Passenger car taxation

At present there is little Community legislation, or harmonisation of national fiscal provisions, applied by the Member States in the area of passenger 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-border aspects of car taxation. For answers to the most practical questions, see our FAQ.

European Commission Proposal

The European Commission on 5 July 2005 presented a proposal for a Directive (COM/2005/261/FINAL; press release IP/2005/839  ; and frequently asked questions MEMO/05/236  ) that would require Member States to re-structure their passenger car taxation systems. The proposal aims to improve the functioning of the Internal Market by removing existing tax obstacles to the transfer of passenger cars from one Member State to another. It would also promote sustainability by restructuring the tax base of both registration taxes and annual circulation taxes so as to include elements directly related to carbon dioxide emissions of passenger cars. The proposal aims only to establish an EU structure for passenger car taxes. It would not harmonise tax rates or oblige Member States to introduce new taxes.

The Commission's passenger car tax proposal contains three elements:

• Abolition of car registration taxes over a transitional period of five to ten years.
• A system whereby a Member State would be required to refund a portion of registration tax, pending its abolition, where a passenger car that is registered in that Member State is subsequently exported or permanently transferred to another Member State.
• The introduction of a CO2 element into the tax base of both annual circulation taxes and registration taxes.

Annexed to the proposal is a Commission staff working document that provides a detailed analysis of the proposal's economic, environmental and social impact (SEC/2005/809(259 Kb)  ).

The ground for the proposal had been prepared by a 2002 Commission Communication proposing policies and options aimed at serving both Internal Market and environmental objectives (COM(2002) 431 - see also press release IP/02/1274  ).

Legal situation in the EU today

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 apply consumption 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 Commission has prepared a notice for citizens setting out the tax consequences of transferring cars across borders (TAXUD/255/02 - see below). It addresses only the cross-border aspects of car taxation.

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 or settle permanently in another Member State . Others buy or hire a car in a Member State other than their own.

Background

• Passenger car taxation: public consultation on proposals for passenger car taxation (Press release IP/04/970  )
• Communication from the Commission to the Council and the European Parliament - Taxation of passengers cars in the European Union - options for action at national and Community levels(COM(2002) 431 of 06/09/2002). See Press release IP/02/1274  .
• Information notice(92 Kb)   to citizens (TAXUD/255/02 of 09/09/2002 ): Taxation of cars transferred within the Community or used regularly on cross-border journeys. Information document from the Commission on the rights and duties of the European Citizen
• Fiscal measures to reduce CO2 emissions from new passenger cars (January 2002). A study contract undertaken by COWI A/S: "Fiscal measures to reduce CO2(1.1 Mb)"
• Study on vehicle taxation in the Member States of the European Union (January 2002): "Study on vehicle taxation 2002(1.3 Mb)"
• Proposal for a Council Directive governing the tax treatment of private motor vehicles moved permanently to another Member State in connection with a transfer of residence or used temporarily in a Member State other than that in which they are registered (COM(98) 30 final of 10/02/1998)
• Vehicle taxation in the European Union 1997. This document sets out the taxation measures in force in each of the Member States: "Vehicle taxation in the EU 1997(356 Kb)  "