EU Attempts To Clarify Rules On Car Taxes

By Editorial 17 December, 2012

The European Commission (EC) has issued a Communication to clarify European Union (EU) rules on cross-border car taxation and recommend measures to strengthen the Single Market in this area, with the aim of minimizing the problems encountered in moving cars between member states and removing obstacles for rentals.

It was pointed out that car registration taxes and circulation taxes are not harmonized in the EU. This can result in double taxation in certain situations and the fragmentation of the Single Market, with the EC receiving numerous questions and complaints related to cross-border car taxation.

Algirdas Šemeta, the European Commissioner for Taxation, Customs, Anti-fraud and Audit, said: "If member states cannot agree on common car taxation rules, they should at least respect basic EU principles to ensure that citizens and businesses do not suffer higher taxes or discrimination.”

Car taxation accounted for around 1.9% of all tax revenue across member states in 2010. Each year, more than 13m new passenger cars are registered in the EU, while over 3m cars are moved to another member state.

In 2005, the EC tried to address the problem with a proposal aimed at abolishing registration taxes and replacing them with annual, "green" taxes. To date, member states have not managed to reach unanimous agreement on this proposal, although many member states have unilaterally drawn on its ideas in formulating their car tax systems.

Following that, in its 2010 EU Citizenship Report, the EC identified double registration taxes on cars as an obstacle to free movement within the EU, and announced that it would work on solutions.

It was noted by the EC that, when buying a car in a member state other than that of their normal residence or when transferring a car to a member state other than that in which it is registered, EU citizens frequently face excessively complex re-registration procedures and may have to pay registration and/or circulation taxes twice.

High registration taxes on cars transferred between member states in the context of the transfer of permanent residence may work as an obstacle for potential migrants. Also, the multitude of different and un-coordinated thresholds and technical triggers for different levels of taxation, such as engine size, fuel used or CO2 emissions (be it for registration or circulation taxes), further complicates the already diverse market conditions for car producers triggering a tax-induced fragmentation of the single market, which results in tax-induced cross-border trade as well.

In April this year, the EC therefore presented a proposal to simplify the re-registration of motor vehicles moved to another member state, which could result in total savings of at least EUR1.5bn (USD1.97bn) per year for businesses, citizens and registration authorities. Member states have been unable to reach unanimous agreement on that proposal.

As a result, EU law related to car taxation is still mainly derived from European Court of Justice rulings and, over the years, the EC has had to launch over 300 infringement procedures against member states related to discrimination in national car registration rules and circulation taxes.

With the presentation of its Communication, the EC has now taken the initiative to clarify the EU legal situation for passenger car taxes and identify best practices that member states should implement.

Those practices would include providing better information on the application of car taxes in cross-border situations; refunding part of the registration tax for cars which are permanently transferred to another member state; and making provisions for the temporary use of vehicles, particularly rental cars, which are registered in another member state.

A Staff Working Document that accompanies the Communication gives an overview of the main legal issues that arise in the field of vehicle taxation and the level of protection available to EU citizens and businesses under EU law and case law.

The Communication will now be discussed by the European Parliament and the EU's Council of Ministers. The EC aims to use these discussions, and technical discussions with member states, to give new momentum to its 2005 car taxation proposal.

Tags: Expatriates | Tax | Business | European Commission | Vehicle Tax | Law | Travel And Tourism | European Union (EU) | Europe |


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