Final warning to Malta on second-hand car taxes

The European Commission yesterday gave Malta two months to declare how it plans to change the tax regime on imported second-hand cars from other EU member states. According to the EU, the system in place needs to be overhauled as it is not in conformity with EU rules.

The Commission said that if Malta does not give a satisfactory response to its reasoned opinion it might decide to refer the issue to the European Court of Justice (ECJ).

Earlier this week, Finance Minister Tonio Fenech told The Times that Malta had already informed Brussels about the planned reform of the car registration tax, adding that the proposal will be included in the next pre-budget document. However, Mr Fenech admitted that the government had not sent the details "as these were still being worked out".

Commission sources told The Times yesterday that "stating that you are changing a system is not good enough. We need to know the details."

In fact, Malta has been warned over the need to change its car registration tax regime on second-hand cars more than a year ago when a letter of formal notice was first issued.

The Commission yesterday said the car registration tax system has a discriminatory effect with respect to motor vehicles coming from the other member states.

"In Malta, the tax rate, which depends on the vehicle's engine capacity, is the same for new and used cars. The rate is applied on the vehicle's value, which is determined by the Maltese authorities. However, differently from new motor vehicles, there is a minimum amount of tax fixed only for used cars. Even if the application of the corresponding tax rate to the taxable value determined by the authorities results in a smaller amount than the fixed minimum, the latter prevails," the sources said.

According to the Commission, the application of the minimum tax cannot guarantee that the tax applied on second-hand vehicles from other member states will not exceed the residual tax incorporated in the value of similar vehicles already registered in Malta, as required by the ECJ.

Brussels also maintains that the current system lacks transparency in the procedure used to determine the taxable value of motor vehicles and also contests the lack of the possibility by the taxpayer to challenge the correctness of the tax due where he believes that the assessed amount of the tax does not correctly reflect the motor vehicle's actual depreciation.

The stand adopted by the Commission is backed by jurisprudence. In fact, the ECJ has consistently held that a member state is not prohibited from levying registration taxes on second-hand imported cars 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 taxation on products coming from other member states in excess of that imposed on similar domestic products.

The court also decided that registration tax paid on a new vehicle forms part of its market value and that member states must take the car's actual depreciation value into account when calculating registration tax.