The future imposition of Vehicle Registration Tax (VRT) in Ireland may be called into question following a European Court of Justice ruling which found it constituted a form of double taxation and was therefore illegal under the European Union Treaty.
The Court found the taxable value used to apply the tax on the registration of second-hand imported vehicles must be defined in the same way as for new vehicles already registered in the national territory.
VRT must be paid on all motor vehicles on their registration and before they are used in the Republic of Ireland.
The European Court of Justice ruled today on the case of a Finnish national who took his government to task over payment of the tax on a second-hand vehicle he alleged was a form of double taxation.
It found the government ignored tax already paid on vehicles registered in a second country.
The judgment in the case taken by Mr Antti Siilin said: "The taxable value used to apply the tax on the registration of vehicles must be defined in the same way for imported used cars as for new vehicles registered in the national territory."
Mr Siilin brought the case after the Mercedes he imported into Finland from Germany was subjected to a value added tax calculated by comparing the difference between the price paid for the car and the cost of the car in Finland. A similar system operates in Ireland.
Today's ruling was welcomed by the European Commission which called for the abolition of VRT two weeks ago saying it was a barrier to trade.
Earlier this month, EU taxation commissioner Mr Frits Bolkestein unveiled a plan to phase out car registration tax in EU member states over five to 10 years with the aim of freeing up the movement of cars across Europe.
Under the proposal, Mr Bolkestein said registration tax, which citizens in 10 of the 15 EU countries have to pay on new cars, should be replaced by annual road tax and fuel tax.
"I am determined to tackle the tax obstacles individual citizens and car manufacturers face within the internal market arising from 15 different systems of car taxation within the EU," Mr Bolkestein said.
"All too often people have to pay through the nose when they move a car from one country to another," he said.
The proposal also called on member states to bring their annual road taxes closer together, and said registration tax, while it lasts, and road tax should be based on CO2 emissions.
