Proposal for a Council Directive on passenger car related taxes {SEC(2005) 809}
Date: 2005-07-05
Institutions: European Commission
Subjects: consumer protection, motor car, pollution control measures, public awareness campaign, tax harmonisation, vehicle tax

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 5.7.2005 
COM(2005) 261 final 

2005/0130 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

on passenger car related taxes 

(presented by the Commission) 

{SEC(2005) 809} 

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EXPLANATORY MEMORANDUM 

1)  CONTEXT OF THE PROPOSAL 

110  •  Grounds for and objectives of the proposal 

The operation of 25 different tax systems for passenger cars within the EU has resulted in tax 
obstacles  such  as  double  taxation,  tax-induced  cross-border  transfer  of  cars,  distortions  and 
inefficiencies, which impede the proper functioning of the Internal Market. European citizens 
currently  face  double  payment  of  Registration  Tax  (RT),  considerable  administrative 
procedures  and  extra  costs,  time  losses  and  various  obstacles  to  the  free  movement  of  their 
passenger cars within the Community. For the car industry, wide differences in passenger tax 
systems have a negative impact on their ability to achieve the expected benefits of operating 
within  a  single  market.  Current  passenger  car  market  fragmentation  prevents  industry  from 
exploiting economies  of  scale, or in  producing passenger cars with  similar specifications for 
the  entire  Internal  Market,  resulting  in  significant  differences  in  pre-tax  and  consumer  tax-
prices.  

Additionally,  passenger  cars  are  a  major  source  of  CO2  emissions  and  are,  therefore,  of 
particular  relevance  to  the  EU's  environmental  objective,  namely  to  meet  its  environmental 
commitments under the Kyoto Protocol. Fiscal measures constitute one of the three pillars of 
the  Community's  strategy  to  reduce  CO2  emissions  from  passenger  cars.  The  optimal  use  of 
fiscal measures, together with the commitments made by the car industry (ACEA, JAMA and 
KAMA)  and  consumer  information,  is  a  critical  instrument  in  achieving  the  Community's 
target of 120 g CO2 per Km by 2010 at the latest. 

The  purpose  of  the  current  proposal  is  therefore  two-fold:  to  improve  the  functioning  of  the 
Internal  Market  and  to  implement  the  Community's  strategy  to  reduce  CO2  emissions  from 
passenger cars. The proposal does not intend to introduce any new passenger car related taxes, 
but  only  aims  at  restructuring  such  taxes  if  they  are  applied  by  Member  States,  without 
obliging them to introduce such taxes. 

120  •  General context 

In  the  area  of  passenger  cars  the  proper  functioning  of  the  Internal  Market  faces  important 
problems.  Disproportionate  RT  levels  contribute  considerably  to  pre-tax  price  differentials 
among  Member  State  markets  and  keep  car  retail  prices  high  and  make,  for  low  income 
citizens, the replacement of their old cars more difficult. Concerning RT the tax bases and tax 
levels currently applied are very diverse and tax levels range, in extreme cases, between zero 
and  180%  of  pre-tax  car  price  and  in  absolute  terms  average  RT  ranged,  in  1999,  between 
15 659  EUR  and  267  EUR.  Concerning  the  Annual  Circulation  Taxes  (ACT)  the  tax  bases 
used are equally very diversified and in absolute terms the average paid in 1999 ranged from 
30  EUR/vehicle,  to  463  EUR/vehicle.  According  to  the  information  available  to  the 
Commission,  RT  are  applied  by  the  majority  of  Member  States  and  ACT  are  applied  by  21 
Member  States.  Due  to  lack  of  Community  legislation,  the  Jurisprudence  of  the  Court  of 
Justice  remains  the  only  refuge  for  resolving  citizens'  problems,  mainly  on  the  basis  of  the 
general principles of the EC Treaty.  

Transport is responsible for about 28% of total CO2 emissions. Road transport alone represents 
about 84% of all transport related CO2 emissions of which more than half is accounted for by 

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passenger cars. The genuine use of fiscal measures to meet Community's target of 120 g CO2 
per Km is fundamental to the Community strategy. Fiscal measures provide a strong incentive 
value,  for  example,  by  encouraging  the  rapid  renewal  of  the  car  fleet  and  influencing 
consumer's behaviour towards more fuel-efficient passenger cars.  

In September 2002, the Commission presented for discussion in the Council and the European 
Parliament, by means of a Communication (COM(2002) 431), a number of policy options for 
future  action  on  taxation  of  passenger  cars  in  the  European  Union.  The  Commission 
announced that, based on the principles of this Communication and in the light of the results of 
the consultation, it would submit proposals for Community legislation in certain areas which 
could be better dealt with at Community level. 

Consultations with the Council, European Parliament, the car industry, main stakeholders took 
place  in  years  2002  to  2004  with  the  aim  of  identifying  the  issues  to  be  covered  by  this 
Directive. 

130  •  Existing provisions in the area of the proposal 

Council Directives 83/182/EEC and 83/183/EEC established a limited number of Community 
provisions covering certain areas of taxation of passenger cars. In the absence of any further 
Community  rules,  Member  States  are  free  to  lay  down  national  provisions  for  passenger  car 
taxation. These have, however, to be in line with the general principles of the EC Treaty and in 
particular  not  give  rise  to  border-crossing  formalities  in  trade  between  Member  States  and 
respect the non discrimination principle. 

140  •  Consistency with other policies 

Passenger car is the means of transport used by many citizens willing to exercise their right of 
free movement within the Community. Tax obstacles pose problems  to citizens who wish to 
exercise  this  right.  Furthermore,  fiscal  provisions  can  be  used  as  a  tool  to  implement  the 
Community's  strategy  to  reduce  CO2  emissions  from  passenger  cars  and  thus  achieve 
Community's environmental objectives. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

Yes 

211  Consultation methods, main sectors targeted and general profile of respondents 

Consultation with Member States in Council Working Group in May and June 2003 and in the 
European  Parliament  (ECON  and  other  Committees)  from  end  2002  until  November  2003. 
Constant consultation with the car industry (ACEA) and the consumer association (AIT/FIA).  

Public consultation via the website from July to September 2004.  

212  Summary of responses and how they have been taken into account 

summary 

A 
http://europa.eu.int/comm/taxation_customs/common/consultations/tax/article_969_en.htm. 

on  TAXUD  website: 

published 

outcome 

report 

the 

of 

is 

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Nearly  95%  of  respondents  considered  that  the  operation  of  25  different  tax  systems  has 
resulted in tax obstacles and has distorted the proper functioning of the internal market. Over 
96%  of  respondents  believe  that  there  is  a  need  for  general  rules  at  Community  level  for 
passenger  car  taxation  and  over  93%  believe  that  these  should  include  and  address 
environmental  concerns.  There  were  2 040  responses  to  the  consultation,  of  which  46  from 
associations (thus representing a much larger number of citizens) and 8 from official bodies. 

The gradual phasing out of registration tax, with a refund system to apply during a five to ten 
year  long  transitional  period  and  the  introduction  of  a  new  tax  structure  linked  to  CO2 
emissions received broad support.  

Suggestions  concerning  the  content  of  the  new  legislative  initiative  have  been  taken  into 
account when drafting the fresh Proposal. 

•  Collection and use of expertise 

221  Scientific/expertise domains concerned 

1) 

2) 

In  November  2001  a  study  on  fiscal  measures  to  reduce  CO2  emissions  from  new 
passenger  cars  has  been  published  (the  COWI  Study),  which  included  model  based 
calculations to assess the extent to which vehicle related taxes (mainly registration taxes 
and annual circulation taxes) can be effective means to reduce these emissions from new 
cars to the agreed target of the Community Strategy of 120 g/km. 

In January 2002 a study on vehicle taxation in certain Member States of the EU (the TIS 
Study),  evaluated  hindrances  in  the  context  of  the  internal  market,  and  developed  a 
clearer understanding of the current situation, modelled expected changes in response to 
possible changes of the taxation schemes and presented an interpretation of the results to 
achieve and a number of policy recommendations based on these results. 

The  experiences  gained  in  some  Member  States  not  applying  registration  taxes  or 
applying annual circulation taxes based on CO2 emissions of passenger cars proved to be 
a useful base for drafting the fresh Proposal. 

3)  Advice  was  sought,  where  necessary,  in  contacts  with  experts  from  other  Commission 
Departments, the car industry and car consumer associations, as well as from the Member 
States applying taxes similar to those envisaged in the proposal. 

222  Methodology used 

The opinions have been considered in the Draft Proposal 

223  Main organisations/experts consulted 

The  car  industry  (mainly  ACEA,  JAMA),  the  main  car  consumer  association  (AIT/FIA)  as 
well  as  fiscal  experts  from  the  Member  States  and  experts  from  several  Commission 
Departments. 

224  Level of scientific certainty: broad consensus. 

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225  Advice received and used 

Yes 

226  Means used to make the expert advice publicly available 

The  specific  studies  and  the  2002  Communication  are  published  on  TAXUD  website: 
http://europa.eu.int/comm/taxation_customs/taxation/other_taxes/passenger_car/index_en.htm. 

230  • 

Impact assessment 

The policy options identified by the studies, the policy recommendations included in the 2002 
Communication on taxation of passenger cars in the EU, as well as the outcome of the broad 
consultation which followed this Communication have been assessed and used for the drafting 
of the Impact Assessment. 

Four  possible  options  for  taxing  passenger  cars  have  been  examined;  the  result  can  be 
summarised as follows: 

Option 1: A "do nothing" approach. This would leave all decisions to Member States and the 
European Court of Justice. If no action is taken the functioning of the Internal Market will not 
improve and the Community's target of 120g CO2 emissions per Km will run the risk of not 
being achieved by 2010. 

Option 2: This approach would rely on existing passenger car taxes, but only introduce a RT 
refund system, in order to avoid double taxation which is not justifiable within the context of 
the  Internal  Market.  Although  RT  refund  system  would  represent  the  minimum  necessary  to 
tackle the double taxation problem, it would certainly not address any of the other problems 
the citizens and the car industry and trade currently face. 

The application of the refund system would have to be accompanied by a limited number of 
Community  rules  in  order  to  establish  objective  and  transparent  methods  for  calculating  the 
residual value of used cars to be exported or to be permanently transferred for registration to 
another Member State.  

Although  this  option  could  have  some  positive  economic  effects  for  the  citizen  and  the  car 
industry and trade, but it does not address most of the existing obstacles in the Internal Market 
and it has no positive effects on the environment whatsoever. 

Option 3: This approach aims at adopting a comprehensive EU passenger car taxation policy 
including the total abolition of RT over a ten year transitional period, the restructuring of both 
RT and ACT tax bases to include a CO2 based element, and the establishment of a RT refund 
system.  

The  main  benefits  expected  from  option  3  would  be  a  considerable  improvement  in  the 
functioning  of  the  Internal  Market  and  an  important  contribution  to  achieving  the 
Community's  environmental  objectives.  Concerning  the  Internal  Market,  it  is  expected  that 
there  will  be  a  reduction  of  bureaucracy,  more  transparency  and  legal  certainty  for  all 
operators and consequently less obstacles to the free circulation of goods and persons. More 
impetus will be given to the passenger car industry to fully benefit from economies of scale, 
and increase competitiveness and to a certain degree employment. National taxation systems 
will  be  approximated  particularly  as  far  as  the  car  tax  bases  are  concerned.  The 

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implementation in the area of passenger cars of the "polluter pays" principle, and of the fiscal 
measures foreseen by the Community's strategy to reduce CO2 emissions from passenger cars, 
is expected to offer new possibilities for reducing polluting emissions. 

Additionally the abolition of RT can take place in a revenue neutral framework as the revenue 
loss  can  be  off-set  by  a  gradual  and  parallel  transfer  of  revenue  from  RT  to  ACT  and,  if 
necessary, from other fiscal measures in compliance with Council Directive 2003/96/EC and 
even  to  innovative  road  use  charging  provisions.  These  represent  a  more  stable  source  of 
revenue for national budgets, as they produce revenue during the entire lifetime of a passenger 
car, unlike RT which produces revenue only upon purchase of that car. Those Member States 
applying a high RT will be able to adjust the shift to ACT according to their needs until 2016 
at the latest. These countries will have, on the one hand, to face transition costs to adapt and 
administer their car tax system particularly during the first years of the transitional period, but 
on the other hand they will benefit from lower administrative costs for managing the car tax 
system after the end of the transitional period.  

In particular, this option would not, in the long run, cause any additional administrative cost 
for the Member States. On the contrary, as almost all Member States already have an ACT, the 
integration of RT into that tax will reduce administrative burdens both on administrations and 
on  citizens  since  they  will  have  to  deal  with  only  one  rather  than  two  taxes.  Transitional 
implementation costs would be relatively light since they principally involve modifications to 
an  existing  tax  scheme  and  would  be  off-set  in  the  longer  term  by  the  savings  made  by 
eliminating administration and compliance costs related to RT. 

Option  4:  This  approach  would  aim  at  a  comprehensive  EU  passenger  car  taxation  policy 
similar to the one referred to under option 3, with the only difference that it would not aim to 
eliminate RT but only to gradually reduce them to a level not exceeding 10% of the car pre-tax 
price. Although this option could ensure almost similar environmental effects to those under 
option  3,  it  would  not  eliminate  all  the  other  obstacles  that  the  citizens  and  the  industry 
currently face.  In  particular, citizens would still be  subject to administrative and social costs 
linked to the relevant bureaucratic procedures. Other Internal Market issues, such as the need 
to apply a RT refund system for as long as RT taxes are to be applied, the continuation of a 
considerable  car  market  fragmentation  and  of  controls  aimed  at  reducing  the  risk  of  tax 
avoidance, would still need to be addressed. 

Moreover,  under  this  option  Member  State  would  still  be  faced  with  the  administrative  cost 
linked  to  the  parallel  maintenance  of  the  RT  and  ACT  systems  and  would  nonetheless  be 
confronted to a diminution of the revenue connected to RT. Finally, this option would lead to a 
partial  harmonisation  of  rates,  that  would  exceed  the  minimum  necessary  to  implement  the 
targeted objective. 

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The Commission carried out an impact assessment listed in the Work Programme. The report 
is accessible on the TAXUD Website. 

3)  LEGAL ELEMENTS OF THE PROPOSAL 

305  •  Summary of the proposed action 

The  Commission  has  based  its  proposal  on  those  policy  recommendations,  included  in  the 
2002 Communication, which have received the support of the European Parliament, the main 
stakeholders,  and  the  public.  Those  policy  recommendations  which  did  not  receive  such  a 

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support have not been included in the proposal. 

There are three main measures introduced by the proposal: 

1.  Abolition of Registration tax 

This  action  received  a  strong  support  from  nearly  all  those  involved  in  the  consultation 
procedure, as Registration Taxes are viewed as representing a clear obstacle to the freedom of 
movement  of  cars  in  the  internal  market  and  negatively  affects  the  competitiveness  of  the 
European car industry. Any solution based on the retention of RT would not eliminate these 
obstacles. The proposal provides for a gradual abolition of RT over a transitional period of five 
to ten years, in order to avoid an excessive tax burden on those car users who have bought a 
car and paid a high registration tax, and who are then faced with having to pay also a higher 
annual circulation tax and fuel taxes. Member States applying high Registration Taxes would 
need  to  provide  for  specific  tax  treatment  of  these  cars  for  a  period  corresponding  to  their 
average  lifetime.  Additionally,  the  gradual  application  of  this  measure  would  provide 
sufficient  protection  to  holders  of  used  cars  against  any  immediate  loss  of  their  commercial 
value.  

Finally, sufficient time is given to those Member States applying high RT in order to fulfil the 
structural changes to their car tax systems and cover the transition costs, taking into account 
the specific conditions of their car market. 

2. 

Establishment of a RT refund system 

The provisions establishing this system are to be applied on those passenger cars which have 
been registered in a Member State and are subsequently exported or permanently transferred to 
another Member State. The objective of this measure is two-fold; first to avoid double payment
of registration taxes, and second it seeks to charge registration taxes according to the use of the 
car in the Member State concerned. With the aim of ensuring legal certainty and transparency 
for the European citizens, the proposal replies to the need for transparent and objective criteria 
and rules to establish the real residual value of used cars and, therefore, ensure a fairer basis for 
calculating  the  residual  RT  for  outgoing  and  incoming  cars.  The  proposal  incorporates  the 
criteria established by the recent jurisprudence of the European Court of Justice, which should 
reduce considerably the large number of complaints raised by citizens. 

The  proposal  aims  at  establishing  a  similar  refund  system  for  ACT,  the  calculation  of  the 
amount to refund or to charge should be made on a pro rata temporis basis. 

3.  Restructuring the tax base of RT and ACT to be totally or partially CO2 based 

During the consultation process, the vast majority of participants agreed that it is time to apply 
the third pillar measures (fiscal measures) foreseen by the Community's strategy to reduce CO2 
emissions from passenger cars, and take benefit of their strong incentive capacity, in order to 
influence consumer's behaviour towards more environmentally friendly passenger cars.  

The  Proposal  incorporates  this  policy  option  which  received  strong  support  during  the 
consultation procedure. Concerning ACT, which are the taxes applied by most Member States, 
the proposal provides for the restructuring of their tax base in order to apply ACT partially or 
totally based on the carbon dioxide emissions of each particular passenger car by 2010. With 
regard to RT, Member States applying such taxes should also insert a CO2 based element into 

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their tax base by 2010 while at the same time they are proceeding with their gradual abolition. 
The period envisaged for carrying out the restructuring of the tax base of both the ACT and RT 
takes  into  account  the  commitment  taken  by  the  European  Community  to  reduce  carbon 
dioxide emissions from passenger cars to 120 g/km by 2010 at the latest. 

To  avoid  further  internal  market  fragmentation  based  on  potential  diversified  application  by 
Member States of the carbon dioxide element, the Commission proposes that by 1 December 
2008 (the start of the Kyoto period) at least 25% of the total tax revenue from registration and 
annual  circulation  taxes  respectively  should  originate  in  the  CO2  based  element  of  each  of 
these taxes. By 31 December 2010, at least 50% of the total tax revenue from both the annual 
circulation  tax  and  the  Registration  tax  (pending  its  abolition)  should  originate  in  the  CO2 
based element of each of these taxes. 

Recent studies1 provided examples on how Member States can apply the CO2 based element. 
In  this  case  the  total  revenue  from  the  CO2  based  element  of  the  tax  should  be  gradually 
increased over the period up to 2010 and at the same time the revenue from the old structure of 
the tax should be gradually reduced if the revenue neutrality is to be respected. Certainly it will 
belong to each Member State to fix the level of tax in terms of Euros per g CO2 per km. 

310  •  Legal basis 

Treaty establishing the European Community, and in particular Article 93 thereof. 

329  •  Subsidiarity principle 

A.  The  proposal  falls  under  shared  Community  and  Member  State  competence.  The 
subsidiarity  principle  therefore  does  apply.  In  the  light  of  the  objectives  of  the  proposal 
for  a  Directive,  which  are  to  improve  the  functioning  of  the  Internal  Market  and  to 
promote  sustainability,  a  Community  approach  is  required.  In  this  respect  the  proposal 
includes a balanced package of measures which represent the minimum necessary in order 
to achieve these objectives. 

Indeed,  diverging  passenger  car  related  taxes  can  result  in  serious  obstacles  for  the  free 
movement of persons and goods. In line with the content of the subsidiarity principle, the 
proposal aims at providing full transparency to taxation systems applied by Member States 
without unnecessary intervention at Community level. It does not make such issues as tax 
rates,  which  are  often  politically  important  at  national  and  regional  levels,  a  Community 
competence.  

Moreover,  the  commitments  taken  under  the  Kyoto  Protocol  cannot  be  sufficiently 
achieved by the individual Member States and, therefore, by reason of the scale or effects 
of the action, can be better achieved at Community level, thereby needing a co-ordinated 
action among all the Member States. The proposal intends, for the first time, to put in place 
a legal framework which will allow the  use of fiscal measures as provided  for  under the 
3rd pillar of the Community's strategy to reduce CO2 emissions from passenger cars.  

B.  The subsidiarity principle implies that the Community is to take action only if and in so 
far as the objectives of the proposed action cannot be sufficiently achieved by the Member 

1 

New tax = Old tax + a * g CO2 - b (COWI Study, paragraph 4.3.2, p. 87). 

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States and can therefore by reason of the scale or effects of the proposed action, be better 
achieved by the Community. Accordingly, as far as the improvement of the functioning of 
the  Internal  Market  is  concerned,  non  coordinated  action  by  individual  Member  States 
alone implies high costs to administer their tax system. It does not ensure the transparency 
and legal certainty of their tax system, nor does it improve the competitiveness of the car 
industry which, therefore, means significant social costs for the citizens. 

Such non co-ordinated action by individual Member States results in tax obstacles, such as 
double  taxation,  tax-induced  cross-border  transfer  of  cars,  distortions  and  inefficiencies, 
which impede the proper functioning of the Internal Market. 

Leaving this sector in its current state will continue to damage the image of the EU in the 
eyes  of  the  European  citizen  and  will  not  allow  the  car  industry  to  achieve  the  expected 
benefits of operating within a single market. 

Community  action  will  reduce  transaction  costs,  provide  cheaper,  cleaner  and  safer  cars. 
As  the  competitiveness  of  the  car  industry  improves  more  employment  opportunities  are 
expected.  Member  State  revenues  will  not  be  affected  if  the  proposed  structural  changes 
take  place  in  a  revenue  neutral  context  which  can  be  ensured  if  revenue  losses  from  the 
gradual  abolition  of  RT  are  accompanied  by  equal and parallel increase of  revenue from 
the  ACT  and,  if  necessary,  from  other  fiscal  measures  in  compliance  with  Council 
Directive 2003/96/EC. 

Quantitative  indicators  based  on  a  number  of  scenarios  have  been  carried-out  under  the 
TIS and the COWI studies. According to a scenario providing for a 50% reduction of RT 
car pre-tax prices are expected to increase slightly in the high RT Member States (between 
2%  and  5%),  car  retail  prices  would  decrease  significantly  (between  11%  and  26%). 
However, they would remain nearly unchanged in the other Member States. 

C.  As far as the reduction of CO2 emissions is concerned, the subsidiarity principle is again 
fully  complied  with,  as  a  coordinated  action  at  Community  level  is  necessary,  if  the 
Community is to achieve its environmental objectives. Such an actionwill without doubt 
be  more  effective  in  achieving  the  Community's  environmental  objectives  as  reducing 
CO2 emissions is a Community-wide issue. An important improvement of environmental 
conditions  implying  lower  CO2,  and  potentially  polluting  emission  levels,  will  be  the 
clear benefit from this proposal. 

In this specific case the Internal Market and the environmental objective are closely linked 
and  to  dissociate  them  and  address  these  issues  separately  would  not  produce  sufficient 
result. 

D.  Concerning the expected effects of fiscal measures to promote sustainability the following 

table contains model run data. 

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Table: CO2 emission reduction potential using different fiscal measures (in %) 

Source: COWI Study, Table 1.8: Summary of main results 

The impact of the introduction of a fiscal element on the reduction of CO2 emissions can 
be  highly  significant.  As  a  matter  of  fact,  an  appropriate  reading  of  the  figures  in  the 
COWI Study shows that the introduction of a CO2 element in the taxable base of existing 
taxes  (the  given  current  scenario  throughout  the  EU,  where  RT  and  ACT  still  coexist) 
leads  to  a  substantial  diminution  of  CO2.  In  some  cases  just  the  introduction  of  a  CO2 
element on ACT alone was estimated to reach around 50% of the overall target. 

It  clearly  appears  that  in  order  to  provide  for  significant  reductions  in  the  average  CO2 
emissions from new cars, it is essential to differentiate the taxes in such a way that taxes 
for  the  most  energy  effective  cars  be  significantly  lower  than  taxes  for  cars  with  poor 
energy efficiency. However, although a considerable part, of about 30,5% to 86%, of the 
Community target of 120g/km on average for new cars can be covered by the optimal use 
of the RT/ACT CO2 based fiscal measures, these measures are not sufficient to reach the 
120  g  CO2  km  target.  Other  measures  such  as  allowing  the  proportion  of  diesel  cars  to 
increase  or  favouring  the  use  of  smaller  cars  (downsizing)  will  be  needed  to  reach  that 
target. These measures should, on the one hand, aim to internalise externalities and apply 
the  "polluter-pays"  principle  and,  on  the  other  hand,  to  be  simple,  transparent,  non 
discriminatory against specific types, classes or  segments of  cars, and be technologically 
neutral.  

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reason(s). 

331  The Directive sets out the minimum fiscal measures to be applied in the area of passenger cars 
in order to both improve the functioning of the internal market and promote the Community's 
environmental  objectives.  It  does  not  touch  the  tax  levels  and  tax  differentiation  rates  and 
leaves  Member  States  the  flexibility  to  apply  those  levels  which  fit  better  to  the  particular 
conditions of their national car markets. Member States will remain free to decide the steps to 
take in abolishing RT, the part of the CO2 based element to insert in the tax base of ACT and 

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RT and potentially the introduction of other emissions in these tax bases. 

In particular, the first of the two objectives of the Directive is to improve the functioning of the 
Internal Market. The  Internal Market  is intended to benefit  the free movement of persons as 
well  as  the  free  movement  of  goods  for  personal  and  for  commercial  purposes.  RT  create 
obstacles  to  these  freedoms.  Any  solution  based  on  the  retention  of  RT  would  not  eliminate 
these obstacles. 

As  regards  the  second  objective,  i.e.  the  promotion  of  sustainability  of  the  environment,  the 
Directive is intended to implement the third pillar of the Commission Strategy to reduce CO2 
emissions from passenger cars, which was the only pillar not yet implemented. The Strategy 
recognises the crucial importance of the third pillar in order to achieve the target reduction of 
CO2  emissions  and  its  indispensable  completion  is  fully  in  accordance  with  the  principle  of 
proportionality, which justifies Community action only where it is 'necessary' or 'required' in 
order to reach a certain end. 

In the light of the above, both the suitability of the Directive for the attainment of the desired 
objective and the necessity of its measures, in the sense that there is no other option at disposal 
which is less restrictive, cannot be disputed. As regards the third factor that must be evaluated, 
the proportionality of the measures to the restrictions which are thereby involved, it should be 
stressed that the Directive is revenue neutral for Member States, who will be able to adjust in 
terms of revenue cash-flow until 2016. Moreover, the Directive does not cause any additional 
administrative cost for the Member States in the long run. 

Lastly,  in  order  to  make  sure  that  proportionality  is  also  respected  in  the  application  of  the 
Directive, cases of Member States that differ substantially from the norm in regard to certain 
parameters could be taken into account. 

332  See point 4 

•  Choice of instruments 

341  Proposed instrument: Directive. 

342  Other means would not be adequate for the following reason(s). 

Experiences  since  1983  with  Directives  83/182/EEC  and  83/183/EEC  have  shown  that  a 
Directive  gives  sufficient  flexibility  for  the  Member  States  to  apply  Community  fiscal 
legislation in the frame of their systems of national legislation and administration. 

4)  BUDGETARY IMPLICATION 

401  The adoption of the proposal will not lead to the budgetary implications. 

5)  ADDITIONAL INFORMATION 

520  •  Repeal of existing legislation 

The adoption of the proposal will not lead to the repeal of existing legislation. 

550  •  Correlation table 

EN 

11 

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The  Member  States  are  required  to  communicate  to  the  Commission  the  text  of  national 
provisions  transposing  the  Directive  as  well  as  a  correlation  table  between  those  provisions 
and this Directive. 

560  •  European Economic Area 

The proposed act concerns citizens moving between the EU and EEA Countries and would be 
preferable therefore extend to the European Economic Area. 

EN 

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2005/0130 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

on passenger car related taxes 

(Text with EEA relevance) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
93 thereof, 

Having regard to the proposal from the Commission2, 

Having regard to the opinion of the European Parliament3, 

Having regard to the opinion of the European Economic and Social Committee4, 

Whereas: 

(1) 

Passenger  car  taxation  can  be  an  important  complementary  tool  to  support 
environmental  objectives,  in particular in relation to the reduction of greenhouse gas 
emissions and it is appropriate, therefore, to introduce a carbon dioxide based element 
in  the  tax  bases  of  both  registration  taxes  and  annual  circulation  taxes.  However,  in 
order  to  contribute  to  meeting  the  commitments  made  by  the  Community  and  its 
Member  States  under  the  Kyoto  Protocol,  the  proposed  elements  directly  relating  to 
carbon dioxide emissions should be inserted in the tax bases of the passenger related 
taxes applied during the commitment period from 2008 to 2012. As the Community's 
strategic objective to reduce the carbon dioxide emissions from passenger cars needs 
to be achieved by 2010 at the latest, it is appropriate to apply fully the carbon dioxide 
based element by 31 December 2010.  

(2) 

The third pillar of the Community's strategy to reduce carbon dioxide emissions from 
passenger cars and improve fuel economy, endorsed by the Council in 19965, consists 
of  fiscal  measures  and  is  the  only  pillar  which  has  yet  to  be  implemented  at 
Community level. 

2 
3 
4 
5 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
Council  conclusions  of  25.6.1996  and  Communication  from  the  Commission  to  the  Council  and  the 
European Parliament - COM(95) 689. 

EN 

13 

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(3)  Member  States  should  be  encouraged  to  apply  coordinated  fiscal  incentive  for 
passenger cars that fulfil stricter emission limits than those which became mandatory 
under  Directive  98/69/EC6  (Euro  4),  relating  to  measures  to  be  taken  against  air 
pollution  by  emissions  from  motor  vehicles  and  amending  Council  Directive 
70/220/EEC7,  to  expedite  the  placing  on  the  market  of  passenger  cars  which  satisfy 
future requirements to be adopted at Community level (Euro 5). 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

6 
7 
8 

9 

It  should  be  possible  for  fiscal  incentives  to  take  the  form  of  tax  differentiation  of 
passenger  car  related  taxes,  applied  on  the  basis  of  the  amount  in  grams  of  carbon 
dioxide emitted per kilometre by each particular car. 

It is necessary, in order to avoid further internal market fragmentation, to provide that 
the carbon dioxide based element should account for at least 25% of the total revenue 
from registration and annual circulation taxes by 31 December 2008, and for at least 
50% of the total revenue by 31 December 2010. 

In  the  internal  market,  tax  obstacles  to  the  free  movement  of  persons  and  of  their 
personal property, including passenger cars, should be removed. The present Directive 
aims at removing such obstacles by means of restructuring passenger car related taxes 
applied by Member States, without obliging them to introducing any new taxes. 

For the exercise of their right of free movement, many European citizens use their cars 
to  move,  temporarily  or  permanently,  from  one  Member  State  to  another.  The  great 
variety  of  passenger  car  taxation  systems  has  a  significant  negative  impact  on  the 
ability  of  the  European  citizen8  and  of  the  car  industry  to  reap  the  benefits  of  the 
internal  market.  Registration  taxes  in  particular  give  rise  to  increased  transactional 
costs for the consumer, to important differences in pre-tax car prices and to car market 
fragmentation, and negatively affect the cross-border trade.  

Registration  taxes  are  an  obstacle  to  the  objectives  of  the  Lisbon  Strategy  and  to 
making  the  European  automotive  industry  more  competitive  and,  therefore,  they 
should  be  gradually  abolished  over  a  period  of  five  to  ten  years.  This  period  would 
allow  Member  States  applying  registration  taxes  to  adapt  their  passenger  car  tax 
system  and  take  into  account  the  particular  conditions  of  their  national  car  market. 
Revenue  losses  from  the  abolition  of  registration  taxes  could  be  covered  by  parallel 
increases of revenue from annual circulation taxes and, if necessary, from other fiscal 
measures  in  compliance  with  Council  Directive  2003/96/EC9,  so  that  the  overall  tax 
burden remain unchanged. 

However, it  is appropriate that Member States applying registration  taxes  establish a 
system  for  refunding  registration  tax  paid  on  passenger  cars  exported  or  moved 
permanently  from  their  territories  to  the  territory  of  another  Member  State.  Under 
these  circumstances  it  is  also  appropriate  that  Member  States  apply  a  similar  refund 
system for annual circulation taxes. These systems would prevent double payment of 

OL L 350, 28.12.1998, p.1. 
OJ L 76, 6.4.1970, p. 1. 
The European Court of Justice has recently ruled in its judgment of 16 June 2005, in case C-138/2004, 
that registration taxes can amount to an obstacle to free movement, in particular because of their rates 
and technicalities. 
OJ L 283, 31.10.2003, p. 51. 

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14 

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taxes and place the car related taxes on a more equitable basis according to the use of 
the car which takes place in every Member State.  

(10) 

It  is  appropriate  that,  where  applicable,  the  refund  systems  for  both  registration  and 
annual circulation taxes be introduced without delay, in order to avoid distortions and 
different tax treatment of passenger cars.  

(11)  The  amount  to  be  refunded  or  levied  by  way  of  registration  taxes  for  a  particular 
passenger car should be directly related to the residual value of that car. It is, therefore, 
necessary to establish Community rules, based on objective factors, to apply in order 
to  determine  the  depreciation  of  a  car,  and  consequently  the  amount  of  the  residual 
registration taxes incorporated in its residual value.  

(12) 

In  order  to  ensure  a  smooth  adaptation  to  the  new  legislation,  thus  limiting  any 
possible negative effect, it is necessary that the Commission be notified of the levels 
of  registration  and  annual  circulation  taxes  applied  by  Member  States  during  the 
transitional period, as well as the level of annual circulation taxes applied after the end 
of that period. 

(13)  The  Commission  should  follow  the  development  of  measures  adopted  in  Member 
States  for  the  implementation  of  this  Directive  and  inform  the  Council  and  the 
European Parliament thereof. 

(14)  Since the objectives of improving the functioning of the internal market in the area of 
passenger cars, and of the successful use of fiscal measures in order to implement the 
Community's strategy to reduce carbon dioxide emissions from passenger cars cannot 
be sufficiently achieved by the individual Member States and can therefore, by reason 
of  the  scale  or  effects  of  the  action,  be  better  achieved  at  Community  level,  the 
Community  may  adopt  measures,  in  accordance  with  the  principle  of  subsidiarity  as 
set out in Article 5 of the Treaty. In accordance with the principle of proportionality, 
as set out in that Article, this Directive does not go beyond what is necessary in order 
to achieve those objectives, 

HAS ADOPTED THIS DIRECTIVE: 

Chapter I 
SUBJECT-MATTER AND DEFINITIONS 

Article 1 
Subject-matter 

This Directive lays down rules for the calculation of taxes on passenger cars, on the basis of 
their emissions of carbon dioxide. 

It  also  provides  for  the  elimination  of  registration  taxes  and  for  a  system  under  which,  in 
certain circumstances, registration taxes paid are to be refunded. 

Additionally, it establishes a refund system for annual circulation taxes. 

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Article 2 
Definitions 

For the purposes of this  Directive, "Passenger car" shall mean  a vehicle of  category M1, as 
defined in point A of Annex II to Council Directive 70/156/EEC10. 

Chapter II 
ANNUAL CIRCULATION TAXES 

SECTION 1 
TAX BASE AND TAX DIFFERENTIATION 

Article 3 
General provision 

1. 

2. 

3. 

A Member State applying a specific and periodic tax which relates to the use within 
its territory of a passenger car and the characteristics of which are identical or similar 
to  those  of  the  taxes  listed  in  Annex  I,  hereinafter  “annual  circulation  taxes”,  shall 
calculate  these  taxes  on  the  basis  of  the  length  of  time  in  any  given  twelve  month 
period  for  which  the  passenger  car  has  been  used  on  the  territory  of  that  Member 
State. 

Annual  circulation  taxes  may  be  levied  in  respect  of  a  passenger  car  only  by  the 
Member State in which that car is registered.  

In  order  to  ensure  the  levying  of  annual  circulation  taxes,  the  Member  State  of 
registration  is  deemed  to  be  the  Member  State  where  the  car  is  permanently  used 
either  because  of  its  owner's  normal  residence  within  the  meaning  of  Article  6  of 
Council Directive 83/183/EEC11, or because of its use in that Member State for more 
than 185 days in any twelve months. 

Article 4 
Differentiation by reference to carbon dioxide emissions 

For the purposes  of calculating annual circulation taxes, tax differentiation  shall be applied, 
on  the  basis  of  the  number  of  grams  of  carbon  dioxide  emitted  per  kilometre  by  each 
particular passenger car. 

Article 5 
Minimum tax revenue from tax differentiation  

By 31 December 2008 the total tax revenue from the carbon dioxide-based element 
of  the  annual  circulation  taxes  shall  account  for  at  least  25%  of  the  total  revenue 
from these taxes. 

OJ L 42, 23.2.1970, p. 1. 
OJ L 105, 23.4.1983, p. 64. 

1. 

10 
11 

EN 

16 

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2. 

By 31 December 2010 the total tax revenue from the carbon dioxide-based element 
of  the  annual  circulation  taxes  shall  account  for  at  least  50%  of  the  total  revenue 
from these taxes.  

SECTION 2 
REFUND SYSTEM 

Article 6 
Refund of annual circulation taxes 

Where annual circulation taxes have been paid in the Member State of registration in respect 
of a passenger car which is subsequently exported outside the territory of the Community or 
moved to be permanently used within the meaning of Article 3(3) to the territory of another 
Member  State,  the  former  shall  refund  the  residual  amount  of  the  tax,  on  the  basis  of 
calculations carried out in accordance with Article 3(1). 

Chapter III 
ELIMINATION OF REGISTRATION TAXES 
Prohibition on introduction 

Article 7 

From  […]  Member  States  may  not  introduce  any  tax  which  relates  to  the  registration  of 
passenger cars, thereby allowing their use on public roads, and the characteristics of which are 
identical or similar to the taxes listed in Annex II, hereinafter “registration taxes”. 

Article 8 
Prohibition on maintenance 

From 1 January 2016, Member States may not maintain in force any registration taxes. 

Chapter IV 
REFUND SYSTEM FOR REGISTRATION TAXES 

Article 9 
General provision 

Where  registration  taxes  have  been  paid  in  a  Member  State  in  respect  of  a  passenger  car 
which  is  subsequently  exported  outside  the  territory  of  the  Community  or  moved  to  be 
permanently used within the meaning of Article 3(3) to the territory of another Member State, 
the former shall refund the residual amount of the tax, on the basis of calculations carried out 
in accordance with Article 10(1). 

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Article 10 
Calculation of the residual registration taxes 

1. 

2. 

3. 

The  amount  of  registration  taxes  to  be  refunded  for  a  passenger  car  pursuant  to 
Article 9 shall be in direct relation with its residual value and shall be equivalent to 
the amount of the residual registration taxes incorporated in its residual value.  

In  order  to  determine  the  residual  value  of  a  passenger  car  for  the  purposes  of 
paragraph  1,  Member  States  may  apply  different  methods,  such  as  assessments, 
expert examinations or the use of fixed scales.  

Member  States  may  determine  the  fixed  scales  to  be  applied  by  law,  regulation  or 
administrative provision, provided that the following conditions are met:  

(a) 

the scales are established on the basis of general and objective criteria, which 
shall be laid down;  

(b) 

the scales are brought to the knowledge of the public; 

(c) 

the  car  owner  is  given  the  opportunity  to  challenge  before  an  independent 
authority the Member State's decision arising from the application of the scale. 

Chapter V 
TEMPORARY PROVISIONS 

Article 11 
General provision 

Where  a  passenger  car  is  permanently  moved  within  the  meaning  of  Article  3(3)  to  the 
territory of a Member State, which has maintained registration taxes, that Member State shall 
calculate registration taxes in accordance with Article 12. 

Article 12 
Calculation of registration taxes 

1. 

2. 

3. 

4. 

Until  31  December  2015,  the  calculation  of  the  amount  of  registration  taxes  to  be 
charged shall be based on the current value of a similar new passenger car, and shall 
take into account the actual depreciation of the passenger car concerned.  

For  the  purpose  of  paragraph  1,  the  characteristics  of  a  similar  new  passenger  car 
shall  include  the  make,  the  model,  the  mileage,  the  propulsion  method,  and  the 
mechanical state. 

For the purpose of paragraph 1, a new passenger car means any passenger car, which 
has not previously been sold to anyone otherwise than for the purpose of selling or 
supplying it, and it has, therefore, never been registered for circulation. 

For the purposes of calculating the registration taxes Article 10(2) and (3) shall apply 
mutatis mutandis. 

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Article 13 
Registration taxes 

Until  31  December  2015,  where  registration  taxes have  been  maintained,  tax  differentiation 
shall be applied on the basis of the number of grams of carbon dioxide emitted per kilometre 
by each particular passenger car. 

Article 14 
 Minimum tax revenue from tax differentiation 

1. 

2. 

By 31 December 2008 the total tax revenue from the carbon dioxide-based element 
of  registration  taxes  shall  account  for  at  least  25%  of  the  total  revenue  from  these 
taxes. 

By 31 December 2010 the total tax revenue from the carbon dioxide-based element 
of  registration  taxes  shall  account  for  at  least  50%  of  the  total  revenue  from  these 
taxes. 

Chapter VI 
FINAL PROVISIONS 

Article 15 
Communications 

Member  States  shall  communicate  to  the  Commission  the  tax  bases  and  the  tax  levels  of 
registration  and  annual  circulation  taxes  as  applied  on  1  January  each  year,  and  following 
each change in national law.  

Article 16 
Reports 

No  later  than  1  January  2011,  and  every  five  years  thereafter,  the  Commission  shall,  after 
consulting the Member States, present to the Council and to the European Parliament a report 
on the application of this Directive. 

Article 17 
Transposition 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative  provisions 
necessary  to  comply  with  this  Directive  by  31  December  2006  at  the  latest.  They  shall 
forthwith communicate to the Commission the text of those provisions and a correlation table 
between those provisions and this Directive. 

When Member States adopt those provisions, they shall contain a reference to this Directive 
or be accompanied by such a reference on the occasion of their official publication. Member 
States shall determine how such reference is to be made. 

Member  States  shall  communicate  to  the  Commission  the  text  of  the  main  provisions  of 
national law which they adopt in the field covered by this Directive. 

EN 

19 

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Article 18 
Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 19 
Addressees 

This Directive is addressed to the Member States. 

Done at Brussels,  

For the Council 
The President 

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BELGIUM 

ANNEX I 

- 

- 

- 

Taxe  de  circulation  sur  les  véhicules  automobiles  /  Verkeersbelasting  op  de 
autovoertuigen 

Taxe compensatoire des accises / Accijnscompenserende belasting 

Taxe de circulation complémentaire / Aanvullende verkeersbelasting 

CZECH REPUBLIC 

- 

DENMARK 

- 

Grøn ejerafgift 

GERMANY 

- 

- 

Kraftfahrzeugsteuer (Kraftfahrzeugsteuergesetz - 1979)  

Kraftfahrzeugsteuer (Durchführungsverordnung - 1979)  

ESTONIA 

- 

GREECE 

- 

Τέλη κυκλοφορίας 

SPAIN 

- 

- 

Impuesto sobre vehículos de tracción mecánica 

Tributos locales sobre circulación de vehículos automóviles 

FRANCE 

- 

IRELAND 

- 

Motor vehicle excise duties 

ITALY 

- 

Tassa automobilistica di proprietà 

EN 

21 

   EN 

 
 
 
 
CYPRUS 

- 

Τέλη κυκλοφορίας 

LATVIA 

- 

Transportlīdzekļu ikgadējā nodeva 

LITHUANIA 

- 

LUXEMBOURG 

- 

Taxe sur les véhicules automoteurs 

HUNGARY 

- 

Súlyadó 

MALTA 

- 

NETHERLANDS 

- 

Motorrijtuigenbelasting 

AUSTRIA 

- 

Kraftfahrzeugsteuer 

POLAND 

- 

PORTUGAL 

- 

- 

Imposto municipal sobre veículos 

Imposto de circulação 

SLOVENIA 

- 

Letno povračilo za uporabo cest 

SLOVAK REPUBLIC 

- 

FINLAND 

- 

Ajoneuvovero/fordonskatt 

EN 

22 

   EN 

 
 
 
 
 
SWEDEN 

- 

Vägtrafikskatt 

UNITED KINGDOM 

- 

Vehicle excise duty 

EN 

23 

   EN 

 
ANNEX II 

BELGIUM 

- 

Taxe de mise en circulation / Belasting op de inverkeerstelling 

CZECH REPUBLIC 

- 

DENMARK 

- 

Registreringsafgift af motorkøretøjer 

GERMANY 

- 

ESTONIA 

- 

Autoregistreerimislõiv 

GREECE 

- 

Τέλη ταξινόµησης 

SPAIN 

- 

Impuesto especial sobre determinados medios de transporte 

FRANCE 

- 

IRELAND 

- 

Vehicle registration tax 

ITALY 

- 

Imposta provinciale di trascrizione (IPT) 

CYPRUS 

- 

Φόρος κατανάλωσης 

LATVIA 

- 

Automobiļu un motociklu nodoklis 

LITHUANIA 

- 

Kelių transporto priemonių registravimo mokestis 

EN 

24 

   EN 

 
 
 
 
LUXEMBOURG 

- 

HUNGARY 

- 

- 

Regisztrációs adó 

Átírási illeték 

MALTA 

- 

Taxxa ta' registrazzjoni ta' vetturi bill-mutur 

NETHERLANDS 

- 

Belasting Personenauto's en Motorrijwielen 

AUSTRIA 

- 

Normverbrauchsabgabe 

POLAND 

- 

Opłata rejestracyjna 

PORTUGAL 

- 

Imposto Automóvel 

SLOVENIA 

- 

Davek na motorna vozila 

SLOVAK REPUBLIC 

- 

FINLAND 

- 

Autovero/bilskatt  

SWEDEN 

- 

UNITED KINGDOM 

- 

EN 

25 

   EN