Car taxation: infringement procedure against Cyprus - Main contents

The European Commission has decided to send Cyprus a formal request for information concerning the taxation rules applied on the registration of second-hand cars brought into Cyprus from other EU Member States.

The rules are applied in a way that may breach the EC Treaty provisions on equal treatment of domestic products and those of other Member States. The request to Cyprus is in the form of a "letter of formal notice", the first stage of the infringement procedure laid down in Article 226 of the EC Treaty. Cyprus is requested to reply within two months. If the Commission does not receive satisfactory response, it may proceed with the second stage of the said procedure and ultimately bring the case before the Court of Justice.

"Member States are free to introduce registration taxes for vehicles" said EU Taxation and Customs Commissioner László Kovács i. "But they must respect the Treaty principle of non-discrimination between domestic and EU products as well as secondary community law".

The European Court of Justice (ECJ) has consistently held that a Member State is not prohibited from levying a vehicle tax such as one on the first registration of a vehicle in that Member State but provided that the tax is in conformity with Article 90 of the EC Treaty. This means that a Member State must not impose any internal tax, directly or indirectly, on the products of other Member States of a kind in excess of that imposed directly or indirectly on similar domestic products. The ECJ has declared that Article 90 requires a Member State to take an imported second-hand vehicle's actual depreciation into account when calculating registration tax. Otherwise the tax imposed would exceed the residual tax incorporated in the value of similar second-hand motor vehicles already registered in the national territory (see ECJ cases Nunes Tadeu, C-345/93; Commission v Denmark, C-47/88; and Commission v Hellenic Republic, C-375/95).

Under Cypriot law, a tax is due on the first registration of a vehicle in Cyprus. In practice, it concerns all new vehicles and second-hand vehicles, these latter almost exclusively coming from outside Cyprus. The registration tax has not to be paid for second-hand cars already registered in Cyprus. The amount of the tax varies according to the C02 emissions and the age of vehicles.

In order to benefit of the reduction based on the C02 emissions, owners have to provide a certificate of conformity that is hardly possible to be obtained for second-hand vehicles. The Commission has considered that a requirement which contributes to determine the amount of tax but which, for the application of the more favourable tax treatment, cannot be met in most of the cases by goods coming from other Member States, is incompatible with Article 90 of the EC Treaty, since it would result in a higher taxation to the detriment of mainly foreign second-hand cars.

Secondly, the standard way of calculating the amount of the tax according to the age of the vehicle does not allow taking into consideration the real loss of value of the vehicle at the moment of the registration. The consequence is that the tax applied on second hand vehicles coming from another Member State will not reflect, in the majority of the cases, the amount of tax incorporated in similar second hand vehicles already registered in Cyprus.

Finally, the Commission has also found that Cyprus lacks a system which allows the taxpayer to challenge the correctness of the tax due before a national court, contrary to what the ECJ has held in case Gomes Valente, C-393/98[1].

Background

According to the Cypriot legislation, the amount of the tax based on the C02 emissions is calculated as follows: decrease by 15% until 150 gr/km, no reduction between 150 gr/km and 275 gr/km and increase for emissions exceeding 275 gr/km.

With regard to the amount of the tax based on age, Cyprus allows a decrease of the amount of tax by 15% (vehicle one year old or less), a decrease by 20% (vehicles between one year and three years), no decrease in the amount of tax (vehicles between three years and five years) and an increase by 25% (vehicles older than 5 years).

For information on EU activities in the field of car taxation see

http://europa.eu.int/comm/taxation_customs/taxation/other_taxes/passenger_car/index_en.htm

The latest information on infringement procedures concerning all Member States can be found at the following site:

http://europa.eu.int/comm/secretariat_general/sgb/droit_com/index_en.htm

[1] In this case, the ECJ declared that, even though member States are allowed to rely on fixed scales instead of being obliged to perform an exam of the single vehicle to be registered, a taxpayer should always be given the possibility to challenge before a national court the application of the depreciation scales in order to seek a more faithful assessment of the value of his car.