WRITTEN QUESTION P-0436/02

by Mogens Camre (UEN) to the Commission

(12 February 2002)

Subject: Tax on cars in Denmark

Denmark maintains a very high level of tax on cars and motorbikes, resulting in an approximately 200 % increase in dealers' selling prices which consists partly of registration tax and partly of VAT.

It therefore has a higher proportion of small and older cars than comparable countries. It is a well-known fact that old and smaller cars present a higher risk of accident than new and larger cars, and that older cars cause more pollution.

The Commission has presumably noted the effects its proposal for new rules on selling cars in Europe will have on the car trade in Denmark and on Danish consumers. If the proposal is implemented, the selling price of a medium-sized car in Denmark will typically rise by 37 %, thus adding to the problems faced by Danish consumers.

The Commission is presumably also aware that imports of second-hand cars into Denmark from other EU Members States are limited by a tax which always brings the consumer's total expenditure up to the

price payable for a similar, Danish second-hand car, but which can also exceed the rate of tax on new cars, because second-hand car prices are falling relatively faster in most other Member States than they are in Denmark.

As Denmark is not a car-producing country, the level of taxation on cars probably cannot be classified as a technical barrier to trade, but it does enormously restrict consumers' freedom of choice and it is impeding the free movement of goods in the EU.

The Commission's proposal to amend the current rules on selling cars in the EU, as well as a reduction in Danish taxes, will obviously mean losses for Danish car dealers. The proposed new EU rules will increase car prices in Denmark so much that car sales are expected to fall by up to half, and the standardisation of taxes on cars in Denmark will mean car dealers make a loss on their stocks of second-hand cars, which are generally bought at three times the average price paid in other EU Member States. Changes to the rules on selling cars and to the tax regime in Denmark must therefore be considered together and need to be planned carefully.

In view of this, will the Commission explain what options it is considering for making Denmark change the way it taxes cars?

Answer given by Mr Bolkestein on behalf of the Commission

(13 March 2002)

The draft Regulation recently adopted by the Commission on a block exemption for motor-vehicle distribution and servicing concerns the application of Article 81 of the EC Treaty, which covers agreements between undertakings, not legislative or regulatory provisions per se. This Article stipulates that such agreements must, if they are to be eligible for an exemption from the prohibition of such agreements in the Community, allow consumers a fair share of the benefit resulting from any improvement in distribution.

The Commission's evaluation report on the working of the current Commission Regulation (EC) No 1475/95 of 28 June 1995 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements(1) concludes that tax is not the only factor behind price differences in the internal market. Other factors include the pricing strategies of players on the market, which depend, among other things, on the competition rules governing distribution. The draft Regulation is therefore aimed at stimulating competition to benefit the EU's consumers, in accordance with Article 81. As for the situation on the Danish retail and servicing markets, the Commission has seen the report drawn up by Denmark's competition authorities in June 2001. The report cites Regulation (EC) No 1475/95 as one of the main reasons for the relative lack of competition on the Danish market. As for possible price increases in Denmark, the Commission has seen no evidence to suggest that prices will rise, and still less that they will rise by the amounts suggested in the question. It notes, however, that the relatively low concentration of supply in Denmark would allow competitors to respond to individual price rises by a given manufacturer.

On the specific issue of taxation, the overall level of Danish taxes is not in itself incompatible with the provisions of Articles 23, 25 and 90 of the EC Treaty. On 15 February 1988 the Commission applied to the Court of Justice for a ruling that Denmark had failed to fulfil its obligations under Article 90 of the EC Treaty on the grounds that its excessive taxation of new vehicles on registration compromised the free movement of goods in the Community and was incompatible with Article 90.

The Court of Justice considered the registration tax applied by Denmark at that time to new vehicles and ruled that Article 90 of the EC Treaty does not provide a basis for censuring the excessiveness of the level of taxation which the Member States might adopt for particular products in the absence of discriminatory or protective effect(2).

Lastly, as Community law stands, there is no rule of secondary law concerning the harmonisation of motor-vehicle taxation that obliges Member States to reduce the overall level of the taxes concerned.

The Commission would point out that Denmark, to comply with Article 90(1) of the EC Treaty, must not subject second-hand cars and motorcycles shipped to its territory from another Member State to a registration tax which, even in a limited number of cases, exceeds the amount of residual tax incorporated in the value of similar vehicles already registered in the national territory. The latter have already been taxed on registration in the national territory and such tax represents part of their value when they cease to be new. As the vehicle is used, this residual tax diminishes in step with its value. To avoid discrimination against imports, the reduction in the tax applicable to the imported second-hand vehicle (compared with the tax due on such a vehicle if new) must therefore be proportional to its true depreciation.

On 22 February 2001 the Court of Justice issued another long-awaited ruling in a similar case. This ruling, which concurs with the Commission's point of view, calls for a number of Member States to revise their current system for calculating the assessment basis for second-hand vehicles(3). The expected revision will be more advantageous for EU citizens and the traders concerned.

(1) OJ L 145, 29.6.1995.

(2) Case C-47/88 Commission of the European Communities v Kingdom of Denmark ECR [1990] p. I-4509.

(3) Case C-393/98 Ministério Público and António Gomes Valente v Fazenda Pública ECR [2001] Page I-1327.