Cyprus could be in trouble over the way it taxes second hand cars as the European Commission decided on Monday to send Cyprus a “formal request for information” over the tax rules on the registration of second-hand cars brought into Cyprus from other EU Member States.
The main issues are the way in which Cyprus applies tax on CO2 emissions and the calculation of depreciation, which appears to impose an excessive tax on second hand imports.
The rules are applied in a way that “may breach the EC Treaty provisions on equal treatment of domestic products and those of other Member States,” said the Commission in a statement.
Unequal treatment of second hand imports
Under Cypriot law, a tax is due on the first registration of a vehicle in Cyprus, which in practice means all new vehicles and second-hand vehicles coming from outside Cyprus.
The registration tax is not payable on second-hand cars already registered in Cyprus.
The amount of the tax varies according to the C02 emissions and the age of vehicles. The tax based on the C02 emissions is calculated as follows: decrease by 15% until 150 gr/km, no reduction between 150 gr/km and 275 gr/km and increase for emissions exceeding 275 gr/km.
One of the problems is that in order to benefit from the reduction based on C02 emissions, owners have to provide a certificate of conformity.
However, the Commission notes that obtaining this certificate of conformity is almost impossible for second hand vehicles.
Depreciation a problem
In what is probably no surprise to any expatriate or repatriate who has tried to bring in their car from another EU state, the Commission has said that the way the Cypriot authorities calculate tax due according to the age of the vehicle does not take into account “the real loss of value of the vehicle at the moment of the registration”.
Cyprus allows a decrease of the amount of tax by 15% for vehicles of one year old or less; a depreciation of 20% for vehicles between one year and three years; no depreciation for vehicles between three years and five years; and an increase of 25% in tax payable for vehicles older than 5 years.
The Commission argues that the tax applied to second hand cars coming into Cyprus does not relect the amount of tax incorporated into second hand cars that are already registered in Cyprus.
The Commission has also found that Cyprus lacks a system which allows the taxpayer to challenge the correctness of the tax due before a national court, contrary to what the ECJ has held in case Gomes Valente, C-393/98.
Could end up in court
The “letter of formal notice” is the first stage of the infringement procedure laid down in Article 226 of the EC Treaty.
If Cyprus does not reply with a satisfactory response within two months then the Commission has the right to proceed to the second stage and may ultimately bring the case before the European Court of Justice in Luxembourg, the EU’s top court (not to be confused with the Council of Europe’s European Court of Human Rights in Strasbourg of Loizidou fame).
“Member States are free to introduce registration taxes for vehicles” said EU Taxation and Customs Commissioner Laszlo Kovacs.
“But they must respect the Treaty principle of non-discrimination between domestic and EU products as well as secondary community law”.
Fiona Mullen
