISLATION ARE APPLIED, WHEREAS ANOTHER SYSTEM OF RULES IS APPLICABLE TO INFRINGEMENTS OF OBLIGATIONS RELATING TO THE PAYMENT OF VALUE-ADDED TAX ON DOMESTIC SALES OF GOODS AND ON THE DOMESTIC PROVISION OF SERVICES . IT IS NOT DISPUTED THAT THE PENALTIES PROVIDED FOR UNDER THE LATTER SYSTEM ARE GENERALLY LESS SEVERE THAN THOSE RESULTING FROM THE APPLICATION OF CUSTOMS LEGISLATION .

16IN THAT REGARD, THE ITALIAN GOVERNMENT OBSERVES IN THE FIRST PLACE THAT THE MEMBER STATES RETAIN EXCLUSIVE POWERS TO DETERMINE THE PENALTIES FOR OFFENCES AGAINST THEIR TAX LEGISLATION AND THAT THOSE POWERS ARE NOT RESTRICTED BY ARTICLE 95 OF THE EEC TREATY OR BY THE PRINCIPLES OF NON-DISCRIMINATION AND PROPORTIONALITY OR AFFECTED BY THE HARMONIZATION OF VALUE-ADDED TAX SINCE THIS CONCERNS ONLY THE SUBSTANTIVE PROVISIONS OF NATIONAL LEGISLATION AND NOT CRIMINAL MATTERS .

17THAT ARGUMENT CANNOT BE ACCEPTED IN ITS GENERALITY . ALTHOUGH IT IS TRUE THAT CRIMINAL LEGISLATION AND THE LAYING DOWN OF PENALTIES, EVEN IN THE FIELD OF TAXATION, ARE MATTERS FOR WHICH THE MEMBER STATES ARE RESPONSIBLE, COMMUNITY LAW SETS CERTAIN LIMITS IN CASES WHERE NATIONAL LEGISLATION MAY HAVE AN IMPACT ON THE NEUTRALITY OF INTERNAL TAXATION WITH REGARD TO INTRA-COMMUNITY TRADE, AS REQUIRED BY ARTICLE 95 OF THE TREATY, AND ON THE PROPER FUNCTIONING OF THE COMMON SYSTEM OF VALUE-ADDED TAX LAID DOWN BY COMMUNITY DIRECTIVES .

18AS THE COURT HAS ALREADY HELD IN ANOTHER CONTEXT CONCERNING THE FREE MOVEMENT OF PERSONS, A SYSTEM OF PENALTIES SHOULD NOT HAVE THE EFFECT OF JEOPARDIZING THE FREEDOMS PROVIDED FOR BY THE EEC TREATY . THAT WOULD BE THE CASE IF A PENALTY WERE SO DISPROPORTIONATE TO THE GRAVITY OF THE OFFENCE THAT IT BECAME AN OBSTACLE TO THE FREEDOM GUARANTEED BY COMMUNITY LAW ( SEE THE JUDGMENT OF 3 JULY 1980 IN CASE 157/79 REGINA V PIECK (( 1980 )) ECR 2171 ).

19IT IS THEREFORE NECESSARY TO CONSIDER, FROM THAT POINT OF VIEW, WHETHER A TWIN SYSTEM OF PENALTIES FOR OFFENCES CONCERNING VALUE-ADDED TAX, SUCH AS THAT PROVIDED FOR BY THE ITALIAN LEGISLATION, IS COMPATIBLE WITH THE EEC TREATY .

20THE APPELLANT IN THE MAIN PROCEEDINGS CONTENDS THAT IRRESPECTIVE OF WHETHER THE OFFENCE OF NON-PAYMENT OF VALUE-ADDED TAX IS COMMITTED ON IMPORTATION OR IN DOMESTIC TRANSACTIONS IT MUST BE REGARDED AS THE SAME OFFENCE AND THAT, CONSEQUENTLY, THE APPLICATION OF PENALTIES OF DIFFERENT SEVERITY IS CONTRARY TO COMMUNITY LAW . THE COMMISSION TAKES A SIMILAR VIEW . IT MAINTAINS THAT NATIONAL LEGISLATION WHICH HAS THE EFFECT OF SYSTEMATICALLY PENALIZING THE NON-PAYMENT OF VALUE-ADDED TAX ON IMPORTATION WITH PENALTIES MORE SEVERE THAN THOSE IMPOSED FOR THE NON-PAYMENT OF VALUE-ADDED TAX ON DOMESTIC SUPPLIES OF GOODS IS INCOMPATIBLE WITH ARTICLE 95 OF THE EEC TREATY .

21THE ITALIAN GOVERNMENT, HOWEVER, CONSIDERS THAT THE TWO CATEGORIES OF OFFENCES ARE NOT COMPARABLE EITHER FROM THE POINT OF VIEW OF THEIR CONSTITUENT ELEMENTS OR AS REGARDS THE PROVISIONS APPLICABLE TO THEM . ON THE LATTER POINT, THE ITALIAN GOVERNMENT DRAWS ATTENTION TO ARTICLE 10 ³ OF THE SIXTH DIRECTIVE, ACCORDING TO WHICH THE PROVISIONS CONCERNING CUSTOMS DUTIES MAY APPLY AS REGARDS THE CHARGEABLE EVENT AND THE CHARGEABILITY OF VALUE-ADDED TAX ON IMPORTATION; JUSTIFICATION FOR A SYSTEM OF VALUE-ADDED TAX ALIGNED ON THE SYSTEM OF CUSTOMS DUTIES IS THUS TO BE FOUND IN THE DIRECTIVE . WITH REGARD TO THE CONSTITUENT ELEMENTS OF THE OFFENCE, THE ITALIAN GOVERNMENT CONTENDS THAT OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON IMPORTATION CONSIST IN BRINGING GOODS INTO THE COUNTRY WITHOUT PAYING THE TAX, WHEREAS OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON DOMESTIC TRANSACTIONS CAN BE COMMITTED ONLY BY TAXABLE PERSONS WHO ARE SUBJECT TO A NUMBER OF OBLIGATIONS RELATING TO THE KEEPING OF ACCOUNTS, INVOICING, THE SUBMISSION OF DECLARATIONS AND SO ON .

22IT MUST BE STATED IN THAT REGARD THAT THE TWO CATEGORIES OF OFFENCES IN QUESTION ARE DISTINGUISHED BY DIFFERENT CIRCUMSTANCES CONCERNING BOTH THE CONSTITUENT ELEMENTS OF THE OFFENCE AND THE GREATER OR LESSER EXTENT OF THE DIFFICULTY OF DISCOVERING IT . VALUE-ADDED TAX ON IMPORTATION IS CHARGED SIMPLY WHEN THE GOODS ACTUALLY ENTER THE TERRITORY OF THE MEMBER STATE CONCERNED, RATHER THAN ON A TRANSACTION . THOSE DIFFERENCES MEAN, IN PARTICULAR, THAT THE MEMBER STATES ARE NOT REQUIRED TO HAVE THE SAME SYSTEM OF RULES FOR THE TWO CATEGORIES OF OFFENCES .

23HOWEVER, THOSE DIFFERENCES CANNOT JUSTIFY A MANIFEST DISPROPORTION IN THE SEVERITY OF THE PENALTIES LAID DOWN FOR THE TWO CATEGORIES OF OFFENCES . SUCH A DISPROPORTION EXISTS WHERE THE PENALTY PROVIDED FOR IN THE CASE OF IMPORTATION INVOLVES, AS A GENERAL RULE, A TERM OF IMPRISONMENT AND THE CONFISCATION OF THE GOODS PURSUANT TO THE RULES LAID DOWN TO COMBAT SMUGGLING WHEREAS COMPARABLE PENALTIES ARE NOT PROVIDED FOR, OR ARE NOT GENERALLY IMPOSED, IN THE CASE OF OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON DOMESTIC TRANSACTIONS . A SITUATION OF THAT KIND COULD IN FACT HAVE THE EFFECT OF JEOPARDIZING THE FREE MOVEMENT OF GOODS WITHIN THE COMMUNITY AND WOULD THUS BE INCOMPATIBLE WITH ARTICLE 95 OF THE TREATY .

24AS THE COURT STATED IN ITS JUDGMENT OF 5 MAY 1982 IN CASE 15/81 GASTON SCHUL DOUANE EXPEDITEUR BV V INSPECTEUR DER INVOERRECHTEN EN ACCIJNZEN, ROOSENDAAL (( 1982 )) ECR 1409, THE INTERPRETATION OF ARTICLE 95 MUST TAKE ACCOUNT OF THE OBJECTIVES OF THE TREATY AS LAID DOWN IN ARTICLES 2 AND 3, WHICH INCLUDE, IN THE FIRST PLACE, THE ESTABLISHMENT OF A COMMON MARKET INVOLVING THE ELIMINATION OF ALL OBSTACLES TO TRADE IN ORDER TO MERGE THE NATIONAL MARKETS INTO A SINGLE MARKET BRINGING ABOUT CONDITIONS AS CLOSE AS POSSIBLE TO THOSE OF A GENUINE INTERNAL MARKET . THE COURT ADDED THAT IT IS IMPORTANT THAT NOT ONLY TRADERS BUT ALSO PRIVATE PERSONS WHO CARRY OUT ECONOMIC TRANSACTIONS ACROSS NATIONAL FRONTIERS SHOULD ALSO BE ABLE TO ENJOY THE BENEFITS OF THAT MARKET .

25THE ANSWER TO THE THIRD QUESTION MUST THEREFORE BE THAT NATIONAL LEGISLATION WHICH PENALIZES OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON IMPORTATION MORE SEVERELY THAN THOSE CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON DOMESTIC SALES OF GOODS IS INCOMPATIBLE WITH ARTICLE 95 OF THE TREATY IN SO FAR AS THAT DIFFERENCE IS DISPROPORTIONATE TO THE DISSIMILARITY BETWEEN THE TWO CATEGORIES OF OFFENCES .

Costs

COSTS

26THE COSTS INCURRED BY THE GOVERNMENT OF THE ITALIAN REPUBLIC AND BY THE COMMISSION OF THE EUROPEAN COMMUNITIES, WHICH HAVE SUBMITTED OBSERVATIONS TO THE COURT, ARE NOT RECOVERABLE . AS THESE PROCEEDINGS ARE, IN SO FAR AS THE PARTIES TO THE MAIN PROCEEDINGS ARE CONCERNED, IN THE NATURE OF A STEP IN THE PROCEEDINGS PENDING BEFORE THE NATIONAL COURT, THE DECISION ON COSTS IS A MATTER FOR THAT COURT .

Operative part

ON THOSE GROUNDS,

THE COURT ( SIXTH CHAMBER ),

IN ANSWER TO THE QUESTIONS REFERRED TO IT BY THE CORTE D' APPELLO DI GENOVA, BY ORDER OF 12 NOVEMBER 1986, HEREBY RULES :

Signatures

¹ ARTICLE 95 OF THE EEC TREATY MUST BE INTERPRETED AS MEANING THAT IN THE CASE OF THE IMPORTATION FROM ANOTHER MEMBER STATE BY A PRIVATE INDIVIDUAL OF GOODS IN RESPECT OF WHICH THERE HAS NOT BEEN GRANTED EITHER TAX RELIEF ON EXPORTATION OR TAX EXEMPTION IN THE IMPORTING MEMBER STATE, THE VALUE-ADDED TAX CHARGED ON IMPORTATION MUST TAKE INTO ACCOUNT THE RESIDUAL AMOUNT OF VALUE-ADDED TAX PAID IN THE MEMBER STATE OF EXPORTATION WHICH IS STILL CONTAINED IN THE VALUE OF THE GOODS AT THE TIME OF IMPORTATION, IN SUCH A WAY THAT THAT RESIDUAL AMOUNT IS NOT INCLUDED IN THE TAXABLE AMOUNT AND IS DEDUCTED FROM THE VALUE-ADDED TAX PAYABLE ON IMPORTATION .

² NATIONAL LEGISLATION WHICH PENALIZES OFFENCES CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON IMPORTATION MORE SEVERELY THAN THOSE CONCERNING THE PAYMENT OF VALUE-ADDED TAX ON DOMESTIC SALES OF GOODS IS INCOMPATIBLE WITH ARTICLE 95 OF THE EEC TREATY IN SO FAR AS THAT DIFFERENCE IS DISPROPORTIONATE TO THE DISSIMILARITY BETWEEN THE TWO CATEGORIES OF OFFENCES .

OPINION OF MR ADVOCATE GENERAL DARMON delivered on 8 December 1987* Mr President, Members of the Court,

1In its case-law, in particular the Schul· and Bergeres-Becque 2judgments, the Court has already answered, in advance as it were, the first two questions submitted by the Corte di Appello (Court of Appeal), Genoa. Moreover, the appellant in the main proceedings, the Italian Government and the Commission are agreed on that point. However, the problem raised by the third question has not yet been decided, at any rate directly, by the Court, even though there are a number of factors in its case-law which point to the solution.

2Hence the importance of this case lies in the third question. In that question, the national court asks the Court of Justice, in substance, to explain to what extent Community law precludes any differentiation as regards both the nature and the severity of the penalties imposed in the event of failure to pay value-added tax on importation or on a purely domestic transaction involving the same product where the rate of tax is, by virtue of Community law, identical in both cases. In addition to that question of principle a specific question arises, namely whether under national law a failure to pay value-added tax on imports may be treated as a smuggling offence which, as a customs offence, is subject to

* Translated from the French

1222 criminal penalties, whereas a failure to pay tax on domestic transactions, described by the national court as a 'comparable offence', attracts different penalties.

3In proceedings for a preliminary ruling the Court is bound by the internal legal classification made by the national court. Accordingly, the question of principle which arises is whether different penalties may be imposed in the two sets of circumstances referred to.

4According to the appellant and the Commission, any offence concerning the payment of value-added tax, whether it be failure to pay tax on importation or evasion of tax on a domestic transaction, should attract identical penalties. However, the Italian Government maintains that there are differences between the two types of offence which justify the imposition, in the first-mentioned case, of stricter penalties.

5Before dealing with that question, however, it is appropriate to answer the arguments put forward by the Italian Government concerning the effect, if any, of Community law on national criminal law in matters of tax evasion. The Italian Government considers that, in such matters, Community law can require only the substantive provisions of the Treaty, in particular Article 95 thereof and the directives harmonizing the relevant legislation, to be complied with, so that any issue involving the imposition of national penalties in the event of the infringement of those provisions would fall outside the scope of Community law and within the exclusive jurisdiction of the State authorities.

6That argument cannot be accepted. The Community rules on taxation are not unconnected either with the free movement of goods or with the free movement of persons. The infringement of those rules, and of national measures adopted for their implementation, is a matter which is closely connected with Community law. Although it is acknowledged that Community law cannot itself determine which penalties are applicable in such matters, the fact remains that it may set limits to the powers of the national authorities to impose penalties.

7Whatever its specific features may be, criminal law, as is clear from the case-law of the Court, does not fall outside the scope of Community law. Moreover, the Court expressly stated in its judgment in SAIL that:

'The effectiveness of Community law cannot vary according to the various branches of national law which it may affect.'

It also stated in Ratti 4 that a national provision which had not yet been brought into line with a directive notwithstanding the expiry of the period prescribed therefor was inapplicable under national law even though it was enforceable by criminal penalties.

8Community law has a twofold effect on national criminal law. Where a rule imposing a prohibition or penalty is incompatible with Community law, the legal basis for the offence is removed. Where the penalties imposed by national legislation tor the infringement of Community or national rules constitute, in view of their severity, an obstacle to the exercise of one of the freedoms enshrined in the Treaty, those penalties must be set aside or mitigated. 5

9Admittedly, the Court held in Casati that:

'In principle, criminal legislation and the rules of criminal procedure are matters for which the Member States are still responsible.'

But it recalled that:

'Community law also sets certain limits in that area as regards the control measures which it permits the Member States to maintain in connection with the free movement of goods and persons.'

In the same judgment the Court emphasized, in particular, that:

'The administrative measures or penalties must not go beyond what is strictly necessary, the control procedures must not be conceived in such a way as to restrict the freedom required by the Treaty and they must not be accompanied by a penalty which is so disproportionate to the gravity of the infringement that it becomes an obstacle to the exercise of that freedom.' Ultimately, the case-law of the Coim requires that the penalties imposed by national law should be 'appropriate' and 'reasonable*, in other words proportionate to the nature of the offence.

10The same principles apply with regard to the imposition of penalties for the infringement of national fiscal provisions concerning value-added tax. I would recall that the levying of value-added tax both on domestic transactions and on imports is provided for by the Sixth Directive. I would also recall that, as the Court has consistently held, value-added tax levied on importation is not a charge having an effect equivalent to a customs duty within the meaning of Articles 12 and 13 of the EEC Treaty but constitutes domestic taxation which is caught by Article 95 of the Treaty; that view was reiterated by the Court in Profant which involved the importation of a motor vehicle as in this case.

11It is unreasonable to argue, as the Italian Government does, that the only effect of Community law in fiscal matters is to impose an obligation to comply with the substantive provisions of Community law, excluding the subsidiary aspects relating to their implementation. The Commission is correct in referring to the judgment in Commission v Republic of Ireland in which the Court held that Ireland had failed to fulfil its obligations under the first paragraph of Article 95 of the Treaty

1224 inasmuch as it provided for a deferment of payment of excise duties on certain alcoholic beverages manufactured in Ireland that was more favourable than that provided in respect of the same products imported from other Member States. In other words, contrary to the Italian Government's contention, the prohibition of discrimination in fiscal matters encompasses matters that are subsidiary to the levying of the tax.

12In explaining that non-payment of value-added tax on importation is equated with a customs offence, and consequently attracts the penalties imposed for such an offence, the Italian Government seeks to rely on certain provisions of the Sixth Directive. Those provisions are, in particular, the second and third subparagraphs of Article 10 (3) concerning the chargeable event and the chargeability of value-added tax on importation, Article 11B(2) concerning the taxable amount, and Article 14 (1) concerning exemptions from customs duties. The first two provisions allow the Member States to apply, with regard to the chargeable event and the chargeability of the tax, the rules in force relating to customs duties, and to take, as the taxable amount, the value specified in the Community regulation on the valuation of goods for customs purposes.

13Those provisions do not, any more than the third provision concerning exemptions, prejudge either the nature of value-added tax levied on importation or the nature of the offence. The purely technical connection between them is not relevant with regard to the determination of the penalty. Nor is it generally applicable, as is clear from Article 12 (5) of the Sixth Directive which provides as follows:

The rate applicable on the importation of goods shall be that applied to the supply of like goods within the territory of the country'.

It is noteworthy that the Italian Government disputes the applicability of that provision with regard to the assessment of the system of penalties, although it considers the significance of the three provisions referred to earlier to be all but decisive.

14The Italian Government considers, moreover, that the various obligations imposed on persons liable to value-added tax on domestic transactions, such as the submission of returns, payment, invoicing and registration, justify the application of a system of penalties which differs from that provided for with regard to importation. However, the Italian Government makes no reference to Article 23 of the Sixth Directive, which provides that 'as regards imported goods, Member States shall lay down the detailed rules for the making of the declarations and payments.' That article empowers the Member States to provide that value-added tax charged on importation may be paid subsequently, subject to compliance with the conditions relating to the submission of the returns containing the information needed to calculate, in particular, the chargeable amount of the tax provided for in Article 22 (4) which concerns the return to be submitted by taxable persons who are subject to 'obligations under the internal system.'

15It is not possible to equate value-added tax levied on importation in the course of trade between Member States with a customs duty or, consequently, to impose in the event of non-payment of the tax the penalties provided for non-payment of customs duties. The rules applicable to importation must not be less favourable than those governing similar domestic transactions. To apply criminal legislation systematically, by the adoption of penalties for non-payment of customs duties, to any evasion of value-added tax on importation, when failure to pay value-added tax on domestic transactions is less severely penalized, is tantamount to attaching particular significance to the crossing of a frontier within the Community, which is incompatible with the common market.

16Admittedly, there are differences between the levying of value-added tax on importation and the charging of value-added tax on domestic sales of goods, particularly as regards the taxable persons and the chargeable event. However, those differences do not seem to me to be capable of justifying the striking diversity between the penalties imposed in those two sets of circumstances. The difficulties involved in detecting a failure to pay value-added tax on importation cannot have any effect on the system of penalties applicable to that offence by penalizing it more severely than the evasion of value-added tax on domestic transactions.

17Value-added tax is a national tax which has been given a Community character and which is used in part to fund the Community's budget. Hence it is in the interests of the Community that failure to pay value-added tax, either on domestic transactions or upon importation, should be effectively penalized. Moreover, as it was aware of the problems raised by tax avoidance and tax evasion, the Council adopted a directive on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of agricultural levies and customs duties, and amended it so as to include value-added tax 15 on the ground that the limited field of application of national provisions relating to the recovery of value-added tax constitutes 'an obstacle to the establishment and functioning of the common market.' Similarly, by a directive of 6 December 1979, the Council brought value-added tax within the scope of the directive concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation 1 'in order to ensure that [indirect taxes] are correctly assessed and collected', and it pointed out that 'as a matter of particular urgency, mutual assistance must be extended to cover value-added tax, both because it is a general tax on consumption and because it plays an important part in the Community's own resources system'.

18Clearly there are no valid grounds for the view that non-payment of value-added tax on importation is more reprehensible than evasion of value-added tax on domestic transactions. Offences of the same nature should attract comparable penalties.

19It is true that the penalties applicable to customs offences generally involve, in view of the damage caused to the Treasury, a punitive and a compensatory element. There is nothing to prevent the imposition of criminal penalties in the event of non-payment of value-added tax, provided they are not excessive or disproportionate and so constitute in themselves an obstacle to the exercise of the freedoms established by the Treaty.

20Finally, it is appropriate in my view to draw the attention of the national court to the existence of two Council Directives of 28 March 1983 which have been referred to in the proceedings before the Court, one on tax exemptions within the Community for certain means of transport temporarily imported into one Member State from another, and the other on tax exemptions applicable to permanent imports from a Member State of the personal property of individuals.

Conclusion

21In the light of the case-law of the Court and of the foregoing considerations, I suggest that the Court answer the questions submitted by the Corte di Appello Genoa, as follows:

(1) Community law prohibits the levying of value-added tax on motor vehicles imported from other Member States without taking account of the residual amount of value-added tax paid in the Member State of exportation and still included in the value of the goods at the time of their importation (2) The value-added tax thus levied by the importing State, when sales of such goods between private individuals within that State are not subject to the tax, constitutes an internal tax prohibited by Article 95 of the EEC Treaty.

(3) The provisions of Community law, and in particular Article 95 of the EEC Treaty, preclude the application of stricter penalties for non-payment of value-added tax on importation than for non-payment of internal value-added tax on domestic sales of similar goods.'

Notes

(1) Judgment of 5 May 1982 in Case 15/81 [1982] ECR 1409 Judgment of 21 May 1985 in Case 47/84 [1985] ECR 1491.

(2) u ent 23 — J dgm of January 1986 in Case 39/85 [1986]

(3) Judgment of 21 March 1972 in Case 82/71 [1972] ECR 119 at p. 135, paragraph 5 of the decision.

(4) Judgment of 5 April 1979 in Case 148/78 [1979] ECR 1629.

(5) Those principles were laid down by the Court, as regards the free movement of persons, in judgments such as that of

(7) July 1976 in Case 118/75 Watson [1976] ECR 1185; 14 July 1977 in Case 8/77 Sagulo [1977] ECR 1495; and 3 July 1980 in Case 157/79 [1980] ECR 2171 and, as Pieck regards the free movement of goods, in judgments such as that of 15 December 1976 in Case 41/76 Donckerwolcke [1976] ECR 1921; 30 November 1977 in Case 52/77 Cayrol [1977] ECR 2261; and 28 March 1979 in Case

(179) /78 Rivoira [1979] ECR 1147.

(6) Judgment of 11 November 1981 in Case 203/80 [1981] ECR 2595, at p. 2618, paragraph 27 of the decision.

(7) Judgment of 8 April 1976 in Case 48/75 Royer [19761 ECR 497, at p. 514, paragraph 42 of the decision.

(8) Judgment of 14 July 1977 Ín Case 8/77 Sătulo [1977] ECR 1495, at p. 1506, paragraph 12 of the decision.

(9) Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member Sutes relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. I).

(10) See Case 15/81, referred to earlier.

(11) Judgment of 3 October 1985 in Case 249/84 [19851 ECR 3237.

(12) Judgment of 27 February 1980 in Case 55/79 [19801 ECR 481. Ł J

(13) That is to say Regulation (EEC) No 803/68 of 27 June

(196) 8 of the Council (Official Journal, English Special Edition, 1968 (I), p. 170), replaced by Council Regulation (EEC) No 1224/80 of 28 May 1980 (Official Journal 1980, L 134, p. 1), as amended by Council Regulations (EEC) No 3193/80 of 8 December 1980 (Official Journal 1980, L 333, p. 1), No 320/85 of 6 February 1985 (Official Journal 1985, L 34, p. 33) and No 1055/85 of 23 April

(198) 5 (Official Journal 1985, L 112, p. 50)

(14) Council Directive 76/308/EEC of 15 March 1976, Official Journal 1976, L 73, p. 18.

(15) Council Directive 79/1071/EEC of 6 December 1979, Official Journal 1979, L 331, p. 10. — Second recital in the preamble.

(17) cil — Coun Directive 79/1070/EEC of 6 December 1979 Official Journal 1979, L 331, p. 8.

(18) Council Directive 77/799/EEC of 19 December 1977, Official Journal 1977, L 336, p. 15. — Third recital in the preamble. — See, for instance, J. Pradel, Droit pénal. Vol. 1, Paris Cujas, 3rd ed 1981 p. 313 et seq.; C J. Berr and H. Tremeau, Le droit douanier, Paris, LGDJ, 2nd ed 1981 especially at p. 423 el seq.

(22) Council Directive 83/182/EEC, Official Journal 1983 L 105, p. 59.

(23) Council Directive 83/183/EEC, Official Journal 1983

(20) Fourth recital in the preamble. L 105, p. 64.