In what will undoubtedly be a blow to Malta’s new car importers, the European Commission yesterday decided to take Malta to task and initiate infringement proceedings over the levying of car registration taxes on used cars imported from other EU member states.
The Commission yesterday formally requested Malta to amend its car registration tax rules, which it said discriminated against second-hand cars brought from other European markets, in that the same taxes are levied on new and used cars, that the value of a vehicle is determined in a non-transparent manner by the Maltese authorities at import stage, that consumers have no recourse to challenge the value established and that Malta applies a minimum tax rate only in the case of used cars.
Romania also received a similar formal request to amend its legislation, although it has been an EU member only since January. The Maltese tax on used car imports has been ongoing since EU accession in May 2004.
The Commission found the Maltese car registration tax system is discriminatory, firstly in that the tax rate, which depends on the engine capacity of the vehicle in question, is the same for both used and new cars.
Moreover, the tax rate is applied to the vehicle’s value, which itself is established by the Maltese authorities at the import stage.
The Commission also argues that, as opposed to the taxation regime for importing new cars, Malta also has a fixed minimum rate of tax which is applicable only for used cars, while even if the application of the corresponding tax rate to the taxable value determined by the authorities, in Malta’s case the Malta Transport Authority’s Technical Unit, results in a smaller amount than the fixed minimum, the latter prevails.
The Commission explained, “The application of the minimum tax cannot guarantee that the tax applied on second-hand vehicles coming from other member states will not exceed the residual tax incorporated in the value of similar vehicles already registered in Malta, as required by the European Court of Justice (ECJ).”
The Commission also pointed to the lack of transparency in the administrative procedure used to determine the taxable value of motor vehicles. It cites how the ECJ had ruled, in Case C-393/98 (the Gomes Valente case), that the criteria on the basis of which the taxable value is determined must be made public.
The Commission has also contested Maltese taxpayers’ lack of recourse to challenge the correctness of the vehicle evaluation and tax due on used car imports in cases in which they believe the authorities’ assessment does not correctly reflect the vehicle’s actual depreciation.
Yesterday’s request to the Maltese government takes the form of a “letter of formal notice”, which is the first stage of the EC’s infringement proceedings against a member state. If the Commission does not receive satisfactory responses from Malta within two months, it may proceed with the second stage of the proceedings and ultimately bring the cases before the ECJ.
The Commission pointed out that the ECJ has consistently held that a member state is not prohibited from levying registration taxes on second-hand imported cars provided that the tax is in conformity with Article 90 of the EC Treaty, meaning that a member state must not impose any internal taxation on the products of other member states of a kind in excess of that imposed on similar domestic products.
The court has also decided that registration tax paid on a new vehicle forms a part of its market value and that member states must take actual car’s depreciation value into account when calculating registration tax.
Similar infringement procedures regarding discriminatory car taxation had been opened against Cyprus, Poland and Hungary upon their entry in the EU. The ECJ has recently declared Polish and Hungarian tax systems incompatible with Article 90 of the EC Treaty, providing the taxpayers with the means to claim reimbursement of tax amounts illegally collected before their national courts.