On 26 January 2012, the European Commission asked Ireland to alter the taxation on motor vehicles less than three months old.
Ireland treats a motor vehicle which is less than three months old or which has travelled less than 3000 km in the same way as a new vehicle.
The Court of Justice of the European Union ("CJEU") has already held that a vehicle starts to lose its value as soon as it is bought or brought into use. Therefore, the court believes that the tax due cannot exceed the amount of tax on similar vehicles that are already registered in the national territory and incorporated in their value but Ireland treats, for example, a two month old vehicle as a new one.
The European Commission believes that Ireland's approach amounts to discrimination. The Commission's rationale is as follows. The taxation of vehicles is not harmonised at the EU level. This means that Member States may impose a registration tax at whatever level they choose when the vehicle is registered for the first time in that State. (As the rules have not been harmonised, this registration tax can be imposed even if the vehicle has already been registered elsewhere in the EU or the transfer of the vehicle is as a result of a citizen availing of its right to move between Member States.) However, Article 110 of the Treaty on the Functioning of the European Union (the main EU treaty on how the EU operates) prohibits a Member State imposing higher taxes on products from other Member States than it would impose on its own domestic products. The rationale is that there should be competition and neutrality beween domestic and imported products. The Commission has stated that "taxes which are levied in the Member State just once with the first registration of the vehicle, the Court has considered that a part of such a tax remains incorporated in the value of second-hand vehicles already registered on the national market. The residual value of the tax diminishes proportionately with the depreciation of the vehicle. Consequently, EU rules are breached (article 110 TFEU) if the amount of tax levied on an imported second-hand vehicle is higher than the residual tax incorporated in the value of similar second-hand vehicles already registered on national territory. This is the case with the current Irish legislation on taxation of vehicles less than 3 months old."
The European Commission's request is the second step in an infringment procedure because it involved the Commission sending a "reasoned opinion" to Ireland. A reasoned opinion involves the Commission settting out its argument why there is a breach. Ireland then sets out its argumentation why there is no breach. If the Commission does not accept Ireland's reply then the Commission may institute proceedings before the CJEU against Ireland.
The Commission's move is part of its general intolerance of discrimination in the field of taxation but such issues will continue to arise as long as there is no harmonisation at the EU level.