Roberta's 'No, Prime Minister'

The news that the European Commission has closed the infringement procedure that had been brought against Malta over VAT charged on vehicle registration tax under the old car registration tax system will not bring much joy to the Minister of Finance. It will bring even lesser joy to the Prime Minister, whose political view of the issue is bound to be broader than his minister's necessarily more narrowly technical one.

The ministry's press statement about the positive environmental impact of the current car registration tax is an attempt to sweeten the pill that this government is being made to swallow. Of course, we would all be happier if the introduction of environmental considerations into the tax system as of the beginning of this year will result in a healthier environment. But that, dear Minister Tonio Fenech, is not the point.

As an EU member state, Malta is responsible for the implementation of Community law within its own legal system and the Commission is responsible for ensuring that Community law is indeed applied and applied correctly. In the case of non-compliance with Community law, the Commission is empowered to take action to end the infringement. It may, if necessary, refer the case to the European Court of Justice. Before dragging a member state in front of the Court, the Commission warns it is initiating "infringement proceedings". This gives the state concerned the chance to comply voluntarily.

In 2008, the Commission requested Austria, Malta and Finland to amend their legislation as regards the inclusion of the amount of the car registration tax within the total on which VAT is levied in the case of supply of road vehicles. The three states were given two months to comply. In case of failure to do so, the Commission could refer the matters to the European Court of Justice.

In its reasoned opinion, the Commission referred to the court's ruling in the case of Denmark. In this case, the court had concluded that when dealers supply a vehicle registered for a price inclusive of the registration tax paid by them before they supply it, the amount of that tax must not be included with taxable amount of the VAT charged on its sale.

The court based its judgment on two factors. One, that registration tax is not charged by reason of the supply of the vehicle but by reason of its registration. Two, that the supplier paid the registration tax to the state on behalf of the person buying the vehicle. The Commission saw no fundamental differences between car registration taxes in Austria, Malta and Finland and Denmark's car tax as examined by the European Court.

In January 2009, MEP Louis Grech (who, in October 2007, had - together with the then MEP Joseph Muscat - lodged a complaint on this issue with Commissioner Laszlo Kovacs) submitted a parliamentary question asking the Commission to "confirm that the Maltese government has to issue refunds on related VAT levied on vehicle registration tax to all those individuals or entities who purchased a car with effect from May 2004". Mr Kovacs replied that "the Commission considers that taxpayers as mentioned in the question might indeed seek redress of taxes that have been collected in breach of EC law [...] in accordance with the procedures provided for similar refunds in national law [...]." He added that, although "it is for the national courts to apply domestic rules" these "must ensure that the taxes levied in breach of Community law are reimbursed" ( http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=P-2009-0562&language=EN ).

In March, Mr Fenech stated that the government did not agree with the opinion given by the Commission and, if necessary, the government would defend its position in the European Court. In May, the Labour Party (PL) filed a court case against the government on behalf of about 17,600 people, demanding refunds on VAT paid on vehicle registration tax since 2004. If the judgment goes against the government, anybody who has bought a car since 2004 will be eligible for a refund.

Should the local courts decide in favour of the government, the PL is set to take its case to Strasbourg, where it is certain to win. Whatever, Dr Muscat has committed a PL government to effect these refunds regardless of court decisions. Lawrence Gonzi, who says he is waiting for the courts to decide, insists that he has technical legal advice saying the government had not broken any laws.

Roberta Metsola Tedesco Triccas, who obtained the third largest number of Nationalist first-count votes at the European Parliament elections, declared during her campaign: "I do not have any... moral dilemma in stating that I do not agree with the government's position on the matter... Following the intervention of... the European Commission, the Maltese government... changed the system to bring it into compliance... The government is probably on safe ground, both legally and technically. However, politics is not about technicalities. It is about a service to the public that should stem from qualities and values...".

That, dear Prime Minister, is the point.

Dr Vella blogs at watersbroken.wordpress.com.