TALKING TAX: Car taxation in the EU: What's the big deal

  • 2006-08-09
  • By Luc Nijs
Confusion abounds. First, the European Commission recently announced that it would like to see higher charges on energy, at a time when most companies and households are being crushed by high fuel prices, then the commission begins working on a draft proposal for a uniform car taxation system based on the level of carbon dioxide emissions.

Regarding the latter, the situation is a bit more complicated. First, at the moment there is no umbrella legislation available on the European level. As a consequence, each member state can organize taxes and registration of motor vehicles as it sees fit, and this freedom is used extensively by member states. Fair enough. But as we live in a world that is becoming more mobile, customers and car dealerships and lease companies are adapting to the circumstances. Member states have tried to negate differences by requiring regular car users to register in that country even if the owner or lessor is located abroad (thus allowing for collection of national taxes). A question has emerged as to what extent the consequence of these rules still comply with internal market rules and, in particular, the freedom of workers and services.

In 2003 a Luxembourg employer provided an employee/Belgian resident with a company car through a Luxembourg lease company that had no fixed place of business in Belgium. Belgian authorities required registration in Belgium as he was the main user of the vehicle. The European Court of Justice concluded that the situation resulted in the fact that it was more diffiult for a Luxembourg employer to source employees from abroad than domestically and therefore violated the free movement of workers.
On June 27 this year the court decided on a similar matter, but this time from a freedom of services perspective. It is common practice for private individuals and self employed residents of the Netherlands to rent their cars in Germany 's not only because the new Mercedes and BMW editions are faster but because the environmental surcharge of about 30 percent on the catalog value is not due in the Netherlands. As this is under the customs authorities supervision, the latter has developed creative ways of identifying residents who drive a foreign registered car and slapping drivers with a 30 percent surcharge, even though the car is not yours and you potentially have to turn it in next week.

The European Court saw a violation of freedom of services in this pattern and a disproportionate response as well. Yet, I'm still not convinced that these rulings will end the debate. In a true internal market, I, as a resident, should be able to rent a car and move freely accross borders without being compromised on a valid agreement I have concluded with a lease company abroad.

Luc Nijs is head of tax at Sorainen Law Offices