Five EU countries have refused to refund car VAT

Four member states apart from Malta have refused to refund VAT on registration tax, The Sunday Times has learnt, all insisting that they acted within the parameters of EU law.

Finland, together with Malta, Austria, Poland and Portugal were officially warned by the European Commission in early 2007 to amend legislation related to VAT on registration tax.

Since then, Finland has made the necessary changes, which will come into force on Wednesday, but it is insisting that its old legislation is still within the parameters of EU rules and thus its consumers will not be entitled to any VAT refunds.

When contacted by The Sunday Times, a spokesman for the Finnish Finance Ministry in Helsinki said: "We have already made it clear that there is no legal reason to give any refunds as our tax system was still in line with EU rules.

"What we did is just adapt to the system, as Brussels requested. Before, new cars were subject to 22 per cent VAT over and above the registration tax. Now we removed the VAT element and increased the registration tax by 22 per cent." The Maltese government adopted a different system to Finland's when it overhauled the car registration scheme at the beginning of this year. It is also insisting that the old system was in line with EU rules and thus no VAT refunds should be given. But, last month, EU Taxation Commissioner Laszlo Kovaks said Maltese taxpayers could seek redress over taxes collected in breach of EU Law - though he made it clear this was not automatic and had to be decided by national courts.

"Taxpayers must exercise their right in accordance with the procedures provided for similar refunds in national law as at present there is no common or harmonised set of substantive or procedural community rules governing remedies for the enforcement of Community law.

"It is for the national courts to apply domestic rules, which must ensure the taxes levied in breach of EU law are reimbursed," Mr Kovacs had said.

Although the government has stuck to its guns, it has said that it will honour the decision taken by the Maltese court.

The Commission spokesman said: "In Malta's case, a final decision on whether to close the infringement procedure is expected soon."

He added that anyone in Malta who felt the system was unfair should refer the matter to the national courts.

The Labour Party is insisting that the government should refund motorists with the VAT paid on registration tax since 2004 - amounting to around €50 million - and more than 17,000 people have signed up to join its court case against the government.

The PL has not yet presented any cases before the Maltese courts.