JUDGMENT OF THE COURT

2 April 1998 (1)

(Excise duty on electricity — Rates of duty varying according to the method ofproducing electricity of domestic origin — Flat rate for imported electricity)

In Case C-213/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the UudenmaanLääninoikeus (Finland) for a preliminary ruling in the proceedings pending beforethat court brought by

Outokumpu Oy,

on the interpretation of Articles 9, 12 and 95 of the EC Treaty,

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, C. Gulmann, H. Ragnemalm andR. Schintgen (Rapporteur) (Presidents of Chambers), G.F. Mancini, J.C. Moitinhode Almeida, P.J.G. Kapteyn, J.L. Murray, D.A.O. Edward, J.-P. Puissochet, G. Hirsch, P. Jann and L. Sevón, Judges,

Advocate General: F.G. Jacobs,

Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

—    Outokumpu Oy, by Arto Kukkonen, of the Helsinki Bar,

—    the Finnish Government, by Holger Rotkirch, Ambassador, Head of theLegal Department of the Ministry of Foreign Affairs, acting as Agent,

—    the French Government, by Catherine de Salins, Deputy Director in theLegal Directorate of the Ministry of Foreign Affairs, and Jean-MarcBelorgey, Chargé de Mission in that directorate, acting as Agents,

—    the Commission of the European Communities, by Allan Rosas, PrincipalLegal Adviser, and Enrico Traversa, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Outokumpu Oy, the Finnish Government andthe Commission at the hearing on 24 June 1997,

after hearing the Opinion of the Advocate General at the sitting on 13 November1997,

gives the following

Judgment

1.

    By order of 30 May 1996, received at the Court on 25 June 1996, the UudenmaanLääninoikeus (Uusimaa Provincial Administrative Court) referred to the Court fora preliminary ruling under Article 177 of the EC Treaty two questions on theinterpretation of Articles 9, 12 and 95 of that Treaty.

2.

    Those questions were raised in proceedings brought by Outokumpu Oy (hereinafter'Outokumpu‘), the parent company of the Finnish Outokumpu group, against thedecision of the Piiritullikamari (District Customs Office), Helsinki, assessing dutyon electricity imported from Sweden by Outokumpu during September 1995.

3.

    In Finland, Paragraph 1 of the Eräiden energialähteiden valmisteverosta annettulaki (Law No 1473/94 of 29 December 1994 on excise duty on certain sources ofenergy) prescribes that coal, peat, natural gas, electricity and pine oil are subjectto basic duty and additional duty payable to the State. Paragraph 2(4) of that Lawdefines electricity as meaning electrical energy within customs tariff heading 2716.

4.

    Under Paragraph 3 of Law No 1473/94, the customs authorities are responsible forlevying and supervising the taxes on the products specified in the Law.

5.

    Under Paragraph 4 of Law No 1473/94, duty is payable according to the followingtax table, annexed to the Law (p = penni = 0.01 FMK):

Product	Product group	Basic duty	Additional duty
Coal, coal briquettes,solid fuels processedfrom coal; lignite	1	—	116.1FMK/tonne
Peat	2	—	3.5FMK/MWh
Natural gas, gasproducts	3	—	11.2 p/nm3*
Electrical energy — produced by nuclearpower — produced by waterpower — imported	4 5 6	1.5 p/kWh — 1.3 p/kWh	0.9 p/kWh 0.4 p/kWh 0.9 p/kWh
Pine oil	7	18.55 p/kg	—
*    The duty payable on natural gas for the period from 1 January1995 to 31 December 1997 is reduced by 50%.

6.

    Under the first subparagraph of Paragraph 14 of Law No 1473/94, persons who

(1)    produce electricity in Finland by nuclear or water power;

(2)    in the course of business receive electricity from the Community or import itfrom outside the Community,

are liable to pay electricity duty.

7.

    The duty does not apply, however, to electrical energy produced in a generator withan output of less than two megavolt-amperes (second subparagraph of Paragraph14 of Law No 1473/94).

8.

    Also exempted from the duty are:

—    peat used for producing electricity, if production does not exceed 25 000 MWhper calendar year (Paragraph 7);

—    electricity produced by nuclear or water power in Finland which the producerhimself exports outside the Community or supplies for consumption in a partof the Community other than Finland (Paragraph 16).

9.

    Finally, according to the documents in the case, electricity produced from certainindustrial waste falls outside the scope of Law No 1473/94.

10.

    Under Paragraph 17 of Law No 1473/94, all persons liable to pay duty under point2 of the first subparagraph of Paragraph 14 are obliged to comply with theprovisions of the Valmisteverotuslaki (Law No 1469/94 on excise duty).

11.

    It appears from the legislative proposal presented to the Finnish Parliament thatthe taxation of coal, electricity, natural gas, milled peat and sod peat, and crudepine oil is based on ecological considerations. Moreover, the flat rate of duty onimported electricity was calculated so as to correspond to the average rate leviedon electricity produced in Finland, but without taking into account the reductionof duty on peat and natural gas.

12.

    Law No 1473/94 entered into force on 1 January 1995.

13.

    Outokumpu has imported electricity from Sweden since 1 November 1995 undera contract with the Swedish company Vattenfall AB.

14.

    The first supplies were delivered, on an experimental basis, from 18 September to9 October 1995. For that trial supply, Outokumpu submitted on 17 October 1995a tax declaration for September 1995 to the District Customs Office. In a coveringletter with that declaration, Outokumpu stated that in its opinion the levying ofelectricity duty on those imports was contrary to Articles 12 and 13 of the ECTreaty, with the result that no duty was payable.

15.

    On 23 October 1995 the District Customs Office decided that under Paragraph 4of Law No 1473/94 Outokumpu was liable to pay electricity duty of 1.3 p/kWh +0.9 p/kWh, in accordance with the tax table for imported electricity.

16.

    Outokumpu instituted proceedings before the Uudenmaan Lääninoikeus forannulment of the decision of the Helsinki District Customs Office on the groundthat the excise duty on electricity was a charge having equivalent effect to acustoms duty, prohibited by Articles 9 and 12 of the Treaty. Outokumpu submitted,in the alternative, that a duty of that kind was discriminatory under Article 95 ofthe Treaty, and asked for it to be reduced to the lowest level of duty on electricityproduced in Finland, namely 0 p/kWh, the rate applicable to exempted electricityor electricity falling outside the scope of Law No 1473/94.

17.

    Since it considered that the outcome of the case before it depended on theinterpretation of Articles 9, 12 and 95 of the Treaty, the national court stayed

proceedings and referred the following questions to the Court for a preliminaryruling:

'Under Finnish national legislation on the taxation of energy, excise duty onelectricity is levied in Finland on electrical energy produced there, the amount ofthe duty depending on the method of production of the electricity. On electricityproduced by nuclear power, the excise duty charged is a basic duty of 1.5 p/kWhand an additional duty of 0.9 p/kWh. On electricity produced by water power, theexcise duty charged is only an additional duty of 0.4 p/kWh. On electricity producedby other methods, for example from coal, excise duty is charged on the basis of theamount of input materials used to produce the electricity. On electrical energyproduced by some methods, for example in a generator with an output below twomegavolt-amperes, no excise duty at all is charged. On imported electricity, theexcise duty charged, regardless of the method of production of the electricity, is abasic duty of 1.3 p/kWh and an additional duty of 0.9 p/kWh. The excise duty onelectricity is thus determined with respect to imported electricity on a differentbasis from that applied to electricity produced in Finland. The levying of exciseduties determined on the basis of the method of production of the energy isfounded on environmental grounds in the drafting history of the law. The amountof duty chargeable on imported electricity is not, however, determined on the basisof the method of production of the electricity. The excise duty chargeable onimported electricity is higher than the lowest excise duty chargeable on electricityproduced in Finland, but lower than the highest excise duty chargeable onelectricity produced in Finland. The excise duty on imported electricity is levied onthe importer, whereas the excise duty relating to electricity produced in Finland islevied on the electricity producer.

1.    Is excise duty on electricity, determined for imported electricity in the mannerdescribed above, to be regarded as a charge having equivalent effect to a customsduty, within the meaning of Articles 9 and 12 of the EC Treaty?

2.    If it is not a charge having equivalent effect to a customs duty, is excise duty onelectricity, determined for imported electricity in the manner described above, tobe regarded as a tax which discriminates against imports from other MemberStates, within the meaning of Article 95 of the EC Treaty?‘

18.

    By those questions, which should be examined together, the national court seeksa ruling from the Court on the classification from the point of view of Articles 9,12 and 95 of the Treaty, and if appropriate on the compatibility with thoseprovisions, of an excise duty which is levied on electricity of domestic origin at rateswhich vary according to its method of production, while being levied on importedelectricity at a flat rate which is higher than the lowest rate but lower than thehighest rate applicable to electricity of domestic origin.

19.

    As regards classification, the Court has consistently held (see, inter alia, CaseC-90/94 Haahr Petroleum v Åbenrå Havn and Others [1997] ECR I-4085, paragraph19) that provisions relating to charges having equivalent effect and those relatingto discriminatory internal taxation cannot be applied together, so that under thesystem established by the Treaty the same charge cannot belong to both categoriesat the same time.

20.

    The Court has also consistently held (see, inter alia, Haahr Petroleum, paragraph20) that any pecuniary charge, whatever its designation and mode of application,which is imposed unilaterally on goods by reason of the fact that they cross afrontier, and which is not a customs duty in the strict sense, constitutes a chargehaving equivalent effect within the meaning of Articles 9, 12, 13 and 16 of the ECTreaty. However, such a charge may not be so characterised if it forms part of ageneral system of internal dues applying systematically to categories of productsaccording to objective criteria applied without regard to the origin of the products,in which case it falls within the scope of Article 95 of the Treaty.

21.

    The first point to note is that a duty of the kind at issue in the main proceedingsforms part of a general system of taxation which is levied not only on electricalenergy as such but also on several primary energy sources such as coal products,peat, natural gas and pine oil.

22.

    Second, both imported electricity and electricity of domestic origin form part of thesame tax system and the duty is levied by the same authorities, whatever the originof the electricity, under procedures governed by the general legislation on exciseduties.

23.

    Third, with the exception of electricity of domestic origin produced in generatorswith an output below two megavolt-amperes and of that produced in smallquantities from peat, the duty is levied on electricity, whatever its origin, whetherdomestic or imported. In those circumstances, the fact that in the case of importedelectricity the duty is payable by the importer on importation does not provide asufficient basis for the conclusion that it is imposed on the goods concerned byreason of the fact that they cross the frontier.

24.

    Outokumpu observes, however, that according to the Court's case-law (see, inparticular, Case 132/78 Denkavit Loire v France [1979] ECR 1923, paragraph 8), inorder to form part of a general system of internal dues, the charge imposed onimported products must be imposed on domestic products and imported productsat the same marketing stage and the chargeable event must be identical for bothclasses of products.

25.

    On this point, it must be stated that, in circumstances such as those of this case, nodifference may be discerned in the fact that imported electricity is taxed at the timeof importation and electricity of domestic origin at the time of production, since inview of the characteristics of electricity the marketing stage is the same for both

operations, namely the stage when the electricity enters the national distributionnetwork (see, to that effect, Joined Cases C-149/91 and C-150/91 Sanders Adourand Guyomarc'h Orthez Nutrition Animale v Directeur des Services Fiscaux desPyrénées-Atlantiques [1992] ECR I-3899, paragraph 18).

26.

    Outokumpu further submits that the duty at issue is not imposed on imported anddomestic products according to the same criteria and without reference to theirorigin. Duty is levied on electricity of domestic origin at different rates dependingon whether it is produced by nuclear or water power, or is taxed only at the levelof the raw materials used or is exempted, whereas imported electricity is taxed, asan end product exclusively, at a flat rate whatever its method of production. Thetaxable amounts and rates of tax thus differ depending on whether the electricityis of domestic origin or imported.

27.

    The Court has already held that a charge in the form of an internal tax may not beregarded as a charge having equivalent effect to a customs duty unless the detailedrules governing the levying of the charge are such that it is imposed solely onimported products to the exclusion of domestic products (Case 32/80 Officier vanJustitie v Kortmann [1981] ECR 251, paragraph 18). As may be seen fromparagraph 23 above, that is not the case of the duty at issue in the mainproceedings.

28.

    The Court has also held that the fact that the origin of the goods determines theamount of the duty to be levied cannot remove it from the scope of Article 95 ofthe Treaty (Haahr Petroleum, paragraph 25).

29.

    Consequently, an excise duty of the kind at issue in the main proceedingsconstitutes internal taxation within the meaning of Article 95 of the Treaty, not acharge having equivalent effect to a customs duty within the meaning of Articles9 and 12.

30.

    As regards the compatibility of such a duty with Article 95 of the Treaty, it issettled case-law, first, that in its present state of development Community law doesnot restrict the freedom of each Member State to establish a tax system whichdifferentiates between certain products, even products which are similar within themeaning of the first paragraph of Article 95 of the Treaty, on the basis of objectivecriteria, such as the nature of the raw materials used or the production processesemployed. Such differentiation is compatible with Community law, however, onlyif it pursues objectives which are themselves compatible with the requirements ofthe Treaty and its secondary legislation, and if the detailed rules are such as toavoid any form of discrimination, direct or indirect, against imports from otherMember States or any form of protection of competing domestic products.

31.

    Article 95 of the Treaty therefore does not preclude the rate of an internal tax onelectricity from varying according to the manner in which the electricity is produced

and the raw materials used for its production, in so far as that differentiation isbased, as is clear from the actual wording of the national court's questions, onenvironmental considerations.

32.

    As the Court stated in Case 302/86 Commission v Denmark [1988] ECR 4607,paragraph 8, protection of the environment constitutes one of the essentialobjectives of the Community. Moreover, since the entry into force of the Treaty onEuropean Union, the Community's task includes the promotion of sustainable andnon-inflationary growth respecting the environment (Article 2 of the EC Treaty)and its activities include a policy in the sphere of the environment (Article 3(k) ofthe EC Treaty).

33.

    Furthermore, as the Advocate General observes in paragraph 58 of the Opinion,compatibility with the environment, particularly of methods of producing electricalenergy, is an important objective of the Community's energy policy.

34.

    However, on the question whether differentiation such as that which characterisesthe tax system at issue in the main proceedings is compatible with the prohibitionof discrimination in Article 95 of the Treaty, the Court has consistently held thatthat provision is infringed where the taxation on the imported product and that onthe similar domestic product are calculated in a different manner on the basis ofdifferent criteria which lead, if only in certain cases, to higher taxation beingimposed on the imported product (see, in particular, Case C-152/89 Commissionv Luxembourg [1991] ECR I-3141, paragraph 20).

35.

    That is the case where, under a system of differential taxation of the kind at issuein the main proceedings, imported electricity distributed via the national networkis subject, whatever its method of production, to a flat-rate duty which is higherthan the lowest duty charged on electricity of domestic origin distributed via thenational network.

36.

    The fact that electricity of domestic origin is in some cases taxed more heavily thanimported electricity is immaterial in this connection since, in order to ascertainwhether the system in question is compatible with Article 95 of the Treaty, the taxburden imposed on imported electricity must be compared with the lowest taxburden imposed on electricity of domestic origin (see, to that effect, Commissionv Luxembourg, paragraphs 21 and 22).

37.

    The Finnish Government raises the objection that in view of the characteristics ofelectricity, the origin and consequently the method of production of which cannotbe determined once it has entered the distribution network, the differential ratesapplicable to electricity of domestic origin cannot be applied to imported electricity.It submits that in those circumstances application of a flat rate, calculated so as tocorrespond to the average rate levied on electricity of domestic origin, is the onlylogical way of treating imported electricity in an equitable manner.

38.

    The Court has already had occasion to point out that practical difficulties cannotjustify the application of internal taxation which discriminates against products fromother Member States (see, inter alia, Case C-375/95 Commission v Greece [1997]ECR I-5981, paragraph 47).

39.

    While the characteristics of electricity may indeed make it extremely difficult todetermine precisely the method of production of imported electricity and hence theprimary energy sources used for that purpose, the Finnish legislation at issue doesnot even give the importer the opportunity of demonstrating that the electricityimported by him has been produced by a particular method in order to qualify forthe rate applicable to electricity of domestic origin produced by the same method.

40.

    Moreover, the Court has already held that although in principle Article 95 of theTreaty does not require Member States to abolish differences which are objectivelyjustified and which national legislation establishes between internal taxes ondomestic products, it is otherwise where such abolition is the only way of avoidingdirect or indirect discrimination against the imported products (Case 21/79Commission v Italy [1980] ECR 1, paragraph 16).

41.

    In the light of the foregoing considerations, the answer must be that the firstparagraph of Article 95 of the EC Treaty precludes an excise duty which forms partof a national system of taxation on sources of energy from being levied onelectricity of domestic origin at rates which vary according to its method ofproduction while being levied on imported electricity, whatever its method ofproduction, at a flat rate which, although lower than the highest rate applicable toelectricity of domestic origin, leads, if only in certain cases, to higher taxation beingimposed on imported electricity.

Costs

42.

    The costs incurred by the Finnish and French Governments and by the Commissionof the European Communities, which have submitted observations to the Court, arenot recoverable. Since these proceedings are, for the parties to the mainproceedings, a step in the action pending before the national court, the decision oncosts is a matter for that court.

On those grounds,

THE COURT,

in answer to the questions referred to it by the Uudenmaan Lääninoikeus by orderof 30 May 1996, hereby rules:

The first paragraph of Article 95 of the EC Treaty precludes an excise duty whichforms part of a national system of taxation on sources of energy from being leviedon electricity of domestic origin at rates which vary according to its method ofproduction while being levied on imported electricity, whatever its method ofproduction, at a flat rate which, although lower than the highest rate applicableto electricity of domestic origin, leads, if only in certain cases, to higher taxationbeing imposed on imported electricity.

Rodríguez Iglesias Gulmann Ragnemalm Schintgen Mancini Moitinho de Almeida Kapteyn Murray Edward Puissochet Hirsch Jann Sevón

Delivered in open court in Luxembourg on 2 April 1998.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: Finnish.