Judgment_paragraph 2. · Commission of the European Communities v French Republic (90/79)

2.The Commission then goes on to consider the pleas advanced by the French Government in its defence and contends first of all that it is impossible to resolve the dispute between the two parties to the action without raising the question whether there is or is not in fact any domestic production. A unilaterally imposed tax which is basically aimed at imports alone and is borne by foreign goods by reason of their crossing a frontier constitutes a charge having an effect equivalent to a customs duty.The Commission considers it necessary to analyse the concept of internal taxation within the meaning of Article 95 of the EEC Treaty in order to refute the French Government's argument that it is immaterial whether or not there is any domestic production.(a) Although there is no exhaustive definition of that concept it has been clarified by the Court by means of the expression “general system of domestic charges” (judgment of the Court of 25 January 1977 in Case 46/76 Bauhuis [1977] ECR 5) or general internal system of fiscal charges (judgment of 22 March 1977 in Case 74/76 Iannelli [1977] ECR 557) so that the tax applies “without distinction to all categories of products, whether domestic or imported”, like the turnover tax which was the subject-matter of the judgment of the Court of Justice of 4 April 1968 in Case 31/67 Stier [1968] ECR 235. Although Article 95 allows a general internal system to be extended to products imported from other Member States, it does so in order to provide a balance between imported and domestic products. In its judgment of 4 April 1968 (Stier) the Court was careful to state that “in fact such a tax, when charged on importation, even on products not competing with domestic products, is intended to place in a comparable fiscal situation all categories of products, whatever their origin”.(b) In its Bauhuis judgment the Court admittedly held that there is “internal taxation” when domestic and imported products are taxed systematically according to the same criteria but where domestic production is non-existent that condition is not automatically fulfilled by the mere fact that a national fiscal rule provides for equal treatment of imports and domestic products.The use of such a fiscal arrangement is in reality a circumvention of the prohibition on charges having equivalent effect which the Court has specifically condemned (judgment of 1 July 1969 in Joined Cases 2 and 3/69 Diamantarbeiders, cited above).(c) Those observations likewise apply if domestic production is so insignificant that in real economic terms it should be regarded as negligible. If that were not so a Member State could, by introducing “internal taxes” in the sectors in which there is no significant domestic production, cause the principle of the free movement of goods to be undermined. The problem of applying the criterion “negligible” or “insignificant” to domestic production is therefore fundamental in evaluating the tax in issue.(d) The French Government's argument as to the allegedly arbitrary nature of the concept of negligible production is especially surprising in view of the fact that it was used by its representative to justify the introduction of the tax (sitting of the Senate of 22 November 1975). It is apparent from the debates on the tax that it was calculated mainly on the basis of imports and was in fact aimed at them only. That fact reveals the true intention of the French legislature.It is further apparent from those debates that instead of considering the internal tax and particularly the rate thereof and then extending it to imports, the French Government proceeded in precisely the reverse order. Having studied on the one hand the volume of imports of reprographic equipment and on the other hand the revenue which it required, it first established the rate of tax needed to bring in the pre-determined amount of revenue and only then applied that tax, at the same rate, to French products in the knowledge that they were almost non-existent.(e) The criterion of “negligible” or “insignificant” domestic production is not at all abritrary. It can be quantified according to a given situation and it is moreover applied in other areas of Community law, particularly in the field of competition. Although application of the criterion may prove difficult that is certainly not the case here and furthermore the criterion is always subject to judicial review. When applied to the facts of this case it necessarily leads to the conclusion that the levy in issue cannot be regarded as an internal tax.