The Court’s judgement in C-591/17 (Austria v Germany), or why the German light-vehicle vignette system is discriminatory

By Niels Kirst 

The recent judgement of the European Court of Justice in C-591/17 Austria v Germany was a Member State dispute about the enactment of a motorway charge in Germany. The Court of Justice of the European Union (hereinafter: CJEU) addressed one of the core concepts of the European legal order – the non-discrimination principle enshrined in Article 18 of the Treaty on the functioning of the European Union (hereinafter: TFEU). Questions had to be answered: (1) Can the cumulative introduction of a vignette system and a vehicle-tax relief amount to an indirect discrimination? (2) Should political considerations be taken into account by the Court? (3) Is Article 259 TFEU a suitable tool to solve Member State disputes?

The case is particularly interesting due to the use of Article 259 TFEU, which Austria invoked to bring Germany before the CJEU. Article 259 TFEU is rarely used due to its blaming character of the alleged rule-breaker. Many Member States would prefer that the European Commission (hereinafter: EC), as guardian of the treaties, leads the investigations into an alleged breach of EU law by a Member States. However, Article 259 TFEU can be seen as a last resort measure by a Member State, if the Member State sees its interests or the interest of its citizens jeopardized.[1]

In the case at hand, Austria brought the measure before the CJEU since many Austrians use the German highways due to proximity and transnational road travels through Germany. Austria based its claim on two characteristics. First, (i) the new motorway charge would be payable by all users of the motorway network in Germany and second (AG opinion, para. 5); (ii) owners of vehicles registered in Germany are granted a tax relief equal to the amount of the motorway charge (AG opinion, para. 5). Austria argued that the combination of these two measure factually amounts to an indirect discrimination of EU citizens when they use German highways.

This commentary presents the relevant political backgrounds leading up to this case, discusses the Court’s judgement and reflects upon the wider implications of Case C-591/17 for the development of an EU-wide vignette system for light vehicles, the use of Article 259 TFEU and the questions of political accords between the EC and a Member State.

The background of the case

In the ruling from 18 June 2019, the European Court of Justice found the German motorway charge incompatible with European Union law (hereinafter: EU law), particularly with Article 18 TFEU, the non-discrimination principle. This long-awaited judgment affirmed the concept of indirect discrimination in European Union law and further ended a political battle between the German government and the EC.

To fully grasp the case, it is important to understand the background of the case. The Christian Socialist Union party (hereafter: CSU), which has its foothold in the German state of Bavaria, started the election campaign of 2013 in Germany with the call for a ‘foreigner’s toll’ on German highways. According to the party’s lead candidate Horst Seehofer, Germans had to pay for using highways in other European countries; therefore, foreigners should pay when the use the highways in Germany.

This reciprocity approach was a welcome proposal to Bavarian voters, who had to pay a toll when using the nearby Austrian and Swiss highways. With the continuing of the grand coalition in Germany in September 2013, the now more neutrally named ‘car-toll’ was implemented into the coalition treaty, with an envisaged enactment by 2015. As of 2019, the car-toll has not yet been enacted in Germany. However, Andreas Scheuer, currant Minister for Transport in Germany, announced in December 2018 that the full functionality of the toll system would be achieved by 2020.

The EC was not amused by the plans of the German government to target foreign drivers to pay a certain amount in order to use German highways and initiated infringement proceedings against Germany in 2016 according to Article 258 TFEU. However, following intensive talks between the German government and the EC, and the adoption of certain amendments to the legislative proposal, the EC decided to terminate the infringement procedure in May 2017.

Nonetheless, the Republic of Austria unilaterally decided in July 2017 to bring a direct action against Germany in front of the CJEU pursuant to Article 259 TFEU.[2] Austria argued that the proposed legislative measure would infringe the principle of non-discrimination in the European Union and specifically Articles 18, 34, 56 and 92 of the TFEU. Precise observes might raise the point that the EC has the duty to take a stand on the alleged infringement of European Union law under Article 259 (2) TFEU, however, in the present case the EC did not issued an opinion on this matter. The political sensitivity of the motorway charge and the pre-history of talks between the EC and Germany might have motivated this muted approach by the EC.

Advocate General Nils Wahl (hereinafter: AG Wahl) gave his opinion on the 6 February 2019, in which he classified the motorway charge as compatible EU law. Having said that, this is one of the cases, in which the Court did not followed the arguments of the AG. Instead, the CJEU found the motorway charge as incompatible with EU law, as it is impinging on the principle of non-discrimination (enshrined in Article 18 TFEU), one of the core concepts of the European legal order. In a second step, the CJEU also ruled that the motorway charge restricts the free movement of goods (Article 34 TFEU) and the freedom to provide services (Article 56 TFEU).

The judgement

The first argument that the CJEU examined was the claim by the Republic of Austria that the cumulative effect of a motorway charge and a tax relief for domestic car holders’ amount to an indirect discrimination pursuant to Article 18 TFEU. The CJEU pointed out that the measure of introducing the motorway charge should be seen in combination with the introduction of a tax relief for domestic car holders (judgement, para. 46). In a second step, the CJEU found that German car holders are in fact not subject to the economic burden of the infrastructure charge, since they are reimbursed via the tax relief (judgement, para 52).

In its defense, Germany invoked that the motorway charge follows the “polluter pays” principle, which is an endorsed standard by the EC environmental policy. However, the CJEU was not convinced by that argument and found that the measure is an incoherent implementation of the ‘polluter pays’ principle, since domestic motorway users are – de facto – exempted from the levy (judgement, para. 61 – 63).

The other arguments put forward by Germany to justify the measure (environmental considerations, financing of infrastructure, coherence of the tax system) were rejected by the CJEU with regard to the unilateral burden on foreign drivers (judgement, para. 75 – 77). Finally, the CJEU held that the joint introduction of a motorway charge and a tax relief for domestic car holders constitutes an indirect discrimination within the meaning of Article 18 TFEU (judgement, para. 78).

In a second argument, the Republic of Austria argued that motorway charge infringed Article 18 TFEU because of its enforcement structure. This argument was based on the alleged discriminatory monitoring and the high fines resulting from an infringement of the motorway charge, which in Austria’s view mainly targeted foreign car owners. The CJEU refuted these arguments (judgement, para. 90) and pointed out that foreign car owners are not worse off by design than German car owners (judgement, para. 109). The second complaint was accordingly rejected by the CJEU. This was, however, only a short blink of hope for Germany.

Infringement of the free movement of goods and the freedom to provide services

Thirdly, the CJEU had to assess whether the motorway charge was restrictive of the European Union’s freedom to provide goods and services. At this point of the judgement, it was already clear that the Court viewed the motorway charge and the tax relief as common measure. Therefore, it was likely that the measure would be seen harmful to trade of goods and services. Germany argued in defense that the motorway charge only concerned the distribution channels of products to be sold and therefore constituted a sales modality within the meaning of Keck (judgement, para. 113). In its view, the motorway charge could profit from the exemption of the Keck doctrine.[3]

The CJEU did not follow this argument. Instead, the existing relationship between motorway charge and the vehicle-tax relief amounts to an impairment of foreign trade in goods (judgement, para. 126). This corresponds to an indirect tax and which subsequently affects the competitiveness of foreign goods in Germany (judgement, para. 127). The CJEU, unsurprisingly, reached the same conclusion with regard to the freedom to provide services. The motorway charge would have the potential to increase the costs for foreign service providers in Germany (judgement, para. 144).

The standstill clause of Article 92 TFEU

The fourth complaint by the Republic of Austria concerned the standstill clause in Article 92 TFEU. Article 92 TFEU requires Member States not to amend their transport rules in an unfavorable manner for foreign carriers. For vehicles over 3.5 tons, the Eurovignette Directive applies at the European level. For vehicles under 3.5 tons there is currently no European harmonization. The motorway charge is targeting this type of light vehicles.

In its arguments, the Austrian government relied heavily on the precedent case Commission v Germany, in which the CJEU found that a heavy trucks toll on the German motorway network is not compatible with the treaties. That case concerned the interpretation of Article 92 TFEU, which required Member States via a standstill clause to not enact measures, which create artificial barriers to trade via a toll system.

The standstill clause was enacted in view, that a European harmonization also for light vehicles would follow at a certain point. Having said that, there is still the status quo concerning light vehicles, therefore, it was interesting if the standstill clause still stands. In its judgment, the CJEU found that the combined measures of the motorway charge and the vehicle-tax relief changed the legal situation for foreign transport companies in Germany in an unfavorable way (judgment, para. 162) and thus infringed the standstill clause in Article 92 TFEU.

Comment

The judgement represents a strong confirmation that the autonomous concept of indirect discrimination will be protected by the Court, despite any kinds of political deal making on the European level. Further, the German government has to remove its plans to enact a motorway charge in the current form. Possibly, a staggered implementation of the motorway charge and the vehicle-tax relief would have raised less objections by the EC and Austria. The loud approach of introducing the motorway charge proved to be dead end for Germany, which finally led to the infringement proceedings brought forward by Austria and the embarrassing failure in front of the CJEU.

A second take-away is the successful use of Article 259 TFEU by Austria. It might be possible that this successful application of Article 259 TFEU will lead to more proceedings of that kind in the future.[4] In fact, Austria v Germany was only the seventh case brought under this article. The article might be used in cases, in which the EC in hesitant to protect the treaties and go after an infringement of EU law. In this case, Member States could make use of this article to bring a case before the Court. However, a frequent use of this article would hardly be a desirable outcome, since it undermines the principle of mutual trust among the Member States and would lead to ongoing suspicions among them.

Thirdly, the Court affirmed that the standstill clause of Article 92 TFEU still stands. Member States may not change their road toll system in a detrimental way for foreign carriers. This article proves to be a high hurdle against any new kinds of motorway charges for small vehicles. The European legislator envisages a harmonized approach to road infrastructure charges for light vehicles. However, nothing has been done yet, despite a study on the impacts of the different regimes from 2012. A ‘light vehicle Directive’, which levels the different vignettes regimes in the Member States could be a project for the new EC starting this year.

[1] As a previous example of the use of Article 259 TFEU see Daglitye, Egle, “When your neighbour is your enemy, what happens to European integration? Case C 364/10 Hungary v Slovak Republic” in KSLR EU Law Blog, [2012], https://blogs.kcl.ac.uk/kslreuropeanlawblog/?p=275#.XRMwoegvM3s.

[2] See direct action of a Member States against another Member State pursuant to Article 259 TFEU.

[3] For a full explanation of the Keck doctrine see Luca, Ioana: “The impact of Keck Doctrine on Free Movement of Goods”, 2011 R.R.D.E. 115 (2011).

[4] The more frequent use of Article 259 TFEU has been proposed by some authors in the context of the rule of law crisis in the European Union, see Kochenov, Dimitry, Biting Intergovernmentalism: The Case for the Reinvention of Article 259 TFEU to Make It a Viable Rule of Law Enforcement Tool (October 11, 2015). The Hague Journal of the Rule of Law, Vol. 7, 2015, pp. 153-174; Jean Monnet Working Paper (NYU Law School) No 11, 2015. Available at SSRN: https://ssrn.com/abstract=2672492.

One comment

  1. JDK

    As regards Art. 92 TFEU, I would like to stress the last part of the Article: “…less favourable in their direct or indirect effect on carriers of other Member States as compared with carriers who are nationals of that State.”
    As the Court itself stresses, there is no problem in changing the system towards a user-based financing, as long as it is not connected to an automatic tax reduction. Therefore, I wouldn’t say that it is per se a high hurdle against new toll systems.
    See also https://verfassungsblog.de/pkw-maut-kein-sieg-der-csu-ueber-die-eu-kommission/ on tax reduction ideas.

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