In a cross-border scenario, there is often the misconception that registration taxes are levied upon the crossing of borders, simply because they are applied after a vehicle, on which a tax might already have been paid in the Member State of origin[12], has been transferred into another Member State. In that sense, the taxable event seems to be linked with the crossing of borders. This however is usually not the case.
Registration taxes are applied also to vehicles bought on the domestic market as new and only once when the vehicle is put in circulation for the first time in the country. They therefore fall under the category of internal taxes that are as such subject to the principle of non-discrimination contained in Article 110 TFEU.
Article 110 of the TFEU states that:
"No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.
Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products."
The purpose of Article 110 is to avoid that internal taxation burdens more heavily products from other Member States as to afford a competitive advantage to domestic similar ones.
A preliminary remark in this respect is that the principle of non-discrimination requires that a tax is not calculated according to different criteria[13] depending on whether the goods are domestic or imported. The Court[14] has declared that taxation, although based on environmental grounds, which differentiates between domestic and imported products or that leads, if only in certain cases, to a higher taxation being imposed on the imported products would not comply with Article 110 TFEU.
An important premise to the application of Article 110 TFEU is also the existence of a "similar domestic product". The Court[15] has explained that the fact that there is no national production of motor vehicles does not signify that a Member State does not have a market of second-hand vehicles. Imported used cars and used cars bought locally constitute similar or competing products for the purpose of Article 110 TFEU[16].
Moreover, with respect to Article 110 TFEU it is necessary to highlight that Member States might decide to impose taxes on vehicles as a matter of environmental policy or broader public policy by means of new legislation. In Nádasdi[17], the Court decided that Article 110 TFEU is not designed to prevent Member States from introducing new taxes or from changing the rate or basis of assessment of existing taxes[18]. However, in case Tatu[19], the Court clarified that although Member States have the power to make new tax arrangements, such powers are not unlimited. In this respect Article 110 TFEU would be deprived of meaning and purpose if Member States could introduce new taxes which had the purpose or the effect of discouraging the sale of imported products in favour of the sale of similar domestic products available on the domestic market which have been placed on the market before those taxes entered into force.
Finally, the Court[20] decided in the context of Article 110 TFEU that when a registration tax is imposed only once in the lifetime of a vehicle, the amount of that tax is incorporated in the value of the vehicle. A second-hand vehicle, which was first registered and on which registration tax was paid as new, incorporates in its value a "residual tax" that diminishes proportionally with the depreciation of the vehicle. The Court considered that a system of taxation should be capable of guaranteeing that the tax due on a second-hand vehicle transferred from another Member State does not exceed, even if only in certain cases, the amount of the "residual tax" incorporated in the value of similar vehicles already registered in the national territory.
To explain this principle it may be useful to take the following example:
Assuming that a new vehicle has a value of 10.000 EUR on which a tax of 2.500 EUR is applied then it will have an overall value of 12.500 EUR (registration tax included). In that circumstance the tax amounts to 20% of the total value of the new vehicle. Assuming that the same vehicle after 5 years has lost 30% of its value and that it will be worth 8.750 EUR on the second-hand market, the tax “incorporated” in the value of that vehicle will also have reduced its value by 30% (although being still 20% of the total second-hand value), i.e. it will be 1.750 EUR. The principle expressed by the Court implies that the registration tax on a similar second-hand vehicle in terms of age, type, make, model and other criteria cannot exceed 1.750 EUR.
When calculating the registration tax on second hand vehicles transferred from one Member State to another, the element to take into account is therefore not the value of the vehicle as indicated in the invoice between the acquirer and the seller, but the "residual tax" incorporated in the value of a similar vehicle in the Member State of destination.
