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February 2013 - edition 114EU Tax Alert

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Highlights in this editionCouncil agrees to enhanced cooperation on Financial Transaction TaxOn 22 January 2013, the ECOFIN Council adopted a decision authorising 11 Member States (Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, Slovakia) to proceed with the introduction of a Financial Transaction Tax through enhanced cooperation.

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ContentsTop News• Council agrees to enhanced cooperation on

Financial Transaction Tax

State Aid / WTO• Liechtenstein R&D regime found not to be State aid

• CJ emphasises the need to take timing into account

as part of a private creditor test

Direct taxation• CJ rules in line with National Grid Indus that

the Netherlands has failed to amend its exit tax

rules with respect to companies and businesses

(Commission v Netherlands)

• Advocate General opines that interest on repayment

of tax charged contrary to EU law is due from the

date of payment of the tax and not from the date of

claim for repayment (Irimie)

• Developments in the Netherlands: Court of Appeal

of Amsterdam refers preliminary questions to the

CJ in three cases regarding the compatibility of the

Netherlands fiscal unity regime with the freedom of

establishment

• Commission asks Denmark to amend its rules

regarding exit taxation of individuals

• Commission closes infringement procedure against

Poland regarding taxation of foreign pension and

investment funds

VAT• CJ rules that re-invoiced costs of insurance fall

under VAT exemption (BGZ Leasing)

• CJ rules that Spain has incorrectly applied the

reduced VAT rate on certain pharmaceutical and

medical supplies (Commission v Spain)

• CJ clarifies the definition of ‘building land’ for VAT

purposes (Woningstichting Maasdriel)

• Commission proposal for derogating measure

allowing the Netherlands to apply the reverse charge

mechanism to certain supplies

• Commission communication on requests for

derogating measures by France, Germany and

Austria

• Council authorises Latvia to continue to apply the

reverse charge mechanism for supplies of timber

• Council authorises Portugal to continue to apply a

special scheme for doorstep sales

• Commission requests Poland to amend its VAT rules

for medical equipment and pharmaceutical products

Customs Duties, Excises and other Indirect Taxes• Advocate General opines on criteria for determining

the limits applicable to the transport of products

subject to excise duty (Commission v France)

• European Parliament backs EU’s first Economic

Partnership Agreement with Africa

• Customs: strengthening the security of the supply

chain

• Drug precursors: Commission adopts proposal for

a Council decision on the signing of an EU-Russia

agreement

4 5

found that Slovakian tax authorities did not act as a

private creditor when they decided to partially waive a

tax claim against Frucona Košice.

In its present judgment, the CJ pointed out that the

General Court should have taken the duration of a

possible bankruptcy procedure into account, as the

value of sums due would be dependent on the time it

would take to collect those sums. Timing would be of

significant influence to a normal creditor when deciding

whether to file for bankruptcy or to participate in a

creditor arrangement. The CJ instructed the General

Court to give a new judgement and to reflect explicitly

on this plea made by the defendant.

Liechtenstein R&D regime found not to be State aid On 12 December 2012, the EFTA Surveillance Authority

found the proposed changes to the Liechtenstein

R&D regime not to amount to State aid. Liechtenstein

had proposed to introduce a tax deduction of 80% of

the positive income from intellectual property rights.

Qualifying rights were broadly defined. Besides income

from registered trademarks, designs and patent rights,

income from software as well as technical and scientific

databases would also qualify.

The Authority found that the tax authorities would not

have a margin of discretion in awarding the deduction,

nor would the deduction be limited to certain sectors of

the economy as the presence of R&D activities would be

the only criterion. As a result, the R&D measure lacked

selectivity.

Direct TaxationCJ rules in line with National Grid Indus that the Netherlands has failed to amend its exit tax rules with respect to companies and businesses (Commission v Netherlands) On 31 January 2013, the CJ delivered its judgment

in the case Commission v Netherlands (C-301/11).

In this infringement procedure, initiated by the

Top NewsCouncil agrees to enhanced cooperation on Financial Transaction TaxOn 22 January 2013, the Economic and Financial Affairs

(ECOFIN) Council adopted a decision authorising 11

Member States (Belgium, Germany, Estonia, Greece,

Spain, France, Italy, Austria, Portugal, Slovenia,

Slovakia) to proceed with the introduction of a Financial

Transaction Tax (‘FTT’) through enhanced cooperation.

The decision was taken by qualified majority voting. In

the voting, the Czech Republic, Luxembourg, Malta and

the United Kingdom abstained.

The Council emphasised in its Press Release that it is

only the third time that an enhanced cooperation has

been launched to allow a limited number of Member

States to proceed with a particular measure, and the

first time in the area of taxation.

The Commission will now make a proposal defining

the substance of the enhanced cooperation, which will

have to be adopted by unanimous agreement of the

participating Member States.

(For more on the Commission’s original proposal

for a directive on the common system of FTT of

28 September 2011 see EU Tax Alert no. 97, October

2011. For more on the procedure for enhanced

cooperation see EU Tax Alert no. 110, November 2012.)

State Aid/WTOCJ emphasises the need to take timing into account as part of a private creditor test On 24 January 2013, the CJ annulled the General

Court’s 2010 decision in the Frucona Košice case

(C-73/11P). (For the decision of the General Court in

case T-11/07 see EU Tax Alert edition no. 88, January

2011). In the annulled decision, the General Court had

5

case. The CJ’s ruling, however, is silent in this respect.

Finally, we note that this judgment has a wider scope

than National Grid Indus, as it also concerns businesses

carried on by individuals.

Advocate General opines that interest on repayment of tax charged contrary to EU law is due from the date of payment of the tax and not from the date of claim for repayment (Irimie) On 13 December 2012, Advocate General Wathelet

delivered his Opinion in the Irimie case (C-565/11)

concerning the question whether or not Romanian

legislation, which provides for the payment of interest on

tax to be repaid from the day following the date of the

claim for repayment and not from the date of payment of

the tax, is compatible with EU law.

In the case at hand, the applicant, Ms Irimie, had to pay

a pollution tax upon the registration of a motor vehicle

from another Member State. After the Court had held

in Tatu (C-402/09) that such tax was contrary to Article

110 TFEU, the applicant sought the repayment of the

tax together with the statutory interest from the date

of payment of the tax to the date of actual repayment.

Romanian law provides, however, that interest on sums

to be repaid from public funds can be paid only from

the day following the date of the claim for repayment.

In this context, the national court before which the

claim for repayment was filed referred a question

to the CJ for preliminary ruling asking whether such

national legislation was compatible with the principles

of equivalence, effectiveness and proportionality and

with the right to property guaranteed by Article 17 of the

Charter of Fundamental Rights of the European Union

(‘Charter’).

The Advocate General observed that it was not clear

whether the action in the main proceedings was an

action for restitution or for compensation for damages.

In any event, it is not for the CJ to classify the legal

action in the main proceedings. First, assuming that the

action was a claim for restitution he recalled that the

right to obtain repayment of taxes that are incompatible

Commission against the Netherlands, the CJ ruled

that the Netherlands has failed to amend exit tax

rules on unrealized capital gains upon transfer of a

company or business to another Member State. The

Netherlands has exceeded the prescribed period to

amend its legislation as requested by the Commission

in its reasoned opinion. An intention of the government

to amend its exit rules is insufficient to avoid the

declaration of infringement.

On 23 September 2008, the Commission sent a request

for information to the Netherlands with regard to its exit

tax rules applicable to unrealized capital gains upon a

transfer of a company or business to another Member

State. According to the Commission, taxation of such

unrealized capital gains could be in breach of Article 49

TFEU. Following the reasoned opinion (see EU Tax Alert

edition 78, April 2010), in the absence of amendment

to the legislation, the Commission decided to refer the

Netherlands to the CJ (see EU Tax Alert edition 86,

December 2010).

The outcome of this infringement procedure is not

surprising taking into account CJ’s judgement in the

case National Grid Indus (C-371/10, see EU Tax Alert

edition no. 99, December 2011) in which it was decided

that exit tax rules are allowed as long as an option

for the deferral of the payment of tax due is granted.

The Netherlands had not amended its exit tax rules

by the deadline prescribed in the reasoned opinion

(24 November 2010) which is decisive in this respect.

Amendments since that date should not be taken into

account according to the CJ. Consequently, it makes

no difference that the Netherlands complied with the

National Grid Indus judgment by issuing a decree with

retroactive effect to 29 November 2011 (see EU Tax

Alert edition 102, February 2012), as well as the fact

that a bill is currently pending before the Upper House

of Parliament (see EU Tax Alert edition 111, December

2012).

During the legislative process, the State Secretary

had promised to suggest a limited period of deferral of

payment of tax due at the hearing of the infringement

6 7

Developments in the Netherlands: Court of Appeal of Amsterdam refers preliminary questions to the CJ in three cases regarding the compatibility of the Netherlands fiscal unity regime with the freedom of establishmentThe Court of Appeal of Amsterdam referred in three

cases preliminary questions to the CJ regarding the

limits on the possibilities of forming a fiscal unity under

Netherlands laws. Two cases concern, in simplified

terms, a situation in which a Netherlands parent

company holds via a foreign subsidiary a Netherlands

sub-subsidiary and the two Dutch companies have

requested to form a fiscal unity (case 1 and 2). The

other case concerns, in simplified terms, a foreign

parent company which holds Netherlands sister

companies. These sister companies have also

requested to form a fiscal unity (case 3).

Under Netherlands law it is possible for a Netherlands

parent company to form a fiscal unity with Netherlands

subsidiaries if these subsidiaries reside in the

Netherlands and if the Netherlands parent company

holds 95% or more of the shares in these (sub)

subsidiaries. If the subsidiary does not reside in

the Netherlands, it is possible to form a fiscal unity

between the Netherlands parent company and the

Netherlands sub-subsidiary if the shares in the

Netherlands sub-subsidiary can be allocated to a

permanent establishment of the foreign subsidiary which

is situated in the Netherlands. Furthermore, it is also

possible to form a fiscal unity between two Netherlands

sister companies which are held by a foreign parent

company if the shares in these sister companies can

be allocated to a permanent establishment situated

in the Netherlands of the foreign parent company.

Consequently, the Netherlands tax inspector refused

in all three cases to approve the fiscal unities as the

sub-subsidiary was held via a foreign subsidiary and the

shares in the sister companies could not be allocated to

a Netherlands permanent establishment.

with EU law is the consequence and complement of the

rights conferred on individuals by the provisions of EU

law. The right to repayment is a subjective right derived

from the legal order of the EU. He referred to the

principle of procedural autonomy of the Member States

and its limits, that is, the principle of equivalence and

effectiveness. As regards the obligation of the Member

States to pay interest on the principal sum which is to be

repaid in the case of collecting tax in breach of EU law,

the Advocate General observed that this was uncertain.

Thereafter, he recalled the previous case law on the

question, specifically Ansaldo Energia (C-279/96 to

C-281/96), Metallgesellschaft (C-397/98 and C-410/98)

and FII Group Litigation (C-446/04). On the basis of

the latest case in the line of the case law, Littlewoods

Retail (C-591/10), he took the position that the right to

interest representing an adequate indemnity for the loss

occasioned through the undue payment of tax contrary

to EU law – instead of being ancillary – ranks equally

with the right to repayment of the tax and is therefore a

subjective right derived from the legal order of the EU.

In his view, that subjective right necessarily entails the

payment of interest from the date of payment of the tax,

as it is obvious that it is from that date, and not from any

other subsequent date, that the taxpayer suffers a loss

arising from the unavailability of the sums in question.

If the claim in the main proceedings were to be an

action for compensation for damages the result would

be the same, as an award of interest from the date of

payment of the tax in question seems to be essential

for adequate reparation for the loss caused by the

infringement of Article 110 TFEU given that it was from

that date that the taxpayer suffered loss due to the

unavailability of the sums in question.

Finally, the Advocate General pointed out that his

conclusion, which considers the right to interest having

the same status as the right to repayment of tax unduly

paid, is not based on the principles of effectiveness and

proportionality or the right to property laid down in the

Charter.

7

Does it affect the answer to question one that the

sister companies do not have a common direct

foreign parent company but nevertheless have a

common indirect foreign parent company? (case 3)

3. If question one is answered affirmative, is the

restriction on the freedom of establishment justified?

4. If question three is answered affirmative, is

the restriction on the freedom of establishment

proportional?

Commission asks Denmark to amend its rules regarding exit taxation of individualsOn 24 January 2013, the Commission requested

Denmark to amend its rules which levy an exit tax on

capital gains accrued on shares held by individuals upon

the individual’s change of residence. The request takes

the form of a reasoned opinion (the second stage of the

infringement procedure under Article 258 TFEU).

When a person leaves Denmark to take up residence

in another Member State, the gain made on his/her

portfolio of shares is calculated and taxed. This tax is

then collected from the individual either when the shares

from his/her portfolio are sold, or when he/she receives

dividends or other types of income from these shares.

The Commission considers that the Danish legislation

breaches the free movement of persons and capital set

out in the TFEU and goes beyond what is necessary

to prevent tax avoidance. Consequently, Denmark is

requested to change its legislation within two months to

bring it in line with EU law. Failing this, the Commission

may refer the case to the CJ.

Commission closes infringement procedure against Poland regarding taxation of foreign pension and investment fundsOn 24 January 2013, the Commission announced that

it closed the infringement procedure against Poland

regarding foreign investment and pension funds (see

EU Tax Alert edition no. 94, July 2011), as Poland had

amended its legislation.

The taxpayers argued that these requirements are in

conflict with the freedom of establishment under Article

49 TFEU, as it is possible for a Netherlands parent

company to form a fiscal unity with its Netherlands sub-

subsidiary if the interposed subsidiary also resides in

the Netherlands and forms part of the fiscal unity (case

1 and 2). With respect to case 3, the argument is that it

should be compared to a situation where a Netherlands

parent company forms a fiscal unity with its Netherlands

subsidiaries through which a fiscal unity between the

sister companies can be created .

The Court of Appeal ruled that there is access to the

TFEU as the companies made use of their right under

the freedom of establishment, as in all the three cases

the companies conducted on a permanent basis

economic activities in another Member State. The

fact that it is not possible in the underlying cases to

form a fiscal unity between the Netherlands entities is,

according to the Court of Appeal, an obvious obstacle.

However, it is not completely clear to the Court of

Appeal (i) which domestic situation must be compared

to the situation in the underlying cases, (ii) whether

the potentially conflicting provision is justified and

(ii) whether the potentially conflicting provision is

proportional.

Therefore the Court of Appeal referred several questions

to the CJ which could be combined and summarized as

follows:

1. Is there a restriction to the freedom of establishment

in the underlying case? With which domestic

situation must the situation of the case at hand be

compared?

2. Does the fact that the Netherlands sub-subsidiary is

held by one or more foreign subsidiaries affect the

answer to question one? (case 1)

Does it affect the answer to question one that it

would have been possible for the foreign subsidiary

to hold the shares in the sub-subsidiary via a

Netherlands permanent establishment but it has not

done so? (case 2)

8 9

CJ rules that Spain has incorrectly applied the reduced VAT rate on certain pharmaceutical and medical supplies (Commission v Spain)On 17 January 2013, the CJ delivered its judgment

in the case of Commission v Spain (C-360/11). This

infringement procedure concerns the application of

the reduced VAT rate on pharmaceutical products and

medical devices. According to the Commission, Spain

applies the reduced VAT rate on a broader category of

goods than that provided for in points 3 and 4 of Annex

III to the EU VAT Directive. Spain, on the other hand,

takes the view that the action of the Commission should

be dismissed by the CJ.

The first complaint of the Commission relates to the use

of the reduced VAT rate on medical substances which

are habitually and suitably used in the manufacturing

of medical products. The CJ ruled that point 3 of Annex

III to Directive 2006/112 permits a reduced VAT rate for

medicinal substances only if they are likely to be used

directly by final consumers for health care, prevention

of illnesses and as treatment for medical and veterinary

purposes. As a result, the CJ found the complaint of the

Commission well founded.

Secondly, the Commission claimed that Spain

incorrectly applies the reduced VAT rate on the supply

of medical devices, material, equipment and appliances

used only to prevent, diagnose, treat, alleviate or cure

human or animal illnesses or ailments. The CJ agreed

with the Commission that point 4 of Annex III to the EU

VAT Directive would be rendered meaningless if, based

on point 3 of Annex III, a reduced VAT rate could be

applied to any medical device or appliance, irrespective

of the intended usage thereof. Therefore, the CJ ruled

that points 3 and 4 of Annex III to the EU VAT Directive

do not allow for a reduced VAT rate for medical devices,

material, equipment and appliances used only to

prevent, diagnose, treat, alleviate or cure human or

animal illnesses or ailments, but which are not normally

intended to alleviate or treat disability, for the exclusive

personal use of the disabled.

VAT CJ rules that re-invoiced costs of insurance fall under VAT exemption (BGZ Leasing)On 17 January 2013, the CJ delivered its judgment

in the BGŻ Leasing case (C-224/11). BGZ is a Polish

leasing company. According to the general conditions of

the contracts concluded between BGZ and its clients,

BGZ remained owner of the leased items throughout

the duration of the lease. BGZ required that the leased

items were insured. In this regard, BGZ offered to

provide its clients with insurance. For clients that wished

to take up that offer, BGZ subscribed the corresponding

insurance with an insurer and re-invoiced the cost of

that insurance to the client.

BGZ took the view that the re-invoicing of the cost of the

insurance was exempt from VAT. According to the Polish

tax authorities, however, the insurance services were

ancillary to the leasing services and as such, subject to

VAT at the same rate as the principal service, namely

the leasing transaction. Eventually the matter ended up

before the Supreme Administrative Court, which decided

to refer preliminary questions to the CJ.

The CJ ruled that any insurance transaction necessarily

has a connection with the item it covers, but that such a

connection in itself is not sufficient to determine whether

there is a single transaction for VAT purposes. According

to the CJ, the aim of the exemption for insurance

transactions would otherwise be called into question.

Moreover, the CJ ruled that the supply of insurance

services for a leased item and the supply of the leasing

services, in principle, must be regarded as distinct and

independent supplies of services. According to the CJ,

this is only different if the transactions are so closely

linked that they must be regarded as one supply. In

this regard, the CJ ruled that when a lessor insures the

leased item itself and re-invoices the exact costs of that

insurance to the lessee, such transaction falls under

the VAT exemption for insurance services within the

meaning of Article 135(1)(a) of the EU VAT Directive.

9

and Woningstichting Maasdriel had not yet obtained the

necessary planning permission for its construction plans

for the land, which was still at the planning and design

stage.

The parties took the view that it concerned a supply of

building land and that the supply, therefore, was subject

to VAT. As a result, no Netherlands transfer duty would

be due on the real estate. The tax inspector, however,

considered that the supply at issue concerned land

which had not been built on, not being building land,

and therefore, took the position that the supply was VAT

exempt and that it was taxable with the transfer duty.

Woningstichting Maasdriel went to court. In the following

proceedings, the Netherlands Supreme Court was not

sure whether the Netherlands conditions on the basis

of which it was determined whether land qualifies as

building land were compatible with EU VAT law. Based

on these conditions, the demolition work by itself did not

have the effect of allowing that land to be classified as

‘building land’ despite the intention of the parties to use

the land for the construction of new buildings.

The CJ ruled that the conditions set out in the national

legislation were too strict. According to the CJ, the

definition of building land covers all land which has

not been built on, and which is intended to support

a building and, therefore, intended to be built on.

According to the CJ, the declared intention of the parties

therefore has to be taken into consideration, provided

that it is supported by objective evidence. In this regard,

the CJ indicated that it was clear from the order for

reference that at the time of supply, the demolition

work of the building had been carried out or, as regards

the car park, would be carried out, for the purposes

of reconstruction. Should the referring court come to

the conclusion, based on the factual circumstances

and objective evidence, that the land was intended to

be built on, the CJ concluded that the VAT exemption

of Article 135(1)(k) of the EU VAT Directive would not

apply.

Thirdly, the Commission claimed that Spain incorrectly

applies the reduced VAT rate on aids and equipment

which may be used essentially or primarily to treat

physical disabilities in animals. In this regard, the CJ

ruled that the complaint of the Commission should also

be upheld, because it is not in line with the EU VAT

Directive to apply the reduced VAT rate to such goods

used for the treatment of animals.

The fourth and final complaint of the Commission

related to the use by Spain of the reduced VAT rate

on aids and equipment essentially or primarily used to

treat human disabilities, but which are not intended for

the exclusive personal use of the ‘disabled’. According

to CJ, it is apparent from the very meaning of the

words ‘personal’ and ‘exclusive’ in point 4 of Annex III

that that point does not relate to devices for general

use. According to the CJ, a more general use is

therefore excluded. Consequently, the CJ ruled that a

reduced VAT rate may not be applied to apparatus and

accessories used essentially or primarily to alleviate

physical disability in humans, but which are not intended

for the exclusive personal use of the disabled.

CJ clarifies the definition of ‘building land’ for VAT purposes (Woningstichting Maasdriel)On 17 January 2013, the CJ delivered its judgment

in the case of Woningstichting Maasdriel (C-543/11).

Woningstichting Maasdriel purchased land from the

municipality of Maasdriel. At that time, there was a

building on the land which had been used as a library.

Next to the building was a public, surfaced car park.

Woningstichting Maasdriel intended to have homes

built on the land, possibly combined with offices with

parking facilities. It was agreed that the vendor would be

responsible for the demolition of the building as well as

for the removal of the surface of the car park.

After the building had been demolished and the

resulting rubble removed, the land was supplied to

Woningstichting Maasdriel. At that time, the car park

was still in use, as the surface had yet to be removed

10 11

Council authorises Portugal to continue to apply a special scheme for doorstep salesOn 22 January 2013, the Council decided to allow

Portugal to continue to apply an earlier measure

derogating from Articles 168, 193 and 250 of the EU VAT

Directive relating to a special optional scheme for firms

active in the doorstep sales business. The measure

would, in principle, have expired on 31 December 2012.

However, the Council allowed Portugal to continue to

apply the derogating measure until 31 December 2015.

Commission requests Poland to amend its VAT rules for medical equipment and pharmaceutical productsOn 24 January 2013, the Commission formally

requested Poland to amend its legislation which

allows for a reduced VAT rate to be applied to medical

equipment and pharmaceutical products beyond the

scope of what is allowed under EU VAT law. According

to the Commission, Poland incorrectly applies the

reduced VAT rate to medical equipment of general use,

and to certain non-medical pharmaceutical products.

The Commission’s request takes the form of a reasoned

opinion (second step of the infringement procedure).

In the absence of a satisfactory response within two

months, the Commission may refer the matter to the CJ.

Customs Duties, Excises and other Indirect TaxesAdvocate General opines on criteria for determining the limits applicable to the transport of products subject to excise duty (Commission v France)On 19 December 2012, Advocate General Cruz Villalon

(‘AG’) delivered his Opinion in the case of Commission

v France (C-216/11). The case deals with the criteria

for determining the limits applicable to the transport of

Commission proposal for derogating measure allowing the Netherlands to apply the reverse charge mechanism to certain suppliesOn 17 December 2012, the Commission published

a proposal for a Council Decision that allows the

Netherlands, in derogation from Article 193 of the EU

VAT Directive, to apply the reverse charge mechanism

for supplies of mobile phones, integrated circuit devices,

game consoles, laptops and tablet PCs, for which the

taxable amount is equal to or higher than EUR 10,000.

The aim of the proposed derogation is to combat VAT

evasion.

Commission communication on requests for derogating measures by France, Germany and AustriaFrance, Germany and Austria have requested for

derogating measures allowing them to apply the reverse

charge mechanism on supplies of gas and electricity.

In addition, the request from France relates to supplies

of telecommunications services. The aim of the

derogations is to combat VAT fraud.

In a communication of 6 December 2012, the

Commission indicated that the requests do not fulfil

the conditions laid down in Article 395 of the EU VAT

Directive and would have a considerable negative

impact on other Member States and on the Internal

Market as a whole. Therefore, the Commission objected

to the requested derogations.

Council authorises Latvia to continue to apply the reverse charge mechanism for supplies of timberIn order to combat VAT fraud, Latvia was allowed, based

on an earlier measure derogating from Article 193

of the EU VAT Directive, to apply the reverse charge

mechanism on supplies of timber. The derogating

measure, in principle, expired on 31 December 2012.

However, in an Implementing Decision of 22 January

2013, the Council decided to extend this measure until

31 December 2015.

11

On 20 November 2006, the Commission sent France

a request for information relating to the provisions and

administrative practices applicable to the importation

of tobacco from other Member States. In the light of

the information provided by the French authorities, the

Commission sent those authorities a letter of formal

notice, dated 23 October 2007, in which it complained

that France had infringed Articles 8 and 9 of Directive

92/12 and what was then Article 28 EC (now Article 34

TFEU).

On 23 November 2009, the Commission sent a

reasoned opinion, requesting France to take all the

measures necessary to adapt its legislation and internal

practices within a period of two months from the date of

receipt of the reasoned opinion. Following two meetings

between the Commission and the French authorities,

by a letter dated 15 July 2010, the French authorities

notified to the Commission of the draft provisions

amending the national legislative framework, which

were intended to bring domestic law into line with EU

law. However, on 21 December 2010, the National

Assembly refused to approve the draft law and retained

in force the provisions which the Commission claims

are unlawful. Therefore, the Commission brought the

present action for failure to fulfil obligations.

The AG proposed that the Court:

(1) Declare that, by implementing the measures

provided for in Articles 575 G and 575 H of the

General Tax Code, and a settled administrative

practice, pursuant to which the quantitative criteria

for determining the use of tobacco, which are the

sole criteria provided for by the national authorities,

are calculated by vehicle and by general categories

of products and not by person and by specific

categories of products, the French Republic has

failed to fulfil the obligations incumbent on it under

Council Directive 92/12/EEC of 25 February 1992

on the general arrangements for products subject

to excise duty and on the holding, movement and

monitoring of such products.

products subject to excise duty and the relationship

between the fundamental freedoms and secondary

legislation.

In France, the following provisions applied with effect

from 1 January 2006 to purchases of tobacco by private

individuals in another Member State, with the exception

of the 10 new Member States:

- ‘Five cartons of cigarettes (in other words, 1

kilogram of tobacco) may be transported without

holding a movement licence.

It is to be noted that the threshold applies to each

individual mode of transport or to each person over

the age of 17 in the case of public transport (the

latter meaning any mode of transport carrying more

than nine people, including the driver).

- Where between six and 10 cartons are transported,

a simplified accompanying document (SAD) must be

presented. In the absence of a SAD, a traveller who

undergoes checks risks confiscation of the tobacco

and a penalty. The traveller may relinquish the

goods. In that case, no penalty will be imposed.

To obtain this document, the first French customs

office next to the border has to be visited.

- It is prohibited to bring in more than 10 cartons of

cigarettes (or 2 kilograms of tobacco) in all other

cases. A traveller who undergoes checks risks the

penalties (confiscation of the tobacco and a penalty)

referred to above.

In the case of public modes of transport (aircraft, ship,

bus, train), these provisions will apply individually to

each passenger.’

The Commission considered that the French provisions

are not in line with the Directive 92/12/EEC on the

general arrangements for products subject to excise

duty and on the holding, movement and monitoring of

such products (‘Directive 92/12’).

12 13

EU external trade grew by almost 50% between 2004

and 2010. Although the majority of trade is legal,

illicit trade is estimated at almost 10% of the global

economy (see study by World Economic Forum). With

global trade on the rise, the challenge to stop a bomb,

contaminated food or smuggled goods is becoming

increasingly complex.

The current set-up to deal with risks at the EU borders

does not uniformly address security and safety risks

across the external border. To better ensure the security,

health and well-being of citizens as well as legal trade

and the economic and financial interests of the EU, the

Commission proposes a number of key actions:

• Traders should make quality data available at

the right time, in the right place for effective risk

management;

• Deeper engagement with companies moving goods

across borders;

• Ensuring homogeneous implementation of risk

management throughout the external EU borders;

considering the creation of a risk management

capacity at EU level to complement Member State

efforts;

• More structured and systematic cooperation

between customs and other authorities;

• Increased international cooperation with the EU’s

main trading partners.

Drug precursors: Commission adopts proposal for a Council decision on the signing of an EU-Russia agreementOn 21 January 2013, the Commission adopted a

proposal for a Council decision on the signing of an

Agreement between the European Union and the

Russian Federation on drug precursors.

(2) Rule that the second plea of infringement is

inadmissible.

With respect to answer (2), the AG reasoned that

since France has infringed the exhaustive harmonising

provisions laid down in Directive 92/12, it was not

necessary to examine whether there has also been an

infringement of Article 34 TFEU, in view of the fact that,

as regards the facts and measures specifically analysed

in the proceedings at issue, it is a provision which is

superseded by the operation of Articles 8 and 9 of

Directive 92/12.

European Parliament backs EU’s first Economic Partnership Agreement with AfricaOn 17 January 2013, a good majority of MEPs (494 in

favour) endorsed the trade and development agreement

concluded by the EU and four Eastern and Southern

African states (ESA) Mauritius, Madagascar, Seychelles

and Zimbabwe. The deal has been provisionally applied

since 14 May 2012. Under the Lisbon Treaty, the

European Parliament is required to give its consent on

the EU’s trade agreements. Today’s vote paves the way

for the official entry into force of this interim Economic

Partnership Agreement, which will be possible as soon

as it has been ratified by the EU Member States and

ESA countries.

Customs: strengthening the security of the supply chainOn 8 January 2013, the Commission adopted a

Communication on Customs Risk Management and the

Security of the Supply Chain. It sets out a strategy to

enable customs to better tackle risks associated with

goods being traded in international supply chains. It

involves more rational use of resources, better quality

and availability of trade data, and deeper partnership

with trade and international partners. This proposed

new EU approach will supplement national work by

integrating a wider scope of information and intelligence

from many sources.

13

The agreement would allow strengthening the bilateral

co-operation in preventing diversion and trafficking of

precursors used in the illicit manufacture of narcotic

drugs. This agreement would be the 11th of its kind.

The EU has already signed bilateral agreements on

drug precursors with Bolivia, Colombia, Ecuador, Peru,

Venezuela, Mexico, United States, Chile, Turkey and

China. These agreements provide for co-operation in

trade monitoring and mutual administrative assistance

(exchange of information). They also provide for

technical and scientific co-operation and establish a

regular platform of dialogue between the Parties through

the Joint Follow-up Group.

Drug precursors are chemicals that are primarily used

for the legitimate production of a wide range of products

such as pharmaceuticals, perfumes, plastics, and

cosmetics. However, they can also be misused for the

production of illicit drugs such as methamphetamines,

heroin or cocaine.

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Correspondents● Peter Adriaansen (Loyens & Loeff Luxembourg)

● Séverine Baranger (Loyens & Loeff Paris)

● Gerard Blokland (Loyens & Loeff Amsterdam)

● Alexander Bosman (Loyens & Loeff Rotterdam)

● Kees Bouwmeester (Loyens & Loeff Amsterdam)

● Almut Breuer (Loyens & Loeff Amsterdam)

● Mark van den Honert (Loyens & Loeff Amsterdam)

● Leen Ketels (Loyens & Loeff Brussel)

● Sarah Van Leynseele (Loyens & Loeff Brussel)

● Raymond Luja (Loyens & Loeff Amsterdam;

Maastricht University)

● Arjan Oosterheert (Loyens & Loeff Amsterdam)

● Lodewijk Reijs (Loyens & Loeff Eindhoven)

● Bruno da Silva (Loyens & Loeff Amsterdam)

● Rita Szudoczky (Loyens & Loeff Amsterdam)

● Patrick Vettenburg (Loyens & Loeff Eindhoven)

● Ruben van der Wilt (Loyens & Loeff Amsterdam)

www.loyensloeff.com

About Loyens & LoeffLoyens & Loeff N.V. is the first firm where attorneys at

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Editorial boardFor contact, mail: eutaxalert@loyensloeff.com:

● René van der Paardt (Loyens & Loeff Rotterdam)

● Thies Sanders (Loyens & Loeff Amsterdam)

● Dennis Weber (Loyens & Loeff Amsterdam;

University of Amsterdam)

Editors● Patricia van Zwet

● Rita Szudoczky

Although great care has been taken when compiling this newsletter, Loyens & Loeff N.V. does not accept any responsibility whatsoever for

any consequences arising from the information in this publication being used without its consent. The information provided in the publication is

intended for general informational purposes and can not be considered as advice.

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