EC Questions Romanian Pollution Tax

by Ulrika Lomas, Tax-News.com, Brussels

29 June 2009

The Commission has requested information from Romania as regards its legislation on the application of a pollution tax on passenger cars.

The Commission is of the opinion that the provisions of the Romanian legislation, according to which the application of the pollution tax for certain motor vehicles is suspended while it is increased for certain used cars coming from other Member States, might discriminate against used cars brought from other Member States and protect the domestic new car industry.

The request takes a form of ‘a letter of formal notice’ - the first stage of the infringement procedure laid down in Article 226 of the EC Treaty. If the Commission does not receive a satisfactory response within two months, it may proceed with the second stage of the procedure (to issue a reasoned opinion) and ultimately bring the case before the Court of Justice.

According to the Romanian legislation effective since February 2009, cars pertaining to the EURO 4 category and with a cylinder capacity of less or equal to 2.000 cc are exempt from pollution tax in Romania if registered for the first time anywhere within the EU during the period from December 15, 2008, to December 31, 2009. According to the same legislation, the tax rates applicable to other cars subject to the tax have also been doubled.

Following the changes in the Romanian legislation the Commission received a very large number of complaints, and has responded by issuing a statement announcing the progress of its investigation into Romanian taxation on vehicles. Its statement notes:

“The Commission supports policy measures aimed at favouring less polluting cars. However, the Commission, as Guardian of the Treaty, must ensure that they are compatible with the EU law. In this respect, the way in which the Romanian legislation is constructed seems to have a protective effect for domestic industry of new cars.”

“According to consistent ECJ case-law of the European Court of Justice, Member States can impose differential taxation on similar products provided that it is based on objective criteria and does not lead to any protection of domestic production. In the Commission's opinion, the criterion of ‘the first time registration’ is not a completely objective requirement as it does not take into account the inherent quality of cars. It could, in certain specific cases, lead to discrimination against second-hand cars coming from other Member States.”

“Indeed, following the application of the ‘first time registration’ requirement, all new cars registered during the period fixed by the Romanian legislation and which instantly join the Romanian market of used cars, circulate tax free. On the contrary, cars of an equivalent quality, which are going to be registered in Romania during the same period although not for the first time and which are in direct competition with the domestic goods, will be subject to a substantial tax burden,” noted the Commission.

Romania must reply to the formal notice before a period of two months, to prevent further proceedings, which could ultimately end with a ruling from the European Court of Justice.

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