Case C-54/05

Commission of the European Communities

v

Republic of Finland

(Failure of a Member State to fulfil obligations – Articles 28 EC and 30 EC – Importation of a vehicle registered in another Member State – Obligation to obtain a transfer licence)

Opinion of Advocate General Mengozzi delivered on 11 January 2007

Judgment of the Court (Second Chamber), 15 March 2007

Summary of the Judgment

Free movement of goods – Quantitative restrictions – Measures having equivalent effect

(Arts 28 EC and 30 EC)

A Member State which requires a person resident in that State and wishing to import a vehicle lawfully registered and used in another Member State to apply for the issue of a transfer licence for the purpose of putting that vehicle into circulation before its registration and before the payment of vehicle taxes fails to fulfil its obligations under Articles 28 EC and 30 EC.

Such a transfer licence system, having regard to the formalities which it imposes, is capable of hindering intra‑Community trade in motor vehicles and impeding access to the market for goods which are lawfully produced and/or sold in other Member States, particularly since steps must be taken by the holder of a motor vehicle that comes from another Member State before it may be lawfully used, since the issue of a transfer licence is not subject to a time‑limit from the lodging of the application for its grant and is not obligatory for the competent authorities, and since it is valid only for a short period.

Pursuit of the objective of road safety, allowing vehicles to be precisely identified, is not such as to justify a transfer licence procedure, since, in any event, pending the final registration of the vehicles in the Member State concerned, their technical characteristics may be identified, whatever the Member State in which they are registered, because all Member States have a vehicle registration system.

Moreover, even if the Member State concerned may legitimately introduce supervision procedures enabling it to identify vehicles which can be temporarily exempted from vehicle taxes, neither can the need to ensure effective fiscal supervision justify such a system, since it has not been shown that less restrictive measures, such as the establishment of a compulsory system for declaring the fact of a vehicle’s having been put into circulation, accompanied by appropriate penalties, could not bring about a similar result.

(see paras 29, 32-34, 37, 40, 42-44, 46-47, operative part)

JUDGMENT OF THE COURT (Second Chamber)

15 March 2007 ( * )

(Failure of a Member State to fulfil obligations – Articles 28 EC and 30 EC – Importation of a vehicle registered in another Member State – Obligation to obtain a transfer licence)

In Case C-54/05,

ACTION under Article 226 EC for failure to fulfil obligations, brought on 4 February 2005,

Commission of the European Communities , represented by M. van Beek and M. Huttunen, acting as Agents, with an address for service in Luxembourg,

applicant,

v

Republic of Finland , represented by T. Pynnä and A. Guimaraes‑Purokoski, acting as Agents, with an address for service in Luxembourg,

defendant,

THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, P. Kūris, J. Makarczyk (Rapporteur), L. Bay Larsen and J.‑C. Bonichot, Judges,

Advocate General: P. Mengozzi,

Registrar: H. von Holstein, Deputy Registrar,

having regard to the written procedure and further to the hearing on 9 November 2006,

after hearing the Opinion of the Advocate General at the sitting on 11 January 2007,

gives the following

Judgment

1 By its application, the Commission of the European Communities requests the Court to declare that, by requiring a transfer licence for vehicles lawfully registered and used in another Member State, the Republic of Finland has failed to fulfil its obligations under Articles 28 EC and 30 EC.

Legal context

2 Article 1 of Law No 1482/1994 on vehicle tax (autoverolaki (1482/1994)) of 29 December 1994 provides that that tax (‘autovero’) (‘the single‑payment tax’) is payable to the State before the registration or putting into service in Finland of private vehicles.

3 Under Article 2 of that Law, ‘putting into service in Finland means putting the vehicle into circulation on Finnish territory even if it is not registered in Finland’.

4 Article 35 of that Law lays down the exemptions from the single‑payment tax, particularly for vehicles covered by a transfer licence.

5 According to Article 8 of Law No 1090/2002 on vehicles (ajoneuvolaki (1090/2002)) of 11 December 2002, ‘all motor vehicles and their trailers … must be registered and undergo a roadworthiness test except in those cases laid down by or pursuant to this Law. Motor vehicles and their trailers … which have not been duly registered or have not duly undergone a roadworthiness test cannot be put into circulation.’

6 According to Article 64 of that Law, exceptions from registration may be laid down by decree. Thus, Article 8 of Decree No 1598/1995 on vehicle registration (asetus ajoneuvojen rekisteröinnistä (1598/1995)) of 18 December 1995 (‘the registration decree’) sets out the exceptions.

7 Under Article 8(2) of the registration decree:

‘A vehicle registered abroad or a vehicle fitted with temporary number plates may be put into circulation in Finland without a declaration of registration under the conditions laid down in Articles 46 to 48, 48a, 49 to 51, 51a, 51b and 52 to 56. The same applies to the putting into circulation of a vehicle for which a transfer licence has been issued.’

8 Article 48 of the registration decree provides:

‘1. The registration authority and the customs administration may, in order for a roadworthiness test to be carried out, for the purposes of the transfer, exhibition, participation in a competition or demonstration in Finland of a vehicle which is not registered in this country, or for another specific reason with a view to the transfer of a vehicle, issue upon application a written transfer licence with a view to the vehicle being put into circulation. Transfer numbers (self‑adhesive labels) shall be provided when the transfer licence is issued.

2. For that transfer licence to be issued, the vehicle must be covered by a valid motor insurance policy for third‑party liability and the annual taxes on diesel‑driven vehicles (“moottoriajoneuvovero”) or petrol‑driven vehicles (“ajoneuvovero”) must have been paid.

3. The transfer licence shall be issued for the period necessary for the circulation of the vehicle. It may not, without very good reason, be issued for a period longer than seven days. Participation in a competition may not be considered to be such a reason.

4. A vehicle may not be used pursuant to a transfer licence if it is not fit to be driven owing to its condition, dimensions or weight.’

9 The annual taxes referred to in Article 48(2) of the registration decree were replaced by a new annual tax (‘ajoneuvovero’), introduced by Law No 1281/2003 on annual vehicle tax (ajoneuvoverolaki (1281/2003)) of 30 December 2003. Vehicles in respect of which a transfer licence has been issued are exempt from that annual tax pursuant to Article 12(10) of that Law.

10 Article 21(2) of Decree No 1116/2003 on the information held on the Register of Vehicles (valtioneuvoston asetus ajoneuvoliikennerekisterin tiedoista (1116/2003)) of 18 December 2003, lays down the information entered on the transfer licence that is to be recorded on the Register of Vehicles:

‘The following information from the transfer licence shall be entered on the register: the name, the address and the identification number of the person, undertaking or association holding the licence, the make of the vehicle, the model, the factory serial number, the registration number, the third‑party motor vehicle insurance, the date of issue of the licence, the authority issuing it, its validity period, its purpose and the payments relating to it, and, where applicable, the travel itinerary.’

Pre‑litigation procedure

11 The Commission, after receiving a number of complaints regarding the Finnish legislation and the practice of the competent authorities regarding issue of the transfer licence required upon the importation of a vehicle registered in another Member State, sent a letter to the Republic of Finland on 17 May 2002 asking for clarification of the legislation and the practices at issue.

12 Having regard to the responses provided by the Republic of Finland, which it found to be unsatisfactory, the Commission initiated the pre‑litigation procedure by letter of formal notice of 9 April 2003 in which it stated that the requirement imposed upon persons resident in Finland to apply for a transfer licence immediately upon crossing the Finnish border restricted the free movement of goods and, consequently, infringed Article 28 EC. The Commission also stated that the seven‑day validity period for the transfer licence was too short and, as such, contrary to that provision.

13 By a reasoned opinion of 16 December 2003, the Commission invited the Republic of Finland to take the necessary measures to comply with that opinion within a period of two months from receiving it.

14 As the Republic of Finland reiterated its initial observations and failed to comply with the opinion within the prescribed time‑limit, the Commission, pursuant to the second paragraph of Article 226 EC, has brought the present action.

The action

Arguments of the parties

15 The Commission contends that Articles 28 EC and 30 EC preclude the transfer licence system laid down by the registration decree. Alternatively, if the Court does not find such a failure to fulfil obligations, it asserts that the validity period (seven days) of the licence is in itself contrary to those articles, in view of its shortness.

16 The Commission regards the transfer licence procedure as a regulatory administrative stage which precedes the vehicle registration procedure proper when a person residing in Finland wants to import a vehicle lawfully registered in another Member State.

17 It contends that the establishment of such a licence exhibits the characteristics of a quantitative restriction on imports or a measure having equivalent effect within the meaning of Article 28 EC, since a person residing in Finland does not have any statutory guarantee that he can put into circulation a vehicle lawfully registered in another Member State which he imports into Finland.

18 According to the Commission, it is apparent in particular from Article 48 of the registration decree that the issue of the transfer licence is left to the discretion of the competent authorities, and there is consequently no guarantee for the applicant that he will obtain one.

19 It points out that the holder of the vehicle must stop in general at the Finnish border in order to apply for the transfer licence and that, in any event, the request for the licence, even if submitted in advance of crossing the border, requires visits – to the customs office – by the person wishing to import the vehicle. In addition, the issue of the transfer licence leads to costs.

20 Finally, the Commission considers that the issue of a transfer licence is not justified by any of the overriding requirements relating to the public interest for the purposes of Article 30 EC. In particular, it meets neither the requirements of effective fiscal supervision nor the objective of road safety.

21 The Republic of Finland maintains that the transfer licence system, which is separate from the vehicle registration procedure proper, does not constitute a restriction on imports within the meaning of Article 28 EC.

22 In support of its assessment, it asserts that the system applies as much to the temporary use in Finland of unregistered and untaxed vehicles as to the situation where a person habitually resident in Finland imports a vehicle from abroad which has not been registered in Finland. It states that the issue of the licence has no direct link with crossing the border, since it is exclusively linked to putting the vehicle into circulation – the requirement of a transfer licence thus applies without distinction to all vehicles yet to be registered in Finland.

23 Besides the low cost of the transfer licence, the Republic of Finland points out the speed and simplicity of the procedure for obtaining one, as it is issued without a prior roadworthiness test and the applicant is moreover not required to be in possession of the vehicle when he applies for the transfer licence.

24 In addition, it states that conditions are laid down for the issue of a transfer licence and that, consequently, the decision of the competent bodies cannot be based upon an arbitrary assessment.

25 Alternatively, the Republic of Finland considers that the transfer licence procedure is, in any event, justified, as it represents the simplest means of ensuring that the objectives of effective fiscal supervision and road safety are met.

26 In that respect it asserts, first, that when a vehicle which is not registered in Finland is driven on Finnish territory, it must be possible to check, without risk of error, whether it is a vehicle exempted from the single‑payment tax or one in respect of which that tax must be paid. The existence of transfer licences provides a reliable means of establishing, for vehicles belonging to people who are ordinarily resident in Finland, the date on which the vehicle was put into circulation – the starting point for calculating how long it has been used tax‑free – and avoids the need to resort to the large‑scale road checks targeting vehicles with foreign number plates which would otherwise be necessary.

27 The Republic of Finland asserts, secondly, that the transfer licence system ensures that information regarding the vehicles used and licence holders is entered on the Register of Vehicles. The updating of that register is necessary for checking that the annual tax is levied. Moreover, the information is indispensable for the purpose of road safety, particularly in the case of breaches of traffic regulations or accidents.

28 The Republic of Finland considers that the duration of the licence conforms to the principle of proportionality and therefore is not contrary to Articles 28 EC and 30 EC. It states that the validity period may be prolonged upon request.

Findings of the Court

29 The Commission alleges that the Republic of Finland has failed to fulfil its obligations under Articles 28 EC and 30 EC by requiring persons resident in Finland and wishing to import a vehicle lawfully registered in another Member State to apply for the issue of a transfer licence for the purpose of putting that vehicle into circulation before its registration in Finland and before the payment of vehicle taxes.

31 In addition, the Court of Justice has already ruled that Article 28 EC precludes the application in intra‑Community trade of national provisions which require, even as a pure formality, import licences or any other similar procedure (see, to that effect, Case 124/81 Commission v United Kingdom (‘UHT milk’) [1983] ECR 203, paragraph 9; Case C‑304/88 Commission v Belgium [1990] ECR I‑2801, paragraph 9; and Case C‑434/04 Ahokainen and Leppik [2006] ECR I‑0000, paragraph 20).

32 It is undisputed that the transfer licence system, which makes the putting into circulation in Finland of a vehicle lawfully registered in another Member State subject to procedural requirements, is capable of hindering intra‑Community trade in motor vehicles and impeding access to the market for goods which are lawfully produced and/or sold in other Member States.

33 The hindrance is characterised, in particular, by the steps which must be taken by the holder of a motor vehicle that comes from another Member State before it may be lawfully used on Finnish territory, steps which may sometimes require the party concerned to stop at the border crossing in order to obtain the transfer licence and which, in any event, lead to a cost, as the licence is not free. Furthermore, in the absence of such a licence upon crossing the border, the vehicle cannot, in principle, be put into circulation.

34 Moreover, the issue of a transfer licence is not subject to a time‑limit from the lodging of the application for its grant and, in accordance with the very wording of Article 48(1) of the registration decree, is not obligatory for the competent authorities, a fact which the Republic of Finland moreover confirmed at the hearing.

35 In the light of the discretion which the competent authorities enjoy, there is therefore no guarantee for the applicant that he will receive the transfer licence within a reasonable time – a licence which is, none the less, indispensable for putting his vehicle into circulation in accordance with the law. The possibility of bringing an action against an administrative decision rejecting an application for the issue of the licence is in that respect immaterial.

36 Freedom of movement is a right whose exercise may not be dependent upon a discretionary power or upon a concession granted by the national authorities (see UHT milk , paragraph 10).

37 Finally, there can be no dispute that the document at issue is valid only for a short period and that there is a risk of immobilisation of the vehicle, on expiry of the seven‑day period laid down by the Finnish legislation, even before the final registration can be effected and the tax paid.

41 However, it has not been established that issuing a transfer licence, in combination with the placing of self‑adhesive transfer labels on the vehicles in substitution for the original number plates, and the recording on the Register of Vehicles of information regarding that licence are actually designed to attain the objective of road safety, especially as the licence requirement does not apply to all vehicles registered in another Member State put into circulation in Finland.

43 It follows from the foregoing that the Republic of Finland has not established that the objective of road safety is such as to justify the transfer licence procedure.

44 Secondly, regarding the argument based upon the need to ensure effective fiscal supervision by means of transfer licences, such an objective being, according to settled case‑law, an imperative requirement capable of justifying a measure of equivalent effect prohibited by Article 28 EC (see, in particular, Case 176/84 Commission v Greece [1987] ECR 1193, paragraph 25), it is not disputed that the Republic of Finland is entitled to introduce supervision procedures enabling it to check which are the vehicles that, despite having to be registered in Finland, can temporarily be exempted from vehicle taxes.

45 It must be stated, however, with regard to the assessment to be made of the proportionality of the legislation at issue and of whether the objective sought can be attained by restrictions affecting intra‑Community trade to a lesser extent that the Republic of Finland has not specifically established that the restriction on the free movement of goods at issue is proportionate in relation to the objective pursued.

46 Less restrictive measures could in fact bring about a similar result, making it possible to determine the date upon which the use of the vehicle began without vehicle taxes having been levied. It follows in particular from the written pleadings and the oral argument at the hearing, as well as from point 83 of the Advocate General’s Opinion, that one of those measures is the establishment of a compulsory system for declaration, on the initiative of the owner or holder, of the putting into circulation of a vehicle, accompanied by appropriate penalties for non‑compliance with this administrative requirement. That declaration could be accompanied by the setting of a reasonable period running from the declaration of putting into circulation, during which use of the vehicle would be permitted without the person liable having paid vehicle taxes.

47 Having regard to the foregoing, it must be found that by requiring a transfer licence for the putting into circulation of vehicles lawfully registered and used in another Member State, as provided for by the registration decree, the Republic of Finland has failed to fulfil its obligations under Articles 28 EC and 30 EC.

Costs

48 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission applied for costs and the Republic of Finland has been unsuccessful, the latter must be ordered to pay the costs.

On those grounds, the Court (Second Chamber) hereby:

1. Declares that, by requiring a transfer licence for the putting into circulation of vehicles lawfully registered and used in another Member State, as provided for by Decree No 1598/1995 on vehicle registration (asetus ajoneuvojen rekisteröinnistä (1598/1995)) of 18 December 1995, the Republic of Finland has failed to fulfil its obligations under Articles 28 EC and 30 EC;

2. Orders the Republic of Finland to pay the costs.

[Signatures]

* Language of the case: Finnish.