Official Journal of the European Union

C 195/80

Opinion of the European Economic and Social Committee on the Proposal for a Council Directive on passenger car related taxes

(COM(2005) 261 final — 2005/0130 (CNS))

(2006/C 195/21)

On 6 September 2005 the Council decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 23 March 2006. The rapporteur was Mr Ranocchiari.

At its 427th plenary session, held on 17 and 18 May 2006 (meeting of 17 May), the European Economic and Social Committee adopted the following opinion by 67 votes to 4 with 3 abstentions.

1.   Conclusions and recommendations


The EESC fully supports the proposal for a directive, which sets out to improve the functioning of the internal market and, at the same time, to promote environmental sustainability.


In particular, the EESC welcomes the use for the first time of the third pillar (fiscal measures) to reduce carbon dioxide (CO2) emissions.


The EESC also agrees with the European Commission's assessment of the beneficial effects that the proposal may have on free movement for citizens and on the car industry.


The EESC recognises that, since the proposal concerns fiscal matters, which are primarily in the hands of the Member States, the European Commission could not apply the principle of subsidiarity in a broader or more cogent way than is done in the proposal.


However, a number of aspects not covered by the proposal could give rise to some difficulties in transposing the directive, with the risk that application might vary between Member States. In order to reduce this risk, the Commission will also have to resolve some technical issues, that the proposal fails to clarify, in good time.


While endorsing the objectives of the draft directive, the EESC believes that they will only be achieved if the Member States coordinate their interpretation of the directive's guidelines and recommendations. Otherwise, there is a danger that fragmentation of the single market will worsen rather than diminish, as the proposal intends.


The EESC therefore calls upon the European Commission not only to carefully monitor the directive's implementing provisions, as it usually does, but also to carry out on-going comparison in cooperation with the Member States in order to ensure that the new car taxation system is implemented in a coordinated way.


The EESC also trusts that following this first, significant step, further progress can be made in the near future towards a taxation system based primarily, if not exclusively on the car use, rather than acquisition or possession. Only then will the ‘polluter pays principle’, which the EESC strongly upholds, be put into real practice.


Lastly, the EESC must once again stress the need for an integrated approach to enhanced environmental sustainability in road transport. Taxation, while undoubtedly an important instrument, must be accompanied by modernisation of infrastructure, promotion of public transport and, equally importantly, by an effective consumer education campaign aimed at more informed and environment-friendly choices. Therefore, it does not seem appropriate, for example, that the European Commission is encouraging the Member States to align taxation of diesel fuel for cars with that for petrol, without considering the fact that diesel cars emit less CO2 than petrol-driven ones.

2.   Reasons

2.1   Background and context of the proposal


The European Commission defines the car industry as one of the motors of the European economy, generating 7.5 % of the added value of manufacturing industry as a whole, and 3 % of GDP. It also makes a substantial EUR 35 billion contribution to the balance of trade and, last but not least, represents a major pool of employment, providing two million jobs directly and as many as 10 million indirectly.


The purchase and use of cars is therefore one of the main sources of income for the Member States, providing some EUR 340 billion, 8 % of total EU 15 tax revenue (1).


These enormous sums derive basically from three specific taxes: registration tax (RT); annual circulation tax (ACT); and fuel taxes. Moreover, each Member State pursues its own tax policy in this area, giving rise to 25 different tax systems — in stark contrast with the aim of convergence, which is a prerequisite for the proper functioning of the single market.


Sixteen Member States (2) currently have a vehicle registration tax, while 18 apply ACT (3). The calculation criteria and tax base vary widely from country to country, particularly for registration taxes. For example, the tax for a 2000 cc vehicle ranges from 1 % of vehicle value in Italy to more than 170 % in Denmark. ACT vary from EUR 30 to some EUR 500 per vehicle.


Against this backdrop, the European Commission issued a communication to the Council and the European Parliament on car taxes (4) as far back as 2002. The communication outlined a strategy for revising the present system in order to promote approximation of national legislation and also incorporate environmental objectives.


As a result of the subsequent consultations over the intervening years with the Council and the European Parliament, as well as with the industry and other stakeholders, the Commission is now in a position to submit the present proposal for a directive.

3.   The Commission proposal


It should be pointed out that the Commission's proposal does not concern either VAT or fuel taxes, and involves a restructuring, rather than harmonisation, of tax levels, with the exception of the amounts of income.


The proposal is built around three main elements:


Abolition of registration taxes

This is to be implemented gradually and progressively, achieving complete abolition over 10 years, in 2016. This gradual approach will grant those Member States which currently have RT a sufficient transitional period, to include the adoption of measures to make up for the loss of revenue, possibly through shifting the tax burden onto ACT.


Establishment of an RT and ACT refund system

The new system to be brought in under the directive would apply to cars registered in one Member State and subsequently exported or permanently transferred to another Member State or a non-EU country.

This measure has a two-fold purpose: to prevent double payment of RT already collected on the car at the time of purchase, and to charge ACT according to actual use of the car within the Member State.

The amount of registration tax to be refunded is directly related to the car's residual value, and is equivalent to the amount of the residual tax incorporated in its residual value.

The Member States are free to decide on the method for assessing vehicle residual values for RT reimbursement, provided the criteria adopted are transparent and objective. Car owners must be given the opportunity to challenge before an independent authority the decision of the Member State effecting the reimbursement.

With regard to ACT — which, given the tax criteria adopted in the 18 Member States which practice it, it would be more accurate to describe as an ownership tax — the draft directive confirms that such taxes may be levied in respect of a car only by the Member State in which that car is registered. The Member State of registration is deemed to be that where the car is permanently used either because of its owner's normal residence, or because of its use in that Member State for more than 185 days in any twelve months. It follows on from this that in the event of permanent transfer of the vehicle to another State, including a non-EU country, the owner should be refunded for the residual ACT, to be calculated in accordance with the pro rata temporis principle.


Restructuring the tax base for RT and ACT to be totally or partially CO2 based

The draft directive introduces a system for determining ACT and RT (for the transitional period) which is also, and increasingly, based on carbon dioxide emissions.

It is to be introduced gradually and progressively: the total amount of ACT and RT revenue to generated by CO2 emission-based tax would be 25 % by 2008 and 50 % by 2010.

4.   General comments


First of all, the EESC welcomes the European Commission's commitment to its dual objective: to improve the functioning of the single market, and to give greater impetus to the CO2 emission reduction strategy by means of taxation. It should be emphasised in this regard that the directive makes use, for the first time, of the ‘third (fiscal) pillar’ as set out in the Community strategy to reduce CO2 emissions and improve fuel economy (5).


The EESC also takes a positive view of the beneficial effects the proposal should have for both consumers (6) and the European car industry.

The objectives of the proposal are entirely acceptable, in that they set out to facilitate the following:


the reduction, if not complete removal, of obstacles to free movement of EU citizens by significantly cutting the cost and length of administrative procedures for exporting or transferring cars between the Member States;


a more competitive car industry in a more integrated internal market. Market fragmentation from the fiscal point of view currently exercises powerful pressure on final car prices, obliging car manufacturers to produce and sell different versions of the same model in the various Member States for purely tax-related reasons. This means that they are unable to exploit the economies of scale offered by a genuine internal market; at the same time, there are no benefits for consumers. Moreover, heavy registration taxes generally have a negative impact on the decision to buy a new car, slowing down the renewal of the car fleet towards less polluting and safer cars;


improved environmental sustainability, since cars are a significant source of CO2 emissions. In this regard, it should be emphasised that the two deadlines laid down in the proposal for restructuring RT and ACT around carbon dioxide emissions are not coincidental, but are to some extent ‘emblematic’ — 2008 marks the beginning of the Kyoto commitment period, and the Council and European Parliament hope that CO2 emissions from new vehicles will be below 120 g per km by 2010.


The EESC is also convinced that the directive's objectives will only be met if the Member States interpret its guidelines and recommendations faithfully, with no variations which could expand the already excessive fragmentation of the market or, worse still, increase the tax burden on motorists.


Taxation is an extremely sensitive issue for which the Member States are competent, and on which the European Commission could not apply the principle of subsidiarity in a broader or more cogent way than is done in the proposal.


The proposal, for example, provides for a structural change in taxation, the impact of which is neutral in terms of revenue, i.e. with no increase in the total amount of taxes. This means that the loss of tax revenue caused by abolishing RT can be compensated by a parallel increase of ACT by the same amount and, where necessary, by other fiscal measures permitted by the directive on taxation of energy products (7).


The establishment of a direct link between car taxes and CO2 is only one aspect, albeit important, to be included in the global carbon dioxide reduction strategy. The strategy must be built with a holistic approach to the problem, ensuring its consistency with other Community policies.


In the light of the above, the EESC recommends that, in addition to the usual monitoring of national implementing provisions for the directive and their compliance with the directive itself, the European Commission should promote exchange of information with and between the Member States, with a greater frequency than the five-yearly timetable set for the report on the application of the directive.

5.   Specific comments


In the EESC's view, a number of other aspects of the proposal could prove problematic when transposing the directive, entailing the risk of divergences in application between the Member States. More specifically:


The progressive changes in taxation must be carried out in a balanced way in order to ensure that citizens who have bought a vehicle subject to RT are not penalised by a sudden and substantial increase in ACT.


Use of the ‘CO2 component’ in taxation must be applied in a coordinated way between all the Member States, so as not to generate further market fragmentation.


In this connection, the Commission should rapidly propose solutions to the Member States concerning two problems that would arise if the directive were to be adopted as presently worded.


The first problem concerns vehicles registered before January 2001, for the following reasons:

CO2 emissions expressed in grammes per kilometre are available for all vehicles registered since January 1997; this data was not collected before.

Between 1997 and 2000 CO2 emissions were measured using the European driving cycle, subsequently amended in January 2001; in consequence, the emissions data from the two periods are not entirely consistent.

Tax based on an objective, uniform parameter could therefore only be applied to vehicles registered since January 2001.


The second problem concerns those Member States in which the ACT is at present calculated on the basis of engine output expressed in Kilowatts. This system would seem to ensure a more incremental yardstick than a tax taking account solely of the CO2 parameter. Basing ACT in these countries entirely on CO2 emissions would entail increased charges for small vehicles and a drastic reduction for larger, more powerful and therefore more polluting vehicles, with a result paradoxically opposite to that intended. Options to redress the system must therefore be provided immediately.


It is crucial that the Member States, in the part of the tax corresponding to CO2 emissions, should establish a clear, direct and transparent link between the tax levied and the CO2 emitted by each vehicle. The purpose of this would be to prevent the arbitrary creation of further differences arising from varying technical parameters such as cylinder capacity, size etc. which are a source of market distortion.


The directive's transposition must also be technologically neutral, reflecting on the vehicle's CO2 performance and without privileging one technology over another. This could be the case, for example, if the new rules were to penalise cars with diesel engines, a technology in which Europe still retains a competitive edge over non-European manufacturers. It is therefore surprising to see that the European Commission is encouraging the Member States to align taxation of diesel fuel for cars with that for petrol, without considering the fact that diesel cars emit less CO2 than petrol-driven ones.

Brussels, 17 May 2006.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(1)  2003 data. More recent, full data for the EU 25 is unavailable.

(2)  Countries without RT: Czech Republic, Estonia, France (which does however have a compulsory carte grise which is similar to RT), Germany, Lithuania, Luxembourg, Slovakia, Sweden, United Kingdom.

(3)  Countries without ACT: Czech Republic, Estonia, France, Lithuania, Poland, Slovakia, Slovenia.

(4)  COM(2002) 431 of 6 September 2002.

(5)  Communication from the Commission to the Council and the European Parliament, COM(95) 689, and Council Conclusions of 25 June 1996.

(6)  The Commission has calculated that if Member States with high RT levels cut them by 50 %, car prices could fall by 10-25 %.

(7)  OJ L 283 of 31.10.2003, p. 51.