Car taxation: infringement procedures against Poland and Finland
European Commission - IP/06/918 04/07/2006
Brussels, 4 July 2006
The Commission has decided to send Poland and Finland formal requests to amend their car registration taxation rules. In Poland, the way registration tax is calculated results in a heavier taxation imposed on second-hand cars imported from other Member States. This legislation is not in conformity with Article 90 of the EC Treaty, which states that "no Member State shall impose on the products of other Member States any internal taxation of any kind in excess of that imposed on similar domestic products". In the case of Finland both the amount of registration tax levied on second-hand cars imported from other Member States and the way in which Finland imposes registration tax on leased cars are considered to be not in conformity with Article 90 EC and Article 49 EC, which establishes the freedom to provide services. The requests take the form of "reasoned opinions", the second stage of the infringement procedure laid down in Article 226 of the EC Treaty. If the Commission does not receive satisfactory responses from Member States, it may ultimately bring the cases before the European Court of Justice.
"The case law of the Court of Justice has helped to resolve some of the problems of tax discrimination that European citizens face when they move cars from one country to another" said Taxation and Customs Commissioner László Kovács. "However, many problems still remain and the Commission, as guardian of the Treaty, is required to take action against Member States whose car taxation rules do not conform with the Treaty. I call Member States to rapidly adopt the Commission's proposal for a Directive abolishing registration taxes (IP/05/839), whose application would put an end to a large number of discriminations currently existing".
The rate of car registration tax on first registration of a car in Poland relates exclusively to the age of the vehicle. This rate is 3.1% or 13.6%, depending on the engine capacity of the vehicle, for a car less than two years old. After two years, the rate starts to rise appreciably and can be as high as 65% on cars that are at least seven years old.
Consequently, the cars most heavily taxed are second-hand cars from other Member States. The way they are taxed compares unfavourably not only with motor vehicles manufactured in Poland, but also with motor vehicles of non-Polish origin that were bought on the Polish market and registered in Poland when new.
In its case law, the Court of Justice has consistently found that each Member State is free to establish a registration tax, but that Article 90 requires the method of depreciation chosen by a Member State to assess the taxable value of a foreign second-hand car to reflect the real loss of value, to the effect that the tax applied to a car from other Member States does not exceed the residual tax incorporated in the value of similar vehicles already registered in the country.
1. Registration tax on second-hand cars
The depreciation rate applied when calculating the registration tax for the first six months after the car's registration (which amounts to 0.8% per month) does not correspond to the economic reality.
This rule infringes Article 90 of the EC Treaty as it applies higher registration tax on second-hand cars imported from other Members than on similar Finnish cars.
The Court of Justice has ruled that under Article 90 of the EC Treaty Member States will always have to ensure that the tax levied on cars from other Member States does not exceed the tax still incorporated in similar cars already registered in the country. If a Member State opts for a system with a fixed depreciation rate, the rate applied has to be established in such a manner that there will be no such discrimination.
Furthermore, under Finnish legislation, taxable persons are allowed to deduct the tax levied on registration tax. However, under Article 17 of the Council's Sixth VAT Directive of 17 May 1977 (amended), only VAT is deductible. In this respect, therefore, the Finnish legislation is not in line with Community rules concerning value added tax.
2. Registration tax on leased cars
Vehicles leased and registered in other Member States by persons resident in Finland may be used only for seven days in Finland, after which the car must be registered in Finland and the whole amount of the tax is due.
Finnish legislation is not in conformity with Article 49 of the EC Treaty as it constitutes an obstacle to the freedom to provide services: it impedes leasing companies established in other Member States from offering their services to persons resident in Finland.
In its judgment of 21 Mars 2002 in case C-451/99 (Cura Anlagen), the Court of Justice took the view that an obligation to register a vehicle in the Member State of residence is not in breach, as such, of the provisions on the freedom to provide services.
However, the vehicle user must be granted a period of time within which to register the vehicle in the Member State of residence, which should be not so short as to be considered an unjustified obstacle to that freedom (in the case in question, a period of three days was considered contrary to the freedom rules enshrined in the EC Treaty).
The Court also ruled that, for the purposes of complying with the provisions of the Treaty, registration tax on a leased vehicle in the Member State of residence must be proportionate to the period during which the vehicle will be registered and used in that Member State of residence.
The Commission's cases reference number is 2004/4461 (Poland) and 2001/2091
and 2003/4300 (Finland).