edition 166 eu tax alert · paid to non-resident holding company (juhler) vat - cj rules that...

EU Tax Alert

RECENT DEVELOPMENTS FOR TAX SPECIALISTS

EDITION 166

- Commission raises questions on Netherlands wage tax facility for seafarers scheme

- CJ rules that precluding application of reduced rate to supply of electronic books and other electronic publications does not infringe principle of fiscal neutrality (RPO)

- CJ rules that EU law and rules on State Aid do not preclude VAT debts from being declared irrecoverable under national legislation (Identi)

- Commission raises questions on Netherlands wage tax facility for seafarers scheme

- CJ rules that precluding application of reduced rate to supply of electronic books and other electronic publications does not infringe principle of fiscal neutrality (RPO)

- CJ rules that EU law and rules on State Aid do not preclude VAT debts from being declared irrecoverable under national legislation (Identi)

Highlights in this edition

3EU Tax Alert


- Commission raises questions on Netherlands wage tax

facility for seafarers scheme

- CJ rules that precluding application of reduced rate

to supply of electronic books and other electronic

publications does not infringe principle of fiscal

neutrality (RPO)

- CJ rules that EU law and rules on State Aid do not

preclude VAT debts from being declared irrecoverable

under national legislation (Identi)

State Aid / WTO

- Commission publishes decision concerning Starbucks

State aid case

Direct taxation

- German Court refers preliminary questions to the CJ

concerning withholding tax relief in case of dividends

paid to non-resident holding company (Juhler)

VAT

- CJ rules that reduced VAT rate does not apply to

oxygen concentrators, even if perceived to be similar to

products to which reduced VAT rate applies (Oxycure)

- AG Campos Sánchez-Bordona Opines that different

treatment in the UK regarding the dates from which

the limitation period applies for repayment and the

deduction of VAT is not contrary to EU law (Compass)

- AG Kokott Opines that exemption of Article 132(1)(f) EU

VAT Directive is not applicable to a group of insurance

undertakings and in cross-border situations (Aviva)

- AG Kokott Opines on scope of exemption for the

supply of services by independent groups for their

members ex Article 132(1)(f) EU VAT Directive (DNB

Banka)

- Commission launches public consultation on the

functioning of the administrative cooperation and fight

against fraud in the field of VAT

Customs Duties, Excises and other Indirect Taxes

- CJ rules on inclusion of royalty in customs value of

imported goods (GE Healthcare)

- CJ rules on conditions under which legitimate

expectations can be applied in the situation of post-

clearance recovery of duties (Veloserviss)

- CJ rules on CN classification of video camera recorders

(Grofa GmbH and GoPro)

- AG Ettema of the Netherlands Supreme Court delivers

Opinion in the Coal Taxation Case (X)

Contents

4

Highlights in this editionCommission raises questions on Netherlands wage tax facility for seafarers scheme

On 11 April 2017, the Commission raised questions to the

Netherlands government on the Netherlands flag limitations

applicable to Commercial Cruising Vessels (CCV) under

the wage tax facility for seafarers (afdrachtvermindering

zeevaart). Under this scheme, shipping companies and

other entities employing seafarers working on vessels flying

the Netherlands flag, are entitled to a reduction on the

wage tax and national insurance contributions payable to

the Netherlands tax authorities. This tax relief amounts to

40% of the seafarer’s qualifying remuneration if the seafarer

is a resident of the Netherlands or an EU/EEA country and

10% for other seafarers who are subject to Netherlands

national insurance and/or Netherlands wage tax.

If it is decided that the Netherlands flag limitation for

CCVs is prohibited under EU law and/or the Community

Guidelines on State aid to maritime transport, this, in our

view, also have an impact on other sea-going vessels

qualifying for the wage tax facility, such as cargo vessels,

dredgers and tugs. Accordingly, this could mean that

employers who are registered for wage withholding tax

purposes in the Netherlands, may also be able to claim

the facility for seafarers working on vessels with an EU/

EEA flag and not only for seafarers working on Netherlands

flagged vessels.

In light of this, we recommend you investigate:

- if and to what extent an extension of the scope of the

wage tax facility could impact your company; and

- what the potential benefit could be.

Depending on the outcome, you may consider filing a

letter of objection against the wage tax/national insurance

contribution payments (to be) made to the Netherlands

tax authorities. Such letter must be filed ultimately within 6

weeks after the payment date.

CJ rules that precluding application of reduced rate to supply of electronic books and other electronic publications does not infringe principle of fiscal neutrality (RPO)

On 7 March 2017, the CJ delivered its judgment in the

case Rzecznik Praw Obywatelskich (‘RPO’, C-390/15).

Based on the Polish VAT Act, supplies of publications

that are printed or on a physical support are subject to

the reduced VAT rate. However, based on the Polish VAT

Act the reduced VAT rate does not apply to the electronic

transmission of publications.

The Commissioner for Civic Rights requested the Polish

Constitutional Court to rule that the provisions in the Polish

VAT Act precluding the application of the reduced VAT

rate to the supply of electronic books and other electronic

publications do not comply with the Polish constitution.

Finally, the matter ended up with the Polish Constitutional

Court, which decided to stay the proceedings and to refer

to the CJ for a preliminary ruling. The Polish Constitutional

Court questions whether Article 98(2) of the EU VAT

Directive, read in conjunction with point 6 of Annex

III thereto, is invalid on the ground that it infringes the

principle of fiscal neutrality by precluding the application

of the reduced VAT rates to the supply of electronic books

and other electronic publications.

In the view of the CJ, it is apparent from the order for

reference that the doubts expressed by the Polish

Constitutional Court relate only to whether there is any

unequal treatment of the supply of digital books according

5EU Tax Alert


to whether they are transmitted using a physical support

or electronically. According to the CJ, the supply of digital

books on all physical means of support and the supply

of digital books electronically are comparable situations

that are treated differently. However, where a difference in

treatment between two comparable situations is found, the

principle of equal treatment is not infringed in so far as that

difference is justified. This is the case where the difference

in treatment relates to a legally permitted objective and

is proportionate to that objective. The CJ ruled that it

is necessary to make electronically supplied services

subject to clear, simple and uniform rules in order that the

applicable VAT rate to those services may be established

with certainty and that the administration of VAT by taxable

persons and national tax authorities is facilitated. As a

result, the CJ regards the measure as being appropriate

for achieving the objective.

CJ rules that EU law and rules on State aid do not preclude VAT debts from being declared irrecoverable under national legislation (Identi)


case Marco Identi (‘Identi’, C-493/15). In this case, a

district court in Italy granted Mr. Identi, general partner

of an insolvent company (himself was also bankrupt),

discharge from bankruptcy. Subsequent to that order,

the tax authorities issued a VAT assessment to Mr. Identi.

The tax authorities sought, before the Supreme Court of

Cassation in Italy, to have set aside on a point of law the

judgment of the regional tax court, which confirmed the

decision at first instance finding that tax assessment to be

unlawful.

The Supreme Court of Cassation in Italy decided to stay

the proceedings and to refer to the CJ for a preliminary

ruling. The referring courts asked whether EU law and the

rules on State Aid, must be interpreted to the effect that

it precludes VAT debts from being declared irrecoverable

under national legislation, providing for a bankruptcy

discharge procedure by means of which a court may,

under certain conditions, declare irrecoverable the debts

of a natural person which have not been settled by the

close of the bankruptcy proceedings initiated against that

person.

The CJ ruled that under the common VAT system, EU

Member States are required to ensure compliance with

the obligation to which taxable persons are subject, and

they enjoy in that respect a certain latitude, inter alia, as

how they use the means at their disposal. That latitude is

nevertheless limited by the obligation to ensure effective

collection of the EU’s own recourses and not to create

significant differences in the manner in which taxable

persons are treated, either within an EU Member State

or throughout the EU Member States. The Sixth Directive

must be interpreted in accordance with the principle of

fiscal neutrality. Moreover, the CJ ruled that the bankruptcy

discharge procedure is subject to strict conditions for its

application. Furthermore, it does not constitute a general

and indiscriminate waiver of collecting VAT and is not

contrary to the obligation on EU Member States to ensure

collection of all the VAT due on their territory as well as the

effective collection of the EU’s own recourses. Lastly, the

CJ ruled that discharge from bankruptcy as provided for in

the Law on insolvency and bankruptcy cannot be classified

as State aid.

State Aid/WTO

Commission publishes decision concerning Starbucks State aid case

On 29 March 2017, the Commission published the non-

confidential version of its 2015 version on the State aid

granted to Starbucks by the Netherlands. The decision

gave details of the Commission’s investigation into the

Netherlands tax and transfer pricing rules, and focused

its reasons for deciding that the Netherlands’s advance

pricing agreement (APA) with Starbucks constituted illegal

State aid.

Direct Taxation

German Court refers preliminary questions to the CJ concerning withholding tax relief in case of dividends paid to non-resident holding company (Juhler)

The Finanzgericht Köln court referred a request for

a preliminary ruling in the case Juhler Holding A/S v

Bundeszentralamt für Steuern. The case is now pending as

case C-613/16.

The first of the two questions referred is whether or not

Article 43 EC in conjunction with Article 48 EC - now

Article 49 TFEU in conjunction with Article 54 TFEU -

precludes national tax legislation that denies relief

from capital gains tax on distributed profits made to a

non-resident parent company (within which a group of

undertakings actively trading in the Member State in which

6

the parent company is established) is permanently spun

off as a holding company. This parent company is spun off

as a holding company to the extent that persons having

holdings in it who would not be entitled to the refund or

exemption if they earned the income directly; and

‘(1) there are no economic or other substantial reason for

the involvement of the non-resident parent company, or

(2) the non-resident parent company does not earn more

than 10% of its entire gross income for the financial

year in question from its own economic activity (there

being no such activity, inter alia, if the foreign company

earns its gross income from the management of

assets), or

(3) the non-resident parent company does not take

part in general economic commerce with a business

establishment suitably equipped for its business

purpose, whereas resident holding companies are

granted relief from capital gains tax without regard to

the aforementioned requirements?’

The second question was whether Article 5(1) in

conjunction with Article 1(2) of the Directive 90/435/EEC

precludes national tax legislation that denies relief from

capital gains taxation on distributed profits made to non-

resident parent companies. This parent company is spun

off as a holding company to the extent that persons having

holdings in it who would not be entitled to the refund or

exemption if they earned the income directly; and

‘(1) there are no economic or other substantial reasons for

the involvement of the non-resident parent company, or

(2) the non-resident parent company does not earn more

than 10% of its entire gross income for the financial

year in question from its own economic activity (there

being no such activity, inter alia, if the foreign company

earns its gross income from the management of

assets), or

(3) the non-resident parent company does not take

part in general economic commerce with a business

establishment suitably equipped for its business

purpose, whereas resident holding companies are

granted relief from capital gains tax without regard to

the aforementioned requirements?’

VAT

CJ rules that reduced VAT rate does not apply to oxygen concentrators, even if perceived to be similar to products to which reduced VAT rate applies (Oxycure)


case Oxycure Belgium NV (‘Oxycure’, C-573/15). Oxycure

is a Belgian company whose main business is hiring and

selling oxygen concentrators. In this matter, Oxycure

applied the Belgian reduced VAT rate of 6%. The national

provision, based on which the reduced VAT rate of 6%

is applied to oxygen cylinders, is based on Article 98(1)

and (2) of the VAT Directive and Annex III, points 3 and 4

thereto.

The Belgian tax authorities did not agree with the

application of the reduced VAT rate and took the view

that Oxycure’s transactions should have been subject

to the application of the standard VAT rate of 21%. The

Belgian Court of Appeal, where the matter finally ended

up, pointed out that oxygen concentrators are, along

with medical oxygen cylinders and medical liquid oxygen

tanks, one of three sources of oxygen available on the

market, and that those sources are all interchangeable

and/or complementary. The Belgian Court of Appeal

decided to stay the proceedings and to refer to the CJ

for a preliminary ruling. It asked whether Article 98(1) and

(2) of the EU VAT Directive and Annex III, points 3 and 4

thereto, read in the light of the principle of fiscal neutrality,

precludes national legislation to apply the standard

VAT rate to the supply of oxygen concentrators, while it

provides for a reduced VAT rate for the supply of oxygen

cylinders.

The CJ ruled that national legislation, which does not

provide for a reduced VAT rate for oxygen concentrators

is, in principle, compatible with Article 98 of the EU VAT

Directive. However, where an EU Member State chooses

to apply the reduced VAT rate selectively to certain

goods or services mentioned in Annex III to the EU VAT

Directive it must, according to the CJ, comply with the

principle of fiscal neutrality. The principle of fiscal neutrality

precludes treating similar supplies of services, which are in

competition with each other, differently for VAT purposes.

However, the CJ added that this principle cannot extend

the scope of a reduced VAT rate in the absence of

clear wording to that effect. Taking into account these

circumstances, the CJ ruled that the principle of fiscal

neutrality cannot require an EU Member State, which

7EU Tax Alert

uses the available option to apply the reduced VAT rate

to specific products in Annex III, to extend that reduced

VAT rate to oxygen concentrators, even if the latter are

perceived by the customer as being similar to products to

which that reduced VAT rate applies.

AG Campos Sánchez-Bordona Opines that different treatment in the UK regarding the dates from which the limitation period applies for repayment and the deduction of VAT is not contrary to EU law (Compass)

On 2 March 2017, AG Campos Sánchez-Bordona

delivered his Opinion in the case Compass Contract

Services Limited (‘Compass’, C-38/16). Compass is

a company which supplies cold food. In June 2006, it

was judicially recognized that certain services on which

Compass had charged and accounted for VAT in previous

tax periods were VAT exempt. Compass then sought

repayment of the VAT overpaid between 1 April 1973 and

2 February 2002. Compass was only repaid the sums

paid but not due between 1 April 1973 and 31 October

1996, since the right to claim the remaining sums was

time-barred. Compass appealed against this decision and

complained about the difference in treatment between

claims for a refund of incorrectly paid VAT, on the one

hand, and claims for VAT deduction, on the other. That

difference in treatment consists of the fact that the claim

for a refund of incorrectly paid VAT can succeed only if

they relate to tax periods which ended before 4 December

1996, whereas the time limit for the claim for VAT

deduction runs until 1 May 1997.

The matter ended up with the British Court, which

decided to stay the proceedings and refer to the CJ for

a preliminary ruling. The British court asked whether it

is contrary to EU law for a national measure, in laying

down rules governing the transitional period applicable to

reduced limitation periods, to treat claims for repayment

of overpaid VAT differently from claims for deduction of

VAT. Furthermore, the referring court asked how claims for

repayment of overpaid VAT relating to the reference period

(from 4 December 1996 to 30 April 1997), that is, relating

to the period between the dates on which the three-year

limitation period started to apply to each kind of claim (for

repayment or for deduction of VAT), should be treated.

The AG Opined that the existence of two dates with effect

from which the three-year period for each type of claim

was to be applicable, raises no issue of incompatibility

with EU law. The UK authorities could undoubtedly have

made different arrangements for the application to claims

of the new temporal rules, but according to the AG, the

way in which the limitation period for claims for a refund

of VAT paid but not due was governed retroactively is

not contrary to EU law, nor is the fact that that limitation

period differs from the period stipulated for claims for

deduction. Regarding the second question. the AG

Opines that the national court would have to draw the

appropriate conclusions from infringement of the principle

of equal treatment, in accordance with the rules of national

law relating to temporal effects, in such a way that the

remedies it grants are not contrary to EU law.

AG Kokott Opines that exemption of Article 132(1)(f) EU VAT Directive is not applicable to a group of insurance undertakings and in cross-border situations (Aviva)

On 1 March 2017, AG Kokott delivered her Opinion in

the case Aviva Towartzystwo Ubezpieczeń na Życie S.A.

w Warszawie (‘Aviva’, C-605/15). The Aviva Group (‘the

Group’) provides insurance services in Europe. The Group

is considering setting up a series of shared-service centres

in selected EU Member States, which will supply services

that are directly necessary for the exercise of insurance

activities by members of the Group. Solely members of the

Group can be part of that shared-service centres.

Before actually setting up the shared-service centres,

Aviva wished to ascertain whether the Group members

established in Poland are not obliged under the reverse

charge mechanism to account for and declare the VAT

payable on the costs passed on them by the Group, based

on the exemption of Article 132(1)(f) EU VAT Directive.

Aviva took the view that the question must be answered

in the affirmative. Finally, the matter ended up with the

Supreme Administrative Court of Poland, which decided to

stay the proceedings and refer to the CJ for a preliminary

ruling with respect to the exemption of Article 132(1)(f) EU

VAT Directive. The Polish Supreme Administrative Court

wishes to ascertain how to interpret the criteria that there

must be no ‘distortion of competition’ and that services

must be supplied by a ‘group of persons’ in cases where

the latter supplies cross-border services to its members.

Furthermore, the referring court wishes to ascertain

whether national legislature must prescribe further criteria

or procedures for the purposes of assessing the absence

or presence of a distortion of competition.

The AG opined that it follows from the schematic position

and purpose of Article 132(1)(f) EU VAT Directive that that

8

provision must be interpreted strictly and is not applicable

to a group of insurance undertakings such as that at

issue here. Furthermore, according to the AG, it must

be concluded that, even in the light of the fundamental

freedoms, Article 132(1)(f) EU VAT Directive is to be

interpreted strictly, as meaning that only the services which

a group supplies to those of its members that are situated

in the (same) territory of an EU Member State are covered

by the exemption. Lastly, the AG opined that a provision

of national law, which does not prescribe any criteria or

procedures with respect to compliance with the condition

that there must be no distortion of competition, is

compatible with Article 132(1)(f) EU VAT Directive as well as

with the EU law principles of effectiveness, legal certainty

and the protection of legitimate expectations.

AG Kokott Opines on scope of exemption for the supply of services by independent groups for their members ex Article 132(1)(f) EU VAT Directive (DNB Banka)

On 1 March 2017, AG Kokott delivered her Opinion in the

case DNB Banka AS (‘DNB Banka’, C-326/15). The case

concerns the VAT owed by the Latvian credit institution

DNB Banka, which is part of the DNB group. DNB Banka

provided exempt financial services and received various

services by other companies in the group. These services

concerned financial services provided by the parent

company established in Denmark, IT services provided by

a Danish sister company and transmission of costs by the

ultimate parent company in Norway.

According to the Latvian Regional Administrative Court,

DNB Banka evidently owes the customer. It is disputed

in this connection whether the services are exempt under

Article 132(1)(f) of the EU VAT Directive. The matter ended

up with the Latvian Regional Administrative Court, which

decided to stay the proceedings and to refer to the CJ for

a preliminary ruling. The Latvian Regional Administrative

Court questions whether an independent group of persons

for the purposes of Article 132(1)(f) EU VAT Directive must

be a separate entity or whether it may consist of a group

of related undertakings whose companies provide each

other with services. Furthermore, it asked whether and

under what conditions the exemption of Article 132(1)(f) of

the EU VAT Directive may also be applicable to a cross-

border group. Moreover, it asked whether this exemption

also applied where the taxable person has calculated the

price of the services based on the expenses incurred plus

an uplift.

The AG Opined that an independent group of persons

for the purpose of Article 132(1)(f) does not have to be a

legal person, but a taxable person within the meaning of

Article 9(1) EU VAT Directive. A group of related companies

does not as such satisfy this requirement. Furthermore,

Article 132(1)(f) EU VAT Directive covers only groups of

taxable persons which carry out exempt transactions.

Therefore, groups of financial services undertakings do not

fall within the scope of the Article, according to the AG.

The AG opined that groups of persons may supply exempt

services only to members that are subject to the same

legal order as its own. Moreover, according to the AG, the

exemption under Article 132(1)(f) EU VAT Directive is not

applicable where a consideration is paid for the supply

of services which goes beyond the expenses incurred.

According to the AG, this is also the case where a simple

flat-rate cost uplift is paid.

Commission launches public consultation on the functioning of the administrative cooperation and fight against fraud in the field of VAT

On 2 March 2017, the Commission started a public

consultation on the functioning of the administrative

cooperation and fight against fraud in the field of VAT.

The period of consultation will be from 2 March 2017 to

31 May 2017.

The context of the consultation revolves around the

Commission’s adopted Action Plan on VAT that was

released on 7 April 2016, with the goal of creating a single

EU VAT area. The Action Plan provides for clear orientation

towards a strong single European VAT area in relation to

the definitive VAT system for cross-border supplies. In

the view of reform, other aspects of VAT for cross-border

supplies must be examined, such as the administrative

cooperation and the fight against VAT fraud—such as the

carousel fraud—and the special rules for small enterprises,

etc.

The objective of the consultation is to fight against the

VAT fraud and provide higher resources for public policy

objectives. Towards this goal, business plays a direct

role in cooperation agreements through VAT identification

numbers and the VIES on the new service.

The Commission aims to update the rules governing the

administrative cooperation and the fight against cross

border VAT fraud with a view to improving the functioning

9EU Tax Alert

of the single market and tackling the heavy losses to the

Member States and EU revenues.

The listed purpose is as follows:

- to gather views from stakeholders about their

experience of the current rules governing administrative

cooperation and fight against cross-border fraud in the

field of VAT;

- to bring new insights for the on-going evaluation of

Regulation (EU) 904/2010;

- to provide information about possible improvements

including ‘VIES on-the-web’.

- to collect quantitative data on possible reduction or

increase of regulatory costs/benefits (administrative

burden and/or compliance costs) for businesses (in

particular, SMEs).

Customs Duties, Excises and other Indirect Taxes

CJ rules on inclusion of royalty in customs value of imported goods (GE Healthcare)


GE Healthcare case (C-173/15). The case concerns

the inclusion of royalty in the customs value of imported

goods. The royalties are paid to a related part.

GE Medical Systems Deutschland GmbH & Co. KG (‘GE

Germany’) concluded a standard-form licence agreement

with Monogram Licensing International Inc. (‘M’), both

undertakings belonging to the General Electrics group (the

‘GE Group’).

Under Article II A of that agreement, M grants to GE

Germany, subject to a royalty and strict adherence to

the quality standards established by the parties, a non-

exclusive licence to use the GE Group trade mark (the ‘GE

trade mark’) for goods and services manufactured, sold

and supplied by GE Germany. In addition, M granted GE

Germany a royalty-free, non-exclusive licence to use the

GE trade mark as it thought fit for the sale of the goods to

other subsidiaries belonging to the GE Group, their use for

test purposes or as samples, or for scrap. GE Germany

was also permitted, without royalties, to make use of

products under the trade mark in its commercial dealings

with another undertaking, also belonging to the GE Group,

which had also been allowed to use the GE trade mark

under similar conditions to those set out in the licence

agreement between M and GE Germany.

In order to ensure strict adherence to the quality standards

established by the parties regarding the goods and

services manufactured, sold and supplied by GE Germany,

M had extensive powers of supervision and could, if quality

standards were not met, terminate the agreement at short

notice. The date on which royalties were due under Article

II A of the licence agreement was set at 31 December of

each calendar year. For the use of the GE trade mark, the

royalties amounted to 0.95% of GE Germany’s annual

turnover and to 0.05% of GE Germany’s annual turnover

for the use of the trade name of the GE Group.

In a customs inspection covering the period from

1 October 2007 to 31 December 2009, the Customs

Office found in a report of 8 September 2010, in particular,

that GE Germany had acquired goods originating in third

countries from undertakings belonging to the GE Group

but had, wrongly according to that office, not declared the

corresponding royalties in the customs value declarations

for those goods. Consequently, on 30 September 2010,

the Customs Office issued a notice of assessment for

import duties in the amount of EUR 14,985.09.

After having paid those duties, GE Germany applied on

21 July 2011 to have them refunded under Article 236

of the Customs Code on the ground that, in its view, the

royalties owed under the licence agreement should not

have been added to the customs value of the goods at

issue under Article 32 of the Customs Code.

By decision of 9 March 2015, the Customs Office turned

down GE Germany’s application for a refund on the ground

that the customs values used as a basis were correct.

Meanwhile, on 31 August 2011, GE Healthcare had

become the universal successor of GE Germany.

On 11 March 2015, GE Healthcare brought an action

before the referring court against the decision of the

Customs Office of 9 March 2015. That court, minded to

apply Article 32(1)(c) of the Customs Code in the case

brought before it, was unsure as to the precise scope of

that provision.

In those circumstances, the Finanzgericht Düsseldorf

(Finance Court, Düsseldorf, Germany) decided to stay the

proceedings and to refer the following questions to the

Court for a preliminary ruling:

‘1. Can royalties or licence fees within the meaning of

Article 32(1)(c) of the Customs Code be included in

the customs value even if it is not established, either at

10

the time at which the contract was concluded or at the

relevant date as regards the incurring of the customs

debt (the latter date being determined in the event of

any dispute in accordance with Articles 201(2) and

214(1) of the [Customs] Code), that royalties or licence

fees were owed?

2. If the reply to Question 1 is in the affirmative: can

royalties or licence fees for trademarks within the

meaning of Article 32(1)(c) of the Customs Code relate

to the imported goods notwithstanding the fact that

those royalties or licence fees are also paid for services

and for the use of the first part of the name of the

common group of undertakings?

3. If the reply to Question 2 is in the affirmative: can

royalties or licence fees for trademarks within the

meaning of Article 32(1)(c) of the Customs Code be a

condition of the sale for export to the Community of

the imported goods within the meaning of Article 32(5)

(b) of the Customs Code even if they are payable, and

paid, to an undertaking related to the seller and to the

buyer?

4. If the reply to Question 3 is in the affirmative and

the royalties or licence fees relate, as here, partly to

the imported goods and partly to post-importation

services: does it follow from the appropriate

apportionment made only on the basis of objective

and quantifiable data, in accordance with Article 158(3)

of Regulation No 2454/93 and the interpretative note

on Article 32(2) of the Customs Code in Annex 23 to

Regulation No 2454/93, that only a customs value

in accordance with Article 29 of the Customs Code

may be corrected, or, if a customs value cannot

be determined in accordance with Article 29 of the

Customs Code, is the apportionment laid down in

Article 158(3) of Regulation No 2454/93 also possible,

in so far as those costs would not otherwise be taken

into account, when determining a customs value to

be established in accordance with Article 31 of the

Customs Code?’

The CJ ruled as follows:

1. Article 32(1)(c) of Council Regulation (EEC) No 2913/92

of 12 October 1992 establishing the Community

Customs Code, as amended by Council Regulation

(EC) No 1791/2006 of 20 November 2006, must

be interpreted as, first, not requiring the amount of

royalties or licence fees to be determined at the time

when a licence agreement was concluded or when the

customs debt was incurred in order for those royalties

or licence fees to be regarded as related to the goods

being valued and, second, allowing such royalties or

licence fees to be ‘related to the goods being valued’

even if those royalties or licence fees relate only partly

to those goods.

2. Article 32(1)(c) of Regulation No 2913/92, as amended

by Regulation No 1791/2006, and Article 160 of

Commission Regulation (EEC) No 2454/93 of 2 July

1993 laying down provisions for the implementation of

Regulation No 2913/92, as amended by Commission

Regulation (EC) No 1875/2006 of 18 December 2006,

must be interpreted as meaning that royalties or licence

fees are a ‘condition of sale’ of the goods being valued

where, within a single group of undertakings, those

royalties or licence fees are required to be paid by an

undertaking related to both the seller and the buyer

and were paid to that same undertaking.

3. Article 32(1)(c) of Regulation No 2913/92, as amended

by Regulation No 1791/2006, and Article 158(3) of

Regulation No 2454/93, as amended by Regulation

No 1875/2006, must be interpreted as meaning that

the adjustment and apportionment measures, referred

to in those provisions respectively, may be applied

where the customs value of the goods at issue has

been determined, not on the basis of Article 29 of

Regulation No 2913/92, as amended, but on the basis

of the alternative method laid down in Article 31 of that

regulation.

CJ rules on conditions under which legitimate expectations can be applied in the situation of post-clearance recovery of duties (Veloserviss)

On 16 March 2017, the CJ delivered its judgment in

the Veloserviss case (C-47/16). The case concerns the

conditions under which legitimate expectations can be

applied in the situation of post-clearance recovery of duties

On 17 May 2007, Veloserviss imported into the European

Union bicycles originating in Cambodia, for release for

free circulation. In accordance with the certificate of origin

issued by the Cambodian Government on 16 February

2007, Veloserviss paid neither customs duties nor VAT.

In 2008, the tax authority undertook a first post-clearance

examination relating to the period when the bicycles at

issue were imported. Since no irregularity was found in

relation to them, Veloserviss complied with the decision

made following that examination.

11EU Tax Alert

In 2010, the tax authority received information from the

European Anti-Fraud Office (OLAF) to the effect that the

certificate of origin issued by the Cambodian Government

in respect of the goods at issue did not comply with EU

law.

On the basis of that information, the tax authority

conducted a second post-clearance examination of the

single administrative document completed by Veloserviss,

and found that customs duty exemptions had been unduly

granted in respect of those goods.

Consequently, by decision of 23 July 2010, the tax

authority ordered Veloserviss to pay the relevant customs

duties and VAT, together with interest for late payment.

Veloserviss subsequently brought an action for the

annulment of that decision.

Following the appeal proceedings, the Administratīvā

apgabaltiesa (Regional Administrative Court, Latvia),

by judgment of 27 March 2014, upheld the annulment

of the decision of the tax authority of 23 July 2010,

holding, in particular, that, under Article 23(1) of the

national legislation on duties and taxes, the tax authority

was not empowered to conduct a fresh post-clearance

examination of the declared goods in question, as the

first examination had given rise to a legitimate expectation

on the part of Veloserviss and Veloserviss had complied

with all requirements relating to the filing of the customs

declaration, in that it could not objectively know that the

competent Cambodian authority had issued a certificate

which did not comply with the requirements of EU law.

Consequently, Veloserviss had acted in good faith.

The tax authority appealed against that judgment before

the referring court.

By decision of 11 September 2014, that court made a first

request for a preliminary ruling concerning, in essence, the

question whether Article 78(3) of the Customs Code allows

a restriction of the possibility for the customs authorities

to undertake a post-clearance examination for a second

time, as is provided by the Latvian legislation on duties and

taxes.

The Court answered that question in the negative in its

judgment of 10 December 2015, Veloserviss (C-427/14).

The referring court considered, however, in the context

of the same appeal before it, that the latter raises

further questions relating to the concept of ‘good faith’

of the person liable for payment, within the meaning of

Article 220(2)(b) of the Customs Code.

In that context, the tax authority maintained, according

to that court, that the Administratīvā apgabaltiesa

(Regional Administrative Court) held without any basis

that Veloserviss had acted in good faith, so that it could

not rely on Article 220(2)(b) of the Customs Code. In

paragraphs 36 and 40 of the judgment of 8 November

2012, Lagura Vermögensverwaltung (C-438/11), the Court

held that the assessment made by the authorities of the

exporting country as to the validity of Form A certificates

of origin cannot be binding upon the European Union and

its Member States when the customs authorities of the

importing country have doubts as to the true origin of the

goods.

Veloserviss contended, before the referring court, that

the Administratīvā apgabaltiesa (Regional Administrative

Court) was correct to apply that provision, given that, first,

neither the customs authorities of the importing country

nor itself, in its capacity as importer, could determine that

the services of the exporting country had committed an

error and, secondly, that Veloserviss had acted in good

faith when providing to the tax authority the information

in its possession and about which it had knowledge.

To that effect, the Administratīvā apgabaltiesa (Regional

Administrative Court) was entitled to rely on Commission

Decision C(2012) 8694 of 30 November 2012, finding that

it was justified in dispensing with post-clearance recovery

in a particular case (file REC 01/2011), since the factual

circumstances which led the Commission to adopt that

decision are effectively the same as those of the case at

issue in the main proceedings.

In that regard, the referring court considered that it follows

from the Court’s case law relating to Article 220(2)(b) of

the Customs Code, that where the exporter committed an

error when providing information, it is possible to proceed

to the post-clearance recovery. By contrast, if the error

was committed by the customs authorities of the exporting

country, which knew or should have known that the goods

at issue did not satisfy the requisite conditions, the issue of

an incorrect certificate must not, according to that court,

cause prejudice to the importer.

That court sought clarification, however, concerning the

application of Article 220(2)(b) of the Customs Code,

in a case such as that before it, where an OLAF report

emphasises the fact not only that the exporter provided

12

inaccurate information to the customs authorities of the

exporting country, but also that the customs authorities

of the exporting country committed errors when issuing

the Form A certificate of origin. It also questioned to what

extent it was necessary to take into consideration the legal

and factual assessment carried out by OLAF.

In those circumstances, the Augstākās tiesas

Administratīvo lietu departaments (Administrative Chamber

of the Supreme Court, Latvia) decided to stay the


Court for a preliminary ruling:

‘(1) Should the importer’s obligation to act in good faith,

laid down in Article 220(2)(b) of [the Customs Code], be

defined as meaning that:

(a) it includes an obligation on the importer to verify

the circumstances in which the Form A certificate

granted to the exporter was issued (certificates

regarding the parts which constitute the goods,

the role of the exporter in the manufacture of the

goods, etc.)?

(b) the importer acted in bad faith for no other

reason than that the exporter acted in bad faith

(for example, where the exporter failed to reveal

the true origin of the costs, the value of the parts

which constitute the goods, etc., to the customs

authorities of the exporting country)?

(c) the obligation to act in good faith has not been

fulfilled for no other reason than that the exporter

submitted incorrect information to the customs

authorities of the exporting country, and that is so

even where the customs authorities themselves

committed errors in issuing the certificate?

(2) May the importer’s obligation to act in good faith,

laid down in Article 220(2)(b) of [the Customs Code]

be deemed to be sufficiently proved by virtue of the

general description of the situation set out in the

communication from OLAF and by virtue of OLAF’s

findings, or should the national customs authorities

nevertheless obtain additional evidence regarding the

conduct of the exporter?


1. Article 220(2)(b) of Council Regulation (EEC)

No 2913/92 of 12 October 1992 establishing the

Community Customs Code as amended by Regulation

(EC) No 2700/2000 of the European Parliament

and of the Council of 16 November 2000 must be

interpreted as meaning that an importer may not

rely on a legitimate expectation, in accordance with

that provision, in order to object to a post-clearance

incurring of liability for import duties, submitting that he

acted in good faith, unless three cumulative conditions

are met. It is necessary, first of all, that those duties

were not levied as a result of an error on the part of

the competent authorities themselves, secondly, that

that error was such that it could not reasonably have

been detected by a person liable for payment acting in

good faith and, finally, that that person complied with

all the provisions laid down by the legislation in force

as regards his customs declaration. Such a legitimate

expectation is lacking, in particular, where, although

there are clear reasons for doubting the accuracy of a

Form A certificate of origin, an importer failed to obtain,

using his best efforts, information concerning the

circumstances of the issue of that certificate in order to

verify whether those doubts were well founded. Such

an obligation does not however mean that an importer

is required, in general, to systematically verify the

circumstances of the issue, by the customs authorities

of the exporting country, of a Form A certificate of

origin. It is for the referring court to determine, taking

into account all of the specific facts of the dispute in

the main proceedings, whether those three conditions

are met in this case.

2. Article 220(2)(b) of Regulation No 2913/92, as

amended by Regulation No 2700/2000, must be

interpreted as meaning that, in a case such as that

at issue in the main proceedings, it can be deduced

from the information contained in an European Anti-

fraud Office (OLAF) report that an importer may not

rely on a legitimate expectation, in accordance with

that provision, in order to object to a post-clearance

incurring of liability for import duties. To the extent,

however, that such a report contains only a general

description of the situation at issue, which it is for the

national court to determine, it cannot, on its own,

suffice in order to show to the requisite legal standard

that those conditions are indeed met in all respects,

in particular as regards the relevant conduct of the

exporter. In those circumstances, it is, in principle, for

the customs authorities of the importing country to

prove, by means of additional evidence, that the issue,

by the customs authorities of the exporting country, of

an incorrect Form A certificate of origin is attributable

to an incorrect statement of the facts by the exporter.

However, where the customs authorities of the

importing country are unable to adduce that evidence,

it is, as the case may be, for the importer to prove that

that certificate was issued on the basis of a correct

statement of the facts by the exporter.

13EU Tax Alert

CJ rules on CN classification of video camera recorders (Grofa GmbH and GoPro)

On 22 March 2017, the CJ delivered its judgment in

the joined cases Grofa GmbH and GoPro Cooperatief

UA (C-435/15 and C-666/15). The cases concern the

classification in the Combined Nomenclature (CN) of

certain video camera recorders.

The disputes in the main proceedings and the questions

referred for a preliminary ruling

Case C‑435/15

GROFA is a company which imports cameras from the

manufacturer GoPro Coöperatief, which are battery-

powered electronic devices particularly suitable for

recording sport and leisure activities. The case in the main

proceedings concerns three camera models in the GoPro

Hero 3 Black Edition range (‘the cameras at issue in Case

C-435/15’).

According to the referring court, the cameras at issue

in Case C-435/15 have an LCD display but do not have

a viewfinder. The cameras have several photographic

functions and have a fixed-focus distance lens. The sound

and visual data captured by the lens and the built-in

microphone are stored on an MP4 H.264 file format on

a removable memory card. Those cameras do not have

a digital zoom, loudspeaker or built-in internal memory.

The software of the cameras at issue in Case C-435/15

encodes the data recorded in such a way that it is possible

to distinguish between the files produced by those

cameras and those from external sources.

The cameras can record up to 120 minutes of video at 30

frames per second with a resolution of at least 1 920 ×

1 080 pixels in video in loop mode. Video footage of more

than 26 minutes and 3 seconds is stored in a number

of MP4 H.264 files, each with a maximum duration of

26 minutes 3 seconds. However, anyone watching the

recording will not perceive the transition from one file to the

next.

The cameras at issue in Case C-435/15 have a memory

card slot, a HDMI port, a mini USB port which is

compatible with a composite A/C cable and a 3.5 mm

stereo microphone adapter and integrated WiFi and a

HERO port.

The image files and videos stored on the memory card

may be displayed on a television or a computer screen

via the unidirectional HDMI port and the unidirectional

connection with a composite A/C cable.

The bidirectional WiFi allows the cameras at issue in Case

C-435/15 to be controlled remotely by radio, tablet or

smartphone on which the data recorded on the memory

card is displayed. The WiFi interface does not allow a

screenshot of the video files. Only the image files and

videos stored on the memory card and recorded by those

cameras can be displayed. Files from other sources are

not supported by the cameras and the message ‘File not

supported’ is shown on the monitor or screen.

The cameras at issue in Case C-435/15 can be connected

to a computer via the mini USB port which recognises

the memory card from those cameras as an external hard

drive. Thanks to the scanning software of the computer

supporting the MP4 format, the image files and videos

on the memory card can be reproduced on a screen

connected to the computer. Image files or videos on the

memory card of the cameras at issue in Case C-435/15

can also be stored on a computer and, conversely,

computer data can be transferred on to the memory card

of those cameras. That storage process is controlled

by the computer’s file management software. In those

circumstances, the cameras cannot be used. There are

no other storage options for image and video data on the

memory card of those cameras.

On 5 December 2012, GROFA applied to the Hauptzollamt

for binding tariff information (‘BTI’), proposing that the

cameras at issue in Case C-435/15 be classified under

subheading 8525 80 91 of the CN.

By the BTI of 21 January 2013, the Hauptzollamt classified

those cameras under tariff subheading 8525 80 99 of the

CN. On 22 February 2013, GROFA lodged a complaint

against that BTI, this time requesting a classification

under tariff subheading 8525 80 30 of the CN. By

decision of 20 August 2014, the Hauptzollamt rejected

GROFA’s complaint, finding that the cameras at issue in

Case C-435/15 are multifunctional machines, within the

meaning of Note 3 to Section XVI of the CN, whose main

function is that of a video camera recorder. According to

the Hauptzollamt, those cameras should be classified as

‘other’ video camera recorders under tariff subheading

8525 80 99 of the CN. The Hauptzollamt relied, in the first

place, on the Explanatory Notes to the CN concerning

position 8525, according to which multifunction digital

cameras must not be classified as digital cameras if they

are capable, using the maximum storage capacity, of

14

recording, in a quality of 800 × 600 pixels (or higher) at

23 frames per second (or higher) at least 30 minutes in

a single sequence of video. That is the case in respect

of the cameras at issue in Case C-435/15. The fact that

the video sequences are stored on more than one file on

the memory card after 26 minutes and 4 seconds has no

effect on the total duration of the recording. In the second

place, the Hauptzollamt considered that the fact that those

cameras can store video files with sound, transferred from

an exterior source via the USB port, is characteristic of a

recording of images and sound, within the meaning of tariff


GROFA brought an action before the referring court

seeking the classification of the cameras at issue in Case

C-435/15 under subheading 8525 80 30 of the CN or, in

the alternative, under subheading 8525 80 91 of the CN

as video camera recorders which have no autonomous

capacity to record signals from external sources.

The referring court asked, in the first place, whether

Implementing Regulation No 1249/2011, classifying

‘pocket sized video recorders’ under subheading

8525 80 99 of the CN may be applied by analogy in the

present case.

In the event that Implementing Regulation No 1249/2011

is applicable by analogy, the referring court questioned

the validity of that regulation as, according to the annex

to that regulation, a camera which can ‘record video

files from sources other than the incorporated television

camera’ so that ‘the video files can be transferred to the

apparatus from an automatic data-processing machine via

the USB interface’, should be classified under subheading

8525 80 99 of the CN as ‘other video camera recorder’.

According to the referring court, that interpretation of the

concept of ‘other recording capability’, within the meaning

of subheading 8525 80 99 of the CN, is incompatible with

the case law of the Court which requires that the recording

process is operated from the video camera recorder itself.

In the second place, the referring court considered that

Implementing Regulation No 876/2014, classifying ‘action

cameras’ under subheading 8525 80 99 of the CN,

might be applicable by analogy to the cameras at issue

in Case C-435/15. However, that court also had doubts

concerning the validity of that regulation as, first, the annex

thereto provides that the transfer of data to the camera

from an automatic data-processing machine is considered

to be a ‘recording capability’ which excludes classification

under subheading 8525 80 91 of the CN, contrary to the

case law of the Court and that, secondly, Implementing

Regulation No 876/2014 does not take into account that

the cameras in question cannot reproduce video files from

external sources via a connected monitor, contrary to what

is set out in the Explanatory Notes to the CN concerning


In the third place, the referring court asked, in the

alternative, whether the relevant explanatory notes to the

CN preclude the classification of the cameras at issue

in Case C-435/15 under subheadings 8525 80 91 and

8525 80 99 of the CN, since after 26 minutes and 4

seconds the video data recorded on those cameras is

not stored on a single file, which might call into question

whether those cameras are able to make continuous video

recordings within the meaning of those explanatory notes.

In the fourth place, the referring court was uncertain as

to the implications for the classification of the cameras at

issue in Case C-435/15 of the fact that those cameras

record signals from external sources but are not capable

of reproducing them via an external monitor or television. It

observed that the Explanatory Notes to the CN concerning

subheading 8525 80 99 thereof state that the images

recorded must be capable of being reproduced via a

television or an external monitor.

In those circumstances, the Finanzgericht Hamburg

(Finance Court, Hamburg, Germany) decided to stay the


Court of Justice for a preliminary ruling:

‘(1) (a) Is Commission Implementing Regulation

No 1249/2011 applicable by analogy to the

products which are the subject of the main

proceedings (GoPro HERO3 ‘Black Edition’, ‘Black

Edition Surf’, and ‘Black Edition Motorsport’)?

(b) If the answer to that question is in the affirmative: Is

Implementing Regulation (EU) No 1249/2011 valid?

(2) If the answer to question 1(a) or 1(b) is in the negative:

(a) Is Implementing Regulation No 876/2014

applicable by analogy to the products which are

the subject of the main proceedings?

(b) If the answer to that question is in the affirmative: Is

Implementing Regulation (EU) No 876/2014 valid?

(3) If the answer to question 1(a) or 1(b) is in the negative:

Are the Explanatory Notes to subheadings 8525 80 91

and 8525 80 99 of the CN to be interpreted as

meaning that a sequence of video recorded in separate

files each having a duration of less than 30 minutes is

a recording of ‘at least 30 minutes in a single sequence

15EU Tax Alert

of video’ if, when the recording is played, the viewer

cannot perceive the switch between different files?

(4) If the answer to question 1(a) or 1(b) is in the negative,

and the answer to questions 2(a), 2(b) and 3 is in the

affirmative: Does the fact that video camera recorders

which are able to record signals from external sources

are not able to reproduce those signals on an external

television receiver or an external monitor preclude their

being classified under subparagraph 8525 80 99 CN?’

Case C‑666/15

This request for a preliminary ruling was made in the

context of proceedings concerning five cases between two

companies, X and GoPro Coöperatief, and the Netherlands

customs authorities concerning several BTI for five models

of camera belonging to the GoPro Hero edition classifying

those cameras under subheading 8525 80 91 of the CN or

under subheading 8525 80 99 of the CN.

The five cases concern camera models GoPro Hero 3

Silver Edition, GoPro Hero 3 + Silver Edition, GoPro Hero 4

Silver Edition, GoPro Hero 4 Black Edition and GoPro Hero

(‘the cameras at issue in Case C-666/15’).

Concerning the GoPro Hero 3 Silver Edition camera, one

of the applicants in the main proceedings requested its

classification under subheading 8525 80 30 of the CN

or, in the alternative, under subheading 8525 80 91 of

the CN, whilst the national customs authority maintained

that that camera must be classified under subheading

8525 80 99 of the CN. As regards the other cameras

at issue in Case C-666/15, the applicants in the main

proceedings requested their classification under

subheading 8525 80 30 of the CN, whilst the national

customs authority maintained that those cameras should

be classified under subheading 8525 80 91 of the CN.

According to the referring court, it is not disputed that

the cameras at issue in Case C-666/15 can be placed

in ‘video record’ mode for longer than 30 minutes for

recordings with a resolution of 800 × 600 pixels (or higher)

at 23 frames per second (or higher). In that regard, it stated

that a recording of more than 30 minutes is stored by

those cameras in different video files which are recognised

as separate files when they are played back, the playback

stopping at the end of each file. The user must click on

a new file and press ‘play’ in order to play back the next

file. The referring court added that those cameras only

allow files that have been recorded on those cameras to

be watched. Moreover, the instructions for all the cameras

at issue in Case C-666/15 state that they offer a ‘looping’

option which permits them to record for longer than 30

minutes before a new video is recorded over the previous

video (overwriting).

The referring court also noted that a particularly important

factor for the tariff classification of the cameras at issue in

Case C-666/15 is whether they are able to record sound

and images taken by the television camera only and

whether those cameras can record video of 30 minutes or

longer in one recording.

In those circumstances, the Rechtbank Noord-Holland

(District Court, Noord Holland, Netherlands) decided to

stay proceedings and to refer the following questions to

the Court for a preliminary ruling:

‘(1) Are the Commission’s Explanatory Notes to

subheading 8525 80 30 and to subheadings

8525 80 91 and 8525 80 99 of the Combined

Nomenclature to be interpreted as meaning that there

are also ‘at least 30 minutes in a single sequence of

video’ in the case where, by means of a ‘video record’

mode, sequences of video together lasting longer than

30 minutes are recorded, but those sequences of video

are recorded in separate files, each with a duration of

less than 30 minutes, and the user must, when playing

back, open each file with a duration of less than 30

minutes separately, although it is possible, with the

aid of the software supplied by GoPro, to place the

sequences, which have been incorporated into those

files, on a personal computer one after another and

thereby save a single video sequence of more than

30 minutes’ duration in a single file on a personal

computer?

(2) Is classification, under CN subheading 8525 80 99, of

video camera recorders which can record sequences

from external sources precluded in the case where

the sequences cannot be played back via an external

TV receiver or an external monitor because those

video camera recorders, such as the GoPro Hero 3

Silver Edition, can play back, on an external screen or

monitor, only files which they have recorded via their

own lenses?’

Judgment of the CJ


1. Commission Implementing Regulation (EU)

No 1249/2011 of 29 November 2011 concerning

the classification of certain goods in the Combined

Nomenclature must be interpreted as meaning that

16

it does not apply by analogy to products with the

characteristics of the three camera models in the

GoPro Hero 3 Black Edition range at issue in Case

C-435/15.

2. Commission Implementing Regulation (EU)

No 876/2014 of 8 August 2014 concerning the

classification of certain goods in the Combined

Nomenclature must be interpreted as meaning

that it is applicable by analogy to products with the

characteristics of the three camera models in the

GoPro Hero 3 Black Edition range at issue in that case,

but that it is invalid.

3. Subheadings 8525 80 30, 8525 80 91 and 8525 80 99

of the Combined Nomenclature, set out in Annex I

to Council Regulation (EEC) No 2658/87 of 23 July

1987 on the tariff and statistical nomenclature and

on the Common Customs Tariff, in the versions

resulting, successively, from Commission Regulation

(EU) No 1006/2011 of 27 September 2011,

from Commission Implementing Regulation (EU)

No 927/2012 of 9 October 2012 and from Commission

Implementing Regulation (EU) No 1001/2013 of

4 October 2013, must be interpreted, having regard

to the Explanatory Notes to the CN concerning those

subheadings, as meaning that video footage of more

than 30 minutes recorded in separate files each

lasting less than 30 minutes must be considered to

be a recording of at least 30 minutes of a single piece

of video footage, irrespective of whether the user is

unable to perceive the transition from one file to the

next during the playback of those files or, conversely,

whether he must, in principle, during that playback,

open each of the files separately.

4. The Combined Nomenclature set out in Annex I to

Regulation No 2658/87, in the versions resulting,

successively, from Implementing Regulations

No 1006/2011, No 927/2012 and No 1001/2013,

must be interpreted as meaning that a video camera

recorder which is capable of recording from signals

from external sources, without, however, being able

to reproduce them by means of an external television

receiver or monitor, that video camera recorder being

able to play on an external screen or monitor only files

which it has itself recorded through its lens, cannot be

classified under tariff subheading 8525 80 99 of that

Combined Nomenclature.

AG Ettema of the Netherlands Supreme Court delivers Opinion in the Coal Taxation Case (X)

On 1 February 2017, Advocate General Ettema of the

Netherlands Hoge Raad (Supreme Court) delivered her

Opinion in case X v Netherlands Financial Secretary (case

15/05429) dealing with taxation of coal. Netherlands

import duties are levied on coal imported from Russia

which is used for energy production. However, Article

14, Paragraph 1, sub a of Directive 2003/96/EC (the

‘Directive’) explicitly exempts the import of coal from being

subject to any import duties. Nevertheless, the second

paragraph of this article allows Member States to levy

taxes for ‘environmental reasons’. The Netherlands uses

this exception to justify taxation of imported coal, and

deletes the exemption that was previously included in

Netherlands law.

The plaintiff, a Netherlands energy company, initiated

proceedings to challenge the Netherlands import duties.

Both the lowest court and the Court of Appeal concluded

that Netherlands law is not in contravention of Article

14, Paragraph 1, sub a of the Directive. The case was

eventually referred on two points of further appeal to the

Netherlands Supreme Court. The Netherlands Advocate

General, Ettema, first responded to those points of further

appeal, which are 1) that the ‘environmental reasons’

have been falsely invoked by the Netherlands legislature

to justify import duties; and 2) that Article 11 of the

Agreement concerning partnership and collaboration

between the Communities and their Member States (the

‘Agreement’), read in conjunction with Article 110 TFEU

and the GATT, prohibit the discrimination of ‘like products’

(assuming that Russian coal and Netherlands gas are like

products).

The AG introduced the answer to the first point of further

appeal by presenting CJ case law that deals with the

interpretation of Article 14, paragraph 1, sub a of the

Directive. First of all, in case Flughafen Koeln/Bonn

(C-226/07), the direct effect of this provision is confirmed.

Simply not implementing the import duty on coal

exemption is not sufficient in order to justify exceptions

given in the second paragraph of the article. Explicit

use of the exception is required, but the extent to which

remains unclear. More generally speaking, the CJ held

that exemptions need be interpreted restrictively, such

that exceptions to the exemption should, on the contrary,

be interpreted extensively. This conclusion, however, is

not shared by the AG. The exemption was introduced to

17EU Tax Alert

avoid double taxation, which could arise if both the (coal)

input and the (electricity) output would be taxed; only in

cases of exception can the law deviate from this obligation.

This means that the exemption needs to be interpreted

extensively, but exceptions to the exemption should be

interpreted restrictively. The meaning of ‘environmental

reasons’ is unclear in the Directive itself, therefore, it needs

some more thorough case law analysis. The AG argues

that case Polihim-SS (C-355/14) implies that Member

States have some discretionary power to give meaning to

wording such as ‘environmental reasons’ if the Directive

does not provide such a clear meaning. This discretionary

power is limited by the basic principles of EU law, one of

which is proportionality. Case Transportes Jordi Besora

(C-82/12) deals with the Excise Duty Directive 92/12/EEC,

and the meaning of the term ‘specific purpose’ (which

also includes environmental considerations) in Article 3,

paragraph 2 thereto. According to the CJ, budgetary

reasons can play a role in designing exceptions to the

rule, as long as lawful, recognized reasons (such as

environmental reasons) have also played a role, and the

actual measure has a genuine effect on the environment,

which is the intended aim of the measure. Abolishing

the exemption, therefore, is not necessarily contrary to

the Directive as long as environmental reasons are taken

into consideration and the exception to the rule actually

contributes to the reduction of environmental pollution. The

Advocate General, however, also cites Member State-level

cases in which this particular positive environmental result

of the exception is not deemed present. Because of this,

the Advocate General has put three questions to the CJ

concerning the environmental considerations under Article

14, paragraph 1, sub a of the Directive.

1. Are the environmental considerations as presented

by the Netherlands legislature sufficient to be in

accordance with Article 14, paragraph 1, sub a of the

Directive? Do the same criteria apply as for Article 3,

paragraph 2 of the Excise Duty Directive?

2. Does the use of the exception as provided for under

Article 14, paragraph 1, sub a of the Directive need to

produce genuine environmental effects or is it sufficient

that environmental reasons are partly the basis for the

exception itself?

3. If a Member State makes use of the exception

provided for in Article 14, paragraph 1, sub a, does it

have to levy import duties on all energy products, or

can it suffice by only excepting one, coal in this case?

The second point of further appeal referred to the Supreme

Court deals with the potentially discriminatory nature of the

Netherlands import duties on coal imported from Russia

in relation to Article 110 TFEU. The AG cites case Simba

SpA e.a. (C-228/90 - C-234/90) when stating that the

anti-discriminatory obligations of Article 110 TFEU do not

only apply with respect to inter-EU trade, but potentially,

also apply in relation to trade with third countries, such as

Russia. The Agreement concluded with Russia contains

paragraphs more or less comparable to Article 110 TFEU,

which are paragraphs 2 and 3 of Article 11 that do not

allow a less favourable treatment for like products which,

also on the basis of paragraphs 8 to 10, Article III of the

GATT, are applicable between the countries part of the

Agreement. GATT, however, does not give rights that

individuals can use to oppose national legislation such as

in the current case. Assuming, however, the direct effect

of Article 11 of the Agreement, the Advocate General went

on to analyse the possible discriminatory nature of the

Netherlands import duty on Russian coal.

The more substantial questions that first need to be

answered for the answer to the second point of further

appeal are 1) what is the relation between article 11 of the

Agreement and article 110 TFEU; and 2) whether coal and

gas are like products, since a duty comparable to the one

on Russian coal is not levied on Netherlands gas.

For the answer to the first sub-question, the Advocate

General dives into CJ case law and cites case Metalsa

(C-312/91) in stating that weight of the meaning of a

TFEU paragraph for the interpretation of a somewhat

comparable or identical article of an agreement between

the EU and a third country depends on the purpose of

the respective paragraphs, and that particular importance

needs to be attached to the goals and context of the

particular Agreement and the TFEU. If there is too great

a divergence between the two latter, the meaning and

interpretation of the two paragraphs of the respective

treaties need to be interpreted separately. In both Metalsa

case and Kupferberg case (104/81) the meaning of TFEU

articles and their third-country-treaties counterparts are

considered separate, mainly given the different objectives

of the respective treaties. However, from Kupferberg case

and Camar case (C-102/09) it also follows that terms

such as the ‘likeness [(of products)]’ is a term which is

comminatory that needs uniform interpretation. Thus,

although Article 110 TFEU as such is not applicable to

the Agreement, the term ‘like products’ needs uniform

interpretation, therefore, will take place in the light of CJ

case law.

This conclusion and answer to the first sub-question paves

the way for answering the second sub-question, that of

the potential likeness of Russian coal and Netherlands gas.

18

What are like products? First of all, identical products fall

within this scope. The plaintiff, however, argues that gas

and coal are like products, something more questionable

at first hand. X deals with the likeness of first and second

hand cars. What is decisive, is whether products are in

a competitive position on the market because of their

features and because of the needs that are met. Given

that that the features of gas and coal are different (both in

form and in use), the two are not considered ‘like products’

in the sense of Article 110 TFEU and Article 11 of the

Agreement.

The question remains, however, whether Article 11 of

the Agreement also prohibits discriminatory measures on

products that are not necessarily ‘like’, but are competing

in the same market as in the second paragraph of

Article 110 TFEU. The Agreement, however, only makes

reference to like products, and not simply competing

products (which would give extended meaning to the anti-

discriminatory clauses of the Agreement). The Agreement

itself does not give any reason to extend the meaning of

discriminatory treatment of like products. An interpretation

of X could be that there is also a matter of like products

if, because of their features and the needs they serve,

those products are in a competitive position. The Advocate

General, however, regards this test as part of the overall

test to establish likeness between two products, and not

as a criterion to solely establish discrimination between

two products. Also on the basis of case Camar, the AG

concludes that an Agreement between the EU and a third

country needs to specifically mention discrimination on the

basis of competitiveness as such, in order to make it part

of the Agreement. The second paragraph, as opposed

to the first one, of Article 110 TFEU is not automatically

applicable to Agreements that only deal with discrimination

between like products.

Therefore, since coal and gas are not like products as

such, the sole fact that there is competition on the energy

market between the two does not establish discrimination,

given that such a specific test has not explicitly been made

part of the Agreement between Russia and the EU.

19EU Tax Alert

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Editorial board

For contact, mail: [email protected]:

- Thies Sanders (Loyens & Loeff Amsterdam)

- Dennis Weber (Loyens & Loeff Amsterdam;

University of Amsterdam)

Editors

- Patricia van Zwet

- Bruno da Silva

Correspondents

- Gerard Blokland (Loyens & Loeff Amsterdam)

- Kees Bouwmeester (Loyens & Loeff Amsterdam)

- Almut Breuer (Loyens & Loeff Amsterdam)

- Robert van Esch (Loyens & Loeff Rotterdam)

- Raymond Luja (Loyens & Loeff Amsterdam;

Maastricht University)

- Lodewijk Reijs (Loyens & Loeff Rotterdam)

- Bruno da Silva (Loyens & Loeff Amsterdam;

University of Amsterdam)

- Patrick Vettenburg (Loyens & Loeff Rotterdam)

- Ruben van der Wilt (Loyens & Loeff Zurich)

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