Couple win back imported car VAT

A couple will get back the €1,761 they paid in VAT on a second-hand car they imported from the UK after a court ruled that the Transport Authority could not justify the controversial taxation.

William and Anne Grech will also be refunded €5,160 in excessive registration tax they were charged, bringing the total amount to be refunded to €6,921.

The landmark judgment could have significant implications on a pending class action instituted by the Labour Party on behalf of almost 18,000 people, challenging the VAT paid on car registration tax.

“The decision confirms the argument of the Labour Party that this Government-imposed tax is illegal and in breach of EU regulations,” the PL said yesterday.

Mr Justice Anthony Ellul, sitting in the First Hall of Civil Court, yesterday found that, according to law, it was “more than evident” that when a person imported a second-hand car from an EU country, VAT should not be paid on the car.

The Grechs bought a second-hand Land Rover Freelander in the UK for €3,693 in October 2007. Mr Grech drove it to Malta and, on arrival, was asked to pay taxes and VAT even though the latter had been paid in the UK, an EU country.

Mr Grech was asked to pay €9,783 in registration tax and €1,761 in VAT on that registration tax.

He paid under protest, reserving the right to take legal action. In April 2008, the couple filed a case before the First Hall of the Civil Court.

They argued that the Transport Authority (now Transport Malta) was in breach of article 90 of the EU Treaty when it charged such high registration tax. They also claimed that charging VAT on registration tax was in breach of the law.

The treaty states that: “No member state shall impose, directly or indirectly, on the products of other member states an internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.”

The transport regulator argued that there was no breach of the treaty and that the tax was charged according to Maltese law.

It later claimed that VAT was charged to avoid “distortion of competition” – to ensure a fair playing field because when a Maltese importer sold a car from the UK, VAT was paid.

At the time, the Government imposed a registration tax on second-hand imports of €9,783 or 65 per cent of the car’s value, whichever was higher.

In the Grechs’ case, their 2002 Land Rover was valued at €7,113, meaning the tax owed (calculated at 65 per cent) would be €4,622. This meant the couple were still charged €9,783.

Imposing a tax higher than the value of the car led to a discriminatory situation whereby imported products were taxed more heavily than domestic ones, the court noted.

Since the case was filed, the Government took action and, following infringement procedures in 2007 by the EU, vehicle registration rules were overhauled to reflect a car’s emission levels, engine size and length.

Mr Justice Ellul declared that the former regime was in breach of the EU law and the €9,783 payment should have never been enforced. The 65 per cent rule should have applied.

The court ordered the transport regulator to refund the difference – €5,160 – to the couple.

More significantly, Mr Justice Ellul also ruled the VAT on registration tax be refunded as it should not have been charged.

The regulator was also ordered to pay interest starting from the day the case was filed.

Lawyers Phyllis Aquilina and Pawlu Lia represented the pair.