European Commission: Estonian car tax may run counter to EU law

TALLINN - The European Commission has expressed concern about Estonia's planned motor vehicle tax, finding that the arrangement whereby the vehicle registration fee is about to be levied discriminates against imported cars, Postimees reported.

The European Commission is concerned that the planned registration fee will discriminate against cars imported from other member states, as it will only apply to newly registered cars, regardless of the origin of the vehicle.

The cars already registered in Estonia meanwhile will not be subject to the registration fee. This, in the Commission's view, is contrary to Article 110 of the European Union (EU) Treaties, which prohibits direct or indirect discrimination against goods.

The Commission is also concerned that the registration fee does not provide for tax depreciation.

Evelyn Liivamagi, deputy secretary general for financial and tax policy at the Ministry of Finance, told Postimees that the document of legislative intent for the car tax initially provided for the possibility of introducing a registration fee for all vehicles. However, based on the feedback received, this approach was reconsidered, as it was pointed out that taxing the sale of used cars could make it difficult for people with lower incomes to sell their old car and acquire a newer, more fuel-efficient vehicle.

"Besides, it may encourage situations where people sell their cars, but the new owner does not register it in their name," the official said.

"We were aware that the current arrangement concerning the registration fee, which, for tax purposes, distinguishes between cars that are already on the register and those that are being entered there, may not be suitable for the Commission. At the same time, the Commission did not directly say that in their opinion it is contrary to EU law, but that it could be," Liivamagi commented.

She added that the ministry will next analyze possible steps on how to proceed with the bill --– whether to move forward with the current solution or make changes to it.