Customs duties and internal taxation

Customs duties and taxation
European Union Customs Union
The European Union is also a customs union. This means that member states have removed customs barriers between themselves and introduced a common customs policy towards other countries. The overall purpose of the duties is "to ensure normal conditions of competition and to remove all restrictions of a fiscal nature capable of hindering the free movement of goods within the Common Market".[10]

By agreement between the Union and the states concerned Andorra, Monaco, San Marino and Turkey also participate in the EU Customs Union.

Customs duties

Article 30 TFEU prohibits member states from levying any duties on goods crossing a border, both goods produced within the EU and those produced outside. Once a good has been imported into the EU from a third country and the appropriate customs duty paid, Article 29 TFEU dictates that it shall then be considered to be in free circulation between the member states.

Neither the purpose of the charge, nor its name in domestic law, is relevant.[11]

Since the Single European Act, there can be no systematic customs controls at the borders of member states. The emphasis is on post-import audit controls and risk analysis. Physical controls of imports and exports now occur at traders' premises, rather than at the territorial borders.

Charges having equivalent effect to customs duties

Article 30 of the TFEU prohibits not only customs duties but also charges having equivalent effect. The European Court of Justice defined charge having equivalent effect in Commission v Italy.

[A]ny pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having equivalent effect... even if it is not imposed for the benefit of the state, is not discriminatory or protective in effect and if the product on which the charge is imposed is not in competition with any domestic product.[12]
A charge is a customs duty if it is proportionate to the value of the goods; if it is proportionate to the quantity, it is a charge having equivalent effect to a customs duty.[13]

There are three exceptions to the prohibition on charges imposed when goods cross a border, listed in Case 18/87 Commission v Germany. A charge is not a customs duty or charge having equivalent effect if:

it relates to a general system of internal dues applied systematically and in accordance with the same criteria to domestic products and imported products alike,[14]
if it constitutes payment for a service in fact rendered to the economic operator of a sum in proportion to the service,[15] or
subject to certain conditions, if it attaches to inspections carried out to fulfil obligations imposed by Union law.[16]
Taxation

Article 110 of the TFEU provides:

No Member State shall impose, directly or indirectly, on the products of other member states any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.
Furthermore, no Member State shall impose on the products of other member states any internal taxation of such a nature as to afford indirect protection to other products.
In the taxation of rum case, the ECJ stated that:

The Court has consistently held that the purpose of Article 90 EC [now Article 110], as a whole, is to ensure the free movement of goods between the member states under normal conditions of competition, by eliminating all forms of protection which might result from the application of discriminatory internal taxation against products from other member states, and to guarantee absolute neutrality of internal taxation as regards competition between domestic and imported products."[17]
Quantitative restrictions and measures having equivalent effect

In addition to prohibiting customs duties and discriminatory taxes, the TFEU, in Article 34, prohibits quotas and “measures having equivalent effect”. But what are measures having equivalent effect and how do they affect trade between member states? The Treaty does not answer these questions and European Court of Justice has over several decades provided detailed case law interpreting Article 34. In a well-known series of cases beginning with Dassonville,[18] continuing with Cassis de Dijon[19] and culminating in Keck and Mithouard,[20] the Court has said that discriminatory and non-discriminatory rules of member states (therefore not actions of private corporations or individuals) that hinder trade shall be illegal.

Directly discriminatory rules

Directly discriminatory rules distinguish between national and imported goods in law and in fact. A prohibition of imports imposed by state A on goods from state B is directly discriminatory but restrictions do not have to take the shape of prohibitions or quotas. A Member State can lead advertising and promoting campaigns that favours domestic products, or it can impose higher prices or more stringent conditions (such as health inspections) on imported goods. The key to discrimination is that domestic products are not subject to the added difficulties, and are therefore put at an advantage.

Indirectly discriminatory rules

Indirectly discriminatory rules that hinder trade do not distinguish in law but do so in fact. They impose a higher burden on the importer due to additional work it has to complete to make the product marketable. Although in law the rules apply equally to domestic producers and importers, in reality the burden is born by importers, the domestic producers already complying with the rules. If, in addition, the product is marketed in a number of member states, the exporter from state A might be subject to as many different regimes as there are countries into which he is hoping to import.

For example, a (fictitious) law in state A is that alcoholic drinks of a particular kind must not contain more than 20% alcohol. Producer from state B makes and regularly exports drinks which contain 25% alcohol. Law in state A applies to all those who wish to market the alcoholic drinks in question – whether they are domestic in origin or foreign. In that respect, in law, they do not discriminate. On the other hand, as a result of their presence, a legally marketed drink from state B either has to be modified and its alcohol contents reduced to only 20% or must be absent from the market of state A altogether. EU law, under the circumstances mentioned in the previous paragraph, prohibits this kind of distinction: although the law appears to treat all parties equally, in fact domestic producers are favoured.

Product requirements and certain selling arrangements

Naturally, allegations can be made against any rule that inconveniences the trader, and this includes a very large number of rules. Therefore, in the last of the mentioned cases, Keck, and those that followed it, the Court decided that only rules relating to product requirements (shape, size, colour, etc.) should be illegal, while those relating to selling arrangements (opening hours, staff training requirements, etc.) will mostly not be. The division was an attempt to limit the number of cases to only those situations where, in the absence of discrimination, there is real danger of importer suffering the presence of dual burden.

Justification

Under certain circumstances, member states whose rules have been disapplied may defend them. For rules that discriminate, a defence will be possible under Article 36 which mentions, among other things, public health or public morality. For example, a restriction of import of meat from certain countries will be legal if it has clear medical grounds. A restriction of importation of pornographic material may be justified if such material is normally not available in the said Member State. Non-discriminatory rules may be justified not only by reference to Article 36 but also to a Court-made list of exceptions which were first set out in the Cassis de Dijon case.[21]