European Car Taxation

1.INTRODUCTION & GENERAL ISSUES.

Free movement of goods, services, persons and capital are fundamental freedoms underlying the European Union. Cars are an important means of getting around and are, therefore, instrumental to the right of freedom of movement by their users which is guaranteed under the EC Treaty. Many citizens take their car when they leave their Member State temporarily orsettle permanently in another Member State .

It is inevitable that EU citizens investing, working or operating across borders will have to contend with two or more sets of tax rules that can differ quite considerably. This is because EU Member States exercise sovereignty in the tax area, except to the extent that EU-wide rules exist (such as in the VAT and excise duties areas) and they are free toestablish the tax rules and rates that they wish, according to their political preferences.

However, Member States are obliged under EU law to ensure that their tax rules do not
discriminate between EU citizens on the basis of nationality. One of the great achievements of the EU has been to create a frontier-free area within which people, goods, services and capital can all move aroundfreely.

In this context, the European Commission has been working with Member States to dismantle any barriers impeding completion of the Internal Market and leading to serious inconveniences for cross-border movements. The European Commission, as guardian of the Treaty, is responsible for taking action against any Member States that apply tax rules that conflict with EU law.

On the otherhand, the European Court of Justice has taken up defending the common market values on the basis of the Treaty on the Functioning of the European Union provisions, in particular, articles 45, 49, 56 and 110 TFEU. There is a vast Court case-law regarding discriminatory taxation of used cars coming from other Member States within the meaning of Article 110 TFEU, as we are going to see in this essay. General limits on the authority of Member States to tax cars "imported" from another Member State
Although Member States have always had wide powers to introduce or maintain vehicle taxes, these powers are nevertheless subject to certain restrictions in respect of vehicles "imported" from another Member State. These conditions apply to both "imports" by residents of the Member State to whichcars are transferred and to transfers of cars to one Member State by residents of another.
a. The taxes may not give rise to border-crossing formalities in trade between Member States (Article 3(3) of Directive 92/12/CE);
b..They may not be measures having an effect equivalent to customs duty (
c. They may not discriminate against "imported" cars (Articles 90 and other provisions of the ECTreaty).

 Currently legal situation in the European Union

Nowadays, there is little Community legislation, or harmonization of national fiscal provisions, applied by the Member States in the area of car taxation. Therefore, it is for each Member State to lay down national provisions for the taxation of these cars. The few pieces of legislation currently in force mainly cover the cross-borderaspects of car taxation.

National provisions must be in line with the general principles of the EC Treaty. This means in particular that they should not give rise to border-crossing formalities in trade between Member States, and must respect the non discrimination principle.

As to Community Law, there are two Council Directives that restrict the rights of Member States to applyconsumption taxes to vehicles:
• Council Directive 83/183/EEC of 28 March 1983 on tax exemptions applicable to permanent imports from a Member State of the personal property of individuals
• Council Directive 83/182/EEC of 28 March 1983 on tax exemptions within the Community for certain means of transport temporarily imported into one Member State from another

The operation of 27 different tax...