Article 90 and car imports

Following my letter on foreign-registered cars (The Sunday Times, March 19) I received numerous queries on how Article 90 (formerly Article 95) of the European Treaty Establishing the European Community can apply to second-hand vehicle imports.

Article 90 reads: "No member state shall impose, directly or indirectly, on the products of other member states any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

"Furthermore, no member state shall impose on the products of other member states any internal taxation of such a nature as to afford indirect protection to other products."

Malta does not manufacture cars and so has no similar domestic products but the European Court considers that vehicles entering the second-hand car market in any EU state effectively become domestic products of that state. The Commission wants to ensure that second-hand cars imported from another member state must be taxed by an amount which is equivalent to the residual registration tax remaining after depreciation of a similar vehicle of similar age.

The Commission also does not accept claims that vehicles depreciate by only five per cent per year and for only four years. In the case of the Maltese registration tax law, the minimum payment provision for second-hand vehicle imports does not allow for a tax payment which is equivalent to the residual registration tax of similar locally registered vehicles of similar age.

Two judgments in the European Court illustrate that the current method of taxing second-hand car imports is illegal. Article 95 referred to in the two cases had become the current Article 90 after amendment of the Treaty.

Case C-345/93, point 2: "It is incompatible with Article 95 (current Article 90) of the Treaty for a member state to levy on second-hand cars from other member states a tax which, calculated without taking the vehicle's actual depreciation into account, exceeds the residual tax incorporated in the value of similar second-hand motor vehicles already registered in the national territory, which, having been taxed at the time of such registration, are not taxed when sold second-hand."

The Maltese registration tax law does not have any provisions which take depreciation of second-hand imports into consideration when calculating the tax due but ADT officials use UK-sourced commercial lists to calculate their import price and CIF. There is no attempt to work out what the residual tax incorporated in the value of similar second-hand motor vehicles already registered in the national territory. The 'minimum amount that has to be paid' clauses make any calculations of residual registration tax redundant especially for vehicles more than a few years old.

Case C-375/95: "National legislation which, as regards the application of a special consumer tax and flat-rate added special duty, determines the taxable value of imported used cars by reducing the price of equivalent new cars by five per cent for each year of age of the vehicles concerned, the maximum reduction allowed as a rule being 20 per cent, is contrary to Article 95 (current Article 90) of the Treaty.

Since the annual depreciation in the value of cars is in general considerably more than five per cent, that depreciation is not linear, especially in the first years when it is much more marked than subsequently and since, finally, vehicles continue to depreciate more than four years after being put into circulation, the taxable value resulting from those detailed rules for calculating taxation does not correspond to the value resulting from the actual wear and tear undergone by used cars, as a result of which the special consumer tax and flat-rate added special duty imposed on imported used cars are usually higher than the proportion of those taxes still incorporated in the value of used cars already registered and purchased on the domestic market."