Thousands of motorists claiming back VAT charged on car registration might have rejoiced after Monday’s court decision but their lawyers are advising caution.
The court reaffirmed the obligation to charge VAT on the car registration tax when the vehicle is imported by a dealer
Lawyers Edward Zammit Lewis and Alex Sciberras were cautiously optimistic after the court ordered the authorities to refund the VAT and registration tax paid on a used car imported from the UK.
The two lawyers are representing some 18,000 motorists, who had joined a collective action case organised by the Labour Party seeking a refund of VAT on cars bought between 2004 and 2008. They claim the tax-on-tax charge went against EU rules.
The Labour Party on Monday said the decision vindicated its arguments but the Finance Ministry yesterday accused the party of “confusing people”.
The Government will not be appealing the decision, which is a very specific one concerning an individual, a spokesman said.
The judgment involved a case instituted by Willie and Anna Grech, who disputed the VAT and registration tax charged in Malta on a second-hand Land Rover they bought in the UK. They have to be refunded €6,921.
“Strictly speaking it is not a legal precedent because the Grechs’ case has certain nuances that are different from the one we are putting forward. But it is definitely a step in the right direction and it does strengthen our arguments,” Dr Sciberras said.
However, the Government said the case instituted by the Grechs dealt with the purchase of a car for “personal use” in another member state and the transfer of the vehicle to Malta without going through a dealer.
“Since the individual acted in a personal manner, the court found that technically the transaction happened in the UK and so was not subject to VAT in Malta,” the ministry said.
The court did not find the Government at fault, the ministry added, but the transport authority had applied the law incorrectly.
“This means the court reaffirmed the obligation to charge VAT on the car registration tax when the vehicle is imported by an agent or dealer.”
The registration tax issue raised by the Grechs is not connected with the Labour Party’s collective action suit but the VAT arguments brought up in their case have some resemblance, according to Dr Zammit Lewis. He said that in its considerations the court did touch on the VAT issue, even implying it was against EU regulations to use the registration tax as a basis for the computation of VAT.
It was “a positive development” that a court decreed the old tax regime as going against EU rules, he added.
In 2009 the Government had changed the car registration tax system into an environmental tax based on size and pollution, rather than an administrative charge based on car value and engine capacity.
However, Dr Zammit Lewis cautioned against considering the judgment a legal precedent.
“To start with, our system is not based on the principle of precedent and the facts of the case are also different from a legal point of view.”
The Labour Party case was filed in 2009 and the parties are currently making written submissions on whether the matter should be dealt with by the European Court of Justice.
“We believe this is an issue of community law and have asked the court to refer the matter to the ECJ. We are now waiting for the Government to make its written submissions on the matter,” Dr Zammit Lewis said.
The VAT paid by consumers on cars bought between 2004 and 2008 (the period between Malta’s EU accession and the year when the tax system was changed) amounted to around €50 million and the Labour Party has pledged to refund the tax if elected to government.
Despite changing the car registration system in 2009, the Finance Ministry has always insisted the old regime was not in breach of EU regulations and that the Government was not obliged to refund the VAT.