Polish VAT On Vehicles Under Fire From Commission

by Ulrika Lomas, Tax-News.com, Brussels

24 March 2009

The European Commission has decided to refer Poland to the European Court of Justice as regards the inclusion of the amount of its car registration tax within the the taxable base on which VAT is calculated for road vehicle supplies.

The Commission considers that the car tax should not be included in the taxable base on which VAT is calculated.

In the case of supplies of road vehicles, Poland includes the amount of its car tax (the "Oplata rejestracyjna") within the taxable amount of VAT.

In Case C-98/05, which referred to the registration car tax levied in Denmark, the European Court of Justice has examined whether the taxable amount for VAT purposes, in the case of supplies of means of transport, must include the amount of the registration tax (RT), which is usually paid by the supplier to the tax authorities and afterwards repaid to him by the purchaser along with the price of the vehicle.

The Court ruled that, in the context of a contract of sale providing that the dealer will supply a vehicle registered for a price which includes the registration tax he paid before supplying the vehicle, the amount of that duty must not be included within the taxable amount of the VAT charged on the sale of the vehicle. This is because, firstly, the Road Tax is charged by reason of the registration of the vehicle and not by reason of the supply and, secondly, because the Road Tax is paid by the supplier of the vehicle on account of the purchaser.

The Commission understands that the car tax levied in Poland, despite some minor or ancillary differences, is basically identical to the Danish one examined by the Court: it is a one-off tax which is payable on the acquisition of the motor vehicle or as a condition for bringing it into use in the territory of the Member State concerned.

The rules on the taxable amount of VAT have been harmonized at the EU level, and the uniform application of those rules is an essential condition for the proper operation of the VAT system. In the light of this, the Commission has taken the view that the criteria of the EC Court in Case C-98/05 must be applied to the car tax levied in Poland.

Given that Poland did not modify its legislation despite the reasoned opinion sent by the Commission in 2007, the Commission has decided to refer the case to the European Court of Justice.

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