EU Commission takes Finland to court over car taxes
The European Commission is taking legal action against Finland over the country's system of car taxation. The dispute concerns the levying of a tax similar to value-added tax on top of the separate vehicle tax, which the Commission says violates EU legislation.
The complaint to the Court of Justice of the European Communities involves events in 2002 when Finland lost a dispute over the personal import of a Mercedes Benz car by Antti Siilin, forcing Finland to ease the taxation of personal imports of used cars.
The change inspired tens of thousands of Finns to travel abroad - mainly Germany - to buy a used car.
At that time, the Court of Justice ruled that the VAT levied by Finland cannot be considered a true value-added tax. Finland nevertheless decided to continue collecting the tax, and the matter has been a bone of contention ever since.
If the Commission wins in the dispute with Finland, it means that all those who have imported a used car from abroad can get a refund for their non-VAT payment.
Lawyer Petteri Snell, an expert in car taxation issues, says that there could be up to 100,000 people entitled to the refund if the court rules against Finland. With the tax averaging at about EUR 700, this would mean a payout of more than EUR 70 million.
Such a decision would also make it cheaper for Finns to import used cars in the future.
As Snell sees it, losing the case would force Finland to thoroughly overhaul its car tax system.
The basic flaw in the Finnish system from the Commission's point of view is that companies are allowed to deduct the non-VAT from their corporate taxes, but private individuals are not allowed a corresponding deduction in their income tax.
Under present Finnish legislation, the non-VAT applies to new cars as well, and car dealers can make a corresponding deduction from their corporate taxes. The Commission feels that the non-VAT should not be deductible as if it were VAT.
If dealers lose their right to a tax deduction, their business will suffer, while at the same time, personal imports of used cars would become a more attractive proposition. Snell concludes that if it loses the case, Finland would have to change the present taxation system to bail out the car dealers.
Finland has just over a month to respond to the complaint.
Previously in HS International Edition:
Emission-based car tax to bring down price of new vehicles next year (2.11.2007)