The Dutch High Court (decision 19-12-2014, nr. 13/05584) referred preliminary questions to the ECJ in a case where the Tax inspector, after consulting the European Commission, had refused to issue an outward processing license for
the production of bio-fuel (by mixing community (light) petrol with non-community bio-ethanol) outside the EU territory (in international waters), on the grounds that the economic conditions for the use of the customs procedure of outward processing, had not been met. The High Court asked if the term "community processors" as mentioned in article 148, letter c, of the CCC only refers to businesses established in the community, able to execute the same production activities, or if it also includes community businesses producing similar end products (i.e. bio-fuel).
In the case at hand, a license for outward processing was requested for the following activity: a ship would be loaded in a Dutch port with two products (separated by a bulkhead):
- community (light) petrol
- non-community bio-ethanol
After sailing to international waters, the bulkhead would be removed, allowing both components to mix. Further mixing would be achieved by the action of wave movement on the ship. The resulting product (called E85 or bio-fuel) would be
customs cleared upon arrival (CN 3824.90 duty rate 6.5%), less the import duties that would be due for the import of the community (light) petrol (2008 tariff of 4.7%).
The Tax inspector (on the basis of article 503 CCCIP) asked the European Commission to investigate if, in this case, the economic conditions for outward processing were met.
The Commission argued that imported bio-fuel (E85) is in direct competition with domestic bio-ethanol, since bio-ethanol is the fundamental component of E85 (approx. 85%). At the time of investigation (2008) almost half of the EU's industrial ethanol capacity was not being used.
The Commission concluded that the economic conditions were not met.
On the basis of this opinion, the inspector rejected the license application.
The court of first instance ruled that the economic conditions did not justify assessing the interest of community producers against that of the non-community components (bio-ethanol producers), only an assessment against the interest of
community processors (producers of E85 bio-fuel).
The Supreme Court (hearing with the appeal of the State Secretary of Finance) questioned the opinion of the court of first instance in view of the opinion of the European Commission (expressed at the request of the tax inspector). Apparently, the term, community processors, (as mentioned in article 148, letter c CCC) also includes producers of one of the components or intermediate products of the relevant finished product. In its consideration, the Supreme Court referred to the ECJ case, Friesland Coberco (C-11/05, ECLI:EU:C:206:312) where a similar conclusion was drawn. As the Friesland Coberco case concerned Inward Processing, the Supreme Court questioned if the conclusion also applies to outward processing (taking into account the fact that the goals of the two customs procedures are different).
The preliminary question requested confirmation of whether the term "community processors" (in article 148, letter c) of the CCC, also includes community producers of components or intermediate products equal to the (non-community) ones
used in the processing operation.
What can this mean for business?
If the ECJ agrees with the (broader) interpretation of the term community processors, applications for outward processing licenses (and possibly also for other customs regimes) could be subjected to more scrutiny when testing the validity of the economic conditions of the procedure. On the other hand it would also broaden the possibilities for challenging licenses if they compete with community production of components or intermediate products.
