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))
Date: 2006-05-17
Institutions: European Economic and Social Committee
Subjects: consumer protection, motor car, pollution control measures, public awareness campaign, tax harmonisation, vehicle tax

C 195/80

EN

Official Journal of the European Union

18.8.2006

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 rappor-
teur 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,
1.1
which sets out to improve the functioning of the internal
market and, at
to promote environmental
sustainability.

the same time,

In particular, the EESC welcomes the use for the first
to reduce carbon

the third pillar (fiscal measures)

1.2
time of
dioxide (CO2) emissions.

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.

1.8
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.

1.3
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
1.4
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.

1.9
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 infra-
structure, promotion of public transport and, equally impor-
tantly, 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.

1.5
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
the
proposal fails to clarify, in good time.

issues,

that

1.6 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 guide-
lines and recommendations. Otherwise, there is a danger that
fragmentation of the single market will worsen rather than
diminish, as the proposal intends.

1.7
The EESC therefore calls upon the European Commis-
sion not only to carefully monitor the directive's implementing

2. Reasons

2.1 Background and context of the proposal

2.1.1
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 contri-
bution 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.

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2.1.2
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).

2.1.3
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
2.1.4
registration tax, while 18 apply ACT (3). The calculation criteria
and tax base vary widely from country to country, particularly
the tax for a 2000 cc
for registration taxes. For example,
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,

2.1.5
the European Commission
issued a communication to the Council and the European
Parliament on car taxes (4) as far back as 2002. The communi-
cation outlined a strategy for revising the present system in
legislation and
order to promote approximation of national
also incorporate environmental objectives.

2.1.6
As a result of the subsequent consultations over the
intervening years with the Council and the European Parlia-
ment, 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

3.1
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.

3.2

The proposal is built around three main elements:

3.2.1

Abolition of registration taxes

is

to be

implemented gradually and progressively,
This
in 2016. This
achieving complete abolition over 10 years,
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.

(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,
Sweden, United
Kingdom.

Luxembourg,

Lithuania,

Slovakia,

(3) Countries without ACT: Czech Republic, Estonia, France, Lithuania,

Poland, Slovakia, Slovenia.

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

3.2.2

Establishment of an RT and ACT refund system

3.2.2.1
The new system to be brought in under the directive
would apply to cars registered in one Member State and subse-
quently exported or permanently transferred to another
Member State or a non-EU country.

This measure has a two-fold purpose: to prevent
3.2.2.2
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.

3.2.2.3
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.

3.2.2.4
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
the Member State
independent authority the decision of
effecting the reimbursement.

3.2.2.5 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,
the owner
should be refunded for the residual ACT, to be calculated in
accordance with the pro rata temporis principle.

including a non-EU country,

Restructuring the tax base for RT and ACT to be

3.2.3
totally or partially CO2 based

3.2.3.1
The draft directive introduces a system for deter-
mining ACT and RT (for the transitional period) which is also,
and increasingly, based on carbon dioxide emissions.

3.2.3.2
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.

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4. General comments

Commission could not apply the principle of subsidiarity in a
broader or more cogent way than is done in the proposal.

4.1
First of all, the EESC welcomes the European Commis-
sion's commitment to its dual objective: to improve the func-
tioning of the single market, and to give greater impetus to the
CO2 emission reduction strategy by means of
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).

taxation.

4.2
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:

4.2.1
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 trans-
ferring cars between the Member States;

4.2.2
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;

4.2.3
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 emis-
sions from new vehicles will be below 120 g per km by 2010.

4.3
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.

The proposal,

4.5
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
increase of ACT by the same
be compensated by a parallel
amount and, where necessary, by other
fiscal measures
permitted by the directive on taxation of energy products (7).

4.6
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
4.7
addition to the usual monitoring of national
implementing
provisions for the directive and their compliance with the
the European Commission should promote
directive itself,
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

5.1
In the EESC's view, a number of other aspects of the
proposal could prove problematic when transposing the direc-
tive, entailing the risk of divergences in application between
the Member States. More specifically:

5.1.1
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

5.1.2
in taxation must be
applied in a coordinated way between all the Member States, so
as not to generate further market fragmentation.

the ‘CO2 component’

4.4
Taxation is an extremely sensitive issue for which the
Member States are competent, and on which the European

(5) Communication from the Commission to the Council and the Euro-
pean 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 %.

In this connection,

the Commission should rapidly
5.2
propose solutions
to the Member States concerning two
problems that would arise if the directive were to be adopted
as presently worded.

(7) OJ L 283 of 31.10.2003, p. 51.

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5.2.1
January 2001, for the following reasons:

The first problem concerns vehicles registered before

— 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 there-
fore only be applied to vehicles registered since January
2001.

5.2.2
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

Brussels, 17 May 2006.

and therefore more polluting vehicles, with a result paradoxi-
cally opposite to that intended. Options to redress the system
must therefore be provided immediately.

5.3
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
further differences arising
from varying technical parameters such as cylinder capacity,
size etc. which are a source of market distortion.

the arbitrary creation of

The directive's transposition must also be technologically
5.4
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 there-
fore 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.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND