Passenger car related taxes

This proposal for a directive provides for the restructuring of European Union (EU) countries’ passenger car related taxation systems with a view to improving the functioning of the internal market. It aims to remove the tax obstacles to permanently transferring passenger cars from one EU country to another. By restructuring the basis on which passenger cars are taxed, the proposed directive also aims to promote environmental sustainability in terms of carbon dioxide emissions.

PROPOSAL

Proposal for a Council Directive of 5 July 2005 on passenger car related taxes [COM(2005) 261 final – Not published in the Official Journal].

SUMMARY

This proposal for a directive aims to improve the functioning of the internal market and reduce CO2 emissions from passenger cars. By restructuring European Union (EU) countries’ systems for taxing passenger cars the proposal for a directive aims to remove fiscal obstacles to the free movement of passenger cars from one EU country to another.

Regarding taxes on passenger cars, the Commission proposes measures such as:

• phasing out car registration taxes (RT) over a transitional period of five to ten years;
• establishing a system for reimbursing registration taxes for passenger cars registered in one EU country and then exported or permanently transferred to another EU country;
• introducing an element linked to CO2 emissions into the tax base of annual circulation tax (ACT) and registration taxes.

Registration taxes

Under the current situation, RTs can lead to double taxation in cases where citizens move their permanent residence from one EU country to another or when a second-hand car is brought in from another EU country. Since these taxes can therefore create obstacles to the free movement of citizens as well as lead to a fragmentation of the market for used cars, it is proposed to phase them out.

Gradually abolishing RT over a transitional period of five to ten years will give those EU countries which are currently applying high RTs sufficient time to restructure their tax system and will also give holders of used cars protection against any immediate loss of their commercial value.

Refunding registration taxes

The purpose of establishing a system for refunding some of the RTs charged when registering any passenger car which is to be exported or permanently transferred to another EU country is to avoid double taxation in the interim period until RTs will be phased out. Moreover, clear rules are established for the calculation of the residual value of the RT to be refunded in the above cases.

Minimum tax revenue in terms of CO2 emissions

A link between CO2 emissions and the tax bases for RT and ACT is introduced based on the CO2 emissions per kilometre of each passenger car.

The total tax revenue generated by the CO2-related element of the annual circulation and registration taxes should be at least:

• 25% on 31 December 2008;
• 50% on 31 December 2010.

Background

The fact that there are differing systems for taxing passenger cars in the EU results in tax obstacles (such as double taxation) and impedes the smooth functioning of the internal market. The purpose of the measures put forward in this proposal for a directive is to remove tax obstacles to the cross-border transfer of cars. The new structure approximates the systems for taxing passenger cars applied by the EU countries but does not harmonise taxation levels in EU countries or oblige them to introduce new taxes.

Use of the tax system to promote fuel-efficient cars is one of the three pillars of the strategy for reducing CO2 emissions adopted by the EU in 1995. The other two pillars are consumer information, achieved by means of labels showing a vehicle’s CO2 emissions, and a voluntary commitment by automobile manufacturers to reduce CO2 emissions.

RELATED ACTS

Council Directive 2009/55/EC of 25 May 2009 on tax exemptions applicable to the permanent introduction from a Member State of the personal property of individuals [Official Journal L 145 of 10.6.2009].

Regulation (EC) No 715/2007 of the European Parliament and of the Council of 20 June 2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information [Official Journal L 171 of 29.6.2007].See consolidated version.

Communication from the Commission to the Council and the European Parliament of 7 February 2007 - Results of the review of the Community Strategy to reduce CO2 emissions from passenger cars and light commercial vehicles [COM(2007) 19 final – Not published in the Official Journal]. The Commission finds that, despite the progress made on achieving the voluntary target of 140 g of CO2/km by 2008-09, the target of 120 g of CO2/km that the EU has set itself will not be achieved by 2012 without additional measures. In order to achieve this target, the Commission proposes mandatory reductions of CO2 emissions to 130 g of CO2/km by means of better engine technologies (to be achieved by the automobile manufacturers) and a further reduction of 10 g of CO2/km through other technological improvements (tyre pressure monitoring systems, more effective air-conditioning systems, etc.) and an increased use of biofuels. Furthermore, the Commission intends to promote the purchase of fuel-efficient vehicles, particularly by improving vehicle labelling and by introducing legislation that would enable car tax systems in the EU countries to take account of CO2 emissions.

Commission Communication to the Council and the European Parliament of 6 September 2002. Taxation of passenger cars in the European Union - options for action at national and Community levels [COM(2002) 431 final – Not published in the Official Journal].

Last updated: 02.11.2010