On June 2, 2016 the Court of Justice of the European Union (CJEU) judged in Case C‑81/15 Kapnoviomichania Karelia AE versus Ypourgos Oikonomikon (ECLI:EU:C:2016:398).
This request for a preliminary ruling concerns the interpretation of 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, as amended by Council Directive 92/108/EEC of 14 December 1992 (‘Directive 92/12’).
The request has been made in proceedings between Kapnoviomichania Karelia AE (‘Karelia’) and the Ypourgos Oikonomikon (Ministry of Finance, Greece), concerning an attribution measure declaring Karelia to be jointly and severally liable for amounts of tax and excise duties by reason of a smuggling operation.
The dispute in the main proceedings and the question referred for a preliminary ruling
· Karelia is a Greek company, active in the manufacture of tobacco products and holding the status of authorised warehousekeeper. At the date of the facts in the main proceedings, that company had planned to export such products, placed under a suspension arrangement, to Bulgaria, which was not yet a Member State of the European Union.
· It is apparent from the observations submitted to the Court that, on 9 June 1994, Karelia, having received an order for 760 cartons of cigarettes from Bulgakommerz Ltd, filed an export declaration at the customs office.
· However, that cargo never reached its destination. The investigation carried out by the customs service revealed that the lorry in which the cargo was to be transported had gone to Bulgaria empty, the cargo having been transferred to another lorry. In the course of that investigation, Karelia’s export manager explained that, following the placement of the order, he had received a sum corresponding to the value of the goods in question, which he had lodged in a Karelia bank account in Greece. The managing director of Karelia maintained that he did not know whether Bulgakommerz actually existed, since attempts to identify that company in Bulgaria had proved unsuccessful.
· Since no proof of departure of the cargo at issue in the main proceedings had been produced, the bank guarantee which Karelia had provided to cover the amount of excise duty, namely 114 726 750 Greek drachmas (GRD) (EUR 336 688.92), was retained.
· The customs authorities subsequently issued a measure attributing liability for payment in respect of the smuggling of the 760 cartons of cigarettes in question. By that measure, they declared that the joint perpetrators of that smuggling were, among others, the persons who had placed the order for those cigarettes, on behalf of Bulgakommerz, with Karelia’s export manager. Amounts of increased tax of GRD 573 633 750 (EUR 1 683 444.60) and of increased excise duty on tobacco of GRD 9 880 000 (EUR 28 994.86) were allocated among the perpetrators of the smuggling. By the same measure attributing liability, Karelia was declared jointly and severally liable in civil law for payment of those sums.
· The action brought by that company against that measure was upheld by the Dioikitiko Protodikeio Peiraia (Administrative Court of First Instance, Piraeus, Greece) on the ground that there was no evidence of the existence of any relationship in the form of an agency or representation or of any other legal relationship concealing an authority to act as agent between Karelia and the persons designated as having been the perpetrators of the smuggling offence in question.
· The Ministry of Finance appealed against that judgment. The Dioikitiko Efeteio Peiraia (Administrative Court of Appeal, Piraeus, Greece) upheld the appeal but reduced the amount of the increased tax to GRD 344 180 250 (EUR 336 688.91). That court took the view that, in so far as the cigarettes in question had been placed under an excise duty suspension arrangement, the perpetrators of the smuggling offence had acted as agents of Karelia, which, in its capacity as an authorised warehousekeeper, was in possession of the goods and had sole responsibility for their movement up to the time at which they were exported, irrespective of the capacity in which the perpetrators of that smuggling offence had purported to act, namely as drivers, intermediaries, consignees, buyers, and so forth.
· Karelia appealed against the judgment of the Dioikitiko Efeteio Peiraia (Administrative Court of Appeal, Piraeus) to the Symvoulio tis Epikrateias (Council of State, Greece).
· In the order for reference, that latter court found that, according to Article 99(2), Article 108 and Article 109 of the Customs Code, the owners of goods, their consignees and transporters, as well as their agents and representatives, are, inter alia, to be held jointly and severally liable for the financial consequences of smuggling offences, which include the payment of customs duties and charges lost and the corresponding fines, if those offences are committed at a time when the goods concerned are within the sphere of their professional responsibility, by persons with whom they have chosen to cooperate. According to that court, those jointly liable can be released from liability only if they prove that they acted without any negligence, however slight, that exoneration being assessed in the light of the diligence required in their activity and their profession. The civil liability thereby established — which does not constitute, under Greek law, an administrative penalty — seeks not only the recovery of customs duties and charges lost, but also to guarantee, in so far as is possible, the payment and, thus, the effectiveness of the fines imposed. In the referring court’s view, the legislature considered that the abovementioned operators, who profit from the economic activity in the context of which the smuggling was carried out, must take all appropriate measures to ensure that they will not be led, by the persons with whom they maintain business relationships, to participate in smuggling offences.
· According to the referring court, that national legislation, interpreted in the light of the provisions of Directive 92/12, makes it possible for the authorised warehousekeeper to be declared jointly and severally liable with the perpetrators of the smuggling offences in respect of goods which passed through the warehouse under an excise duty suspension arrangement and which unlawfully departed from that arrangement.
· The majority opinion within that court is that the joint and several liability of the authorised warehousekeeper extends not only to the payment of excise duties, in accordance with Directive 92/12, but also to the other financial consequences, including the financial penalties imposed on the perpetrators of smuggling offences. This is the position irrespective of any specific agreement between that warehousekeeper and the purchaser under which ownership of goods placed under an excise duty suspension arrangement is transferred upon delivery of the goods to the purchaser, who is responsible for their transportation. That increased liability on the part of the warehousekeeper serves the objective of preventing tax evasion because it acts as an incentive for that trader to ensure that the export procedure is properly followed and to take appropriate measures in the course of its contractual relations to protect itself against the risk of being held jointly and severally liable for all of the financial consequences of smuggling. Such liability is not contrary to the principle of proportionality, given the opportunity for the authorised warehousekeeper to avoid it by proving that he acted in good faith and took all appropriate measures possible, demonstrating the diligence required of an informed trader.
· The minority opinion within the referring court, by contrast, is that the authorised warehousekeeper can be held jointly and severally liable only for payment of the excise duties, but not for the payment of sums corresponding to the financial penalties imposed on the perpetrators of smuggling offences. According to this opinion, it follows neither from the Greek legislation nor from Directive 92/12 that the authorised warehousekeeper is presumed in law to be the owner of the goods which it holds, which depart from its tax warehouse and are dispatched to a third country under an excise duty suspension arrangement, until they arrive at their proper destination or until they leave the territory of the European Union. Nor does it follow from that legislation or from that directive that, until the departure of the goods from that suspension arrangement, the natural persons involved, in whichever capacity, in the movement of those goods are presumed in law to act as agents or representatives of the authorised warehousekeeper. Thus, the increased liability advocated by the majority opinion within the referring court is not required to ensure the effective application of Directive 92/12 and comes up against various principles of EU law. First, it clashes with the principle of legal certainty, in particular with the principle of clarity and foreseeability of restrictions on the freedom to conduct a business and with the property rights of the authorised warehousekeeper. Second, it is at variance with the principle of proportionality, in so far as it would be manifestly excessive to impose on the authorised warehousekeeper the obligation to pay administrative fines, which, the law provides, amount to at least double the charges due, irrespective of their amount, for offences resulting from intentional criminal conduct on the part of third parties which has none of the characteristics referred to in Article 108 in the Customs Code and over which that warehousekeeper, who has demonstrated the appropriate diligence, cannot have any control.
· It is under those circumstances that the Symvoulio tis Epikratias (Council of State) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:
‘May Directive 92/12/EEC, in the light of the general principles of EU law and, in particular, the principles of effectiveness, legal certainty and proportionality thereof, be interpreted, in a case such as this, as precluding the implementation of legal provisions of a Member State, such as Article 108 of the Greek Customs Code, according to which the authorised warehousekeeper of goods moved from the tax warehouse thereof under a duty suspension arrangement, which departed from the arrangements in question irregularly through smuggling, may be declared jointly liable for the payment of administrative fines, on the ground of smuggling, regardless of whether the warehousekeeper had, at the time when the offence was committed, possession of the goods, on the basis of the rules of private law, and, furthermore, regardless of whether the perpetrators of the offence involved in that movement had concluded a particular contractual relationship with the authorised warehousekeeper from which they can be seen to have acted as agents of the authorised warehousekeeper?’
The CJEU judged as follows:
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, as amended by Council Directive 92/108/EEC of 14 December 1992, read in the light of the general principles of EU law, in particular the principles of legal certainty and proportionality, must be interpreted as precluding national legislation — such as that at issue in the main proceedings, which permits, inter alia, the owners of products moving under excise duty suspension arrangements to be declared jointly and severally liable for payment of sums corresponding to the financial penalties imposed in the event of the commission of an offence during the movement of those products under excise duty suspension, where the owners are linked to the perpetrators of the offence by a contractual relationship making them their agents — under which the authorised warehousekeeper is declared jointly and severally liable for payment of those sums, with no possibility for him to escape that liability by providing proof that he had nothing whatsoever to do with the acts of the perpetrators of the offence, even if, under national law, that warehousekeeper was neither the owner of those products at the time when the offence was committed nor linked to the perpetrators of that offence by a contractual relationship making them his agents.
For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.
The opinion in this case as delivered on January 28, 2016 by Advocate General Yves Bot can be found here (not available in the English language, but in several other languages).
Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).
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