Is VRT an illegal tax?

easyontheeye

hi,

People keep saying that VRT is in fact an illegal tax? is this true? If it illegal why has not been challenged by people in the European courts?

cheers....just curious

Tom Young

Joe Duffy has a lot to answer for (sorry joke).

I think VRT is a valid national tax. The issue is that taxation policy is national, as in unharmonised.

Tax harmonisation

Any reference to ‘the European Constitution’ is suspended until a new reform treaty has been adopted to replace the draft Constitutional Treaty.

Tax harmonisation consists in coordinating the taxation systems of the European countries to avoid non-concerted and competing changes in national fiscal policies, which could have an adverse effect on the internal market.

Full tax harmonisation covering 25 countries is a difficult undertaking, since this area remains largely the prerogative of the Member States. However, a minimum degree of harmonisation has been achieved, e.g. with the common bands of value added tax, which require a minimum VAT rate of 15% on all products (apart from exemptions and special authorisations).

The last enlargement greatly increased tax disparities within the Union. At the same time, adoption of the single currency in 12 European countries has made it necessary to establish genuinely common rates of VAT and common rules for business taxation in the Union.

Since 1997, the Member States have been conducting a wide-ranging debate on the scope for coordinated action to try to control the negative effects of tax competition. This has centred on three areas: company taxation, taxation of savings income and taxation of royalty payments between companies.

With the "fiscal package" to combat harmful tax competition, the Council adopted:

a code of conduct for business taxation (December 1997);
an instrument to reduce distortions in the effective taxation of savings income in the form of interest payments ("Savings Taxation Directive", June 2003);
an instrument to eliminate withholding taxes on cross-border interest and royalty payments made between associated companies ("Interest and Royalty Payments Directive", June 2003).

In general terms taxation and matters of fiscal and social policy are non-justiciable and are covered under article 45 of the Constitution.

Maximilian

Well, its arguably illegal although who knows why action hasn't been taken by the Commission if it is. I think though they have asked the Government to abolish it, who of course have done nothing of the sort.

The reason its arguably illegal is that it functions in effect as an import duty, contrary to Art.25 of the Treaty of Rome. All our cars come from outside the country, so it only effects imports.

Tom Young

http://europa.eu/scadplus/glossary/taxation_en.htm

Maximilian

Thats not quite the same thing. That refers to the harmonisation of taxes like like VAT and Corporation Tax etc. Import Duty as regards good & services from other member states is still illegal. VAT for example applies to all goods, Irish or otherwise and as such is not import duty. If however you had a different higher VAT rate, say, for certain goods which were only imported, that would arguably be an import duty and would be illegal.

Tom Young

Yes, I can see where you're coming from on the EU Market alright, then again is it not excepted under Pillar two?

MEQRs were covered off in 28 and 31.

VRT - Vehical Registration Tax, is it not a national issue?

Article 25 (ex 12)
Customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States.

Sometimes it can be difficult to determine if a measure is relating to customs or a discrimination on tax.

I'd postulate that article 90 is more relevant.

Article 90 focuses very much on the issue of discrimination. (formerly Article 95)
The discriminatory tax provisions Articles 90-93.

No member state shall impose directly or indirectly on the products of other member states any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products

Furthermore, no member state shall impose on the products of other member states any internal taxation of such a nature as to afford indirect protection to other products.

These provisions are to prohibit direct and indirect discrimination in relation to tax.

Case 112/84 Humbolt v Directeur des Services Fiscaux [1985] ECR 1367

The court said this as the facts in the case showed that only imported cars were subject to the higher flat rate tax. The court looked at the effect of this tax or might have on consumers, and consumers might be less likely to buy imported cars and was clearly an impediment to the free movement of goods. The court felt that the tax system reduced the amount of competition to which cars of domestic manufacture were subject to, and hence offended the principle of neutrality with which domestic taxation must comply. Following this the French brought in a different system with 9 incremental bands and this in turn was held to be discriminatory, in a different case in the Feldien case 443/85 1987 ECR 3536

Note that this does not mean that differential tax for cars are contrary to Article 90 of the Treaty. If they are objectively justifiable and there is not discrimination.

If a measure is falls foul of Article 25, it must be removed, it is unlawful per se. If a measure falls under Article 90, it is different, it is not unlawful to tax, it is however to discriminate.

Article 25 and Article 90 are mutually exclusive, it cannot be both. Article 25 deals with duties in respect of crossing a border. Article 90 is there to prevent discrimination against a product once they have entered into another member state.

easyontheeye

ok based on all that i wont bother taking the government to court just yet lol

GerardKeating

easyontheeye wrote:

hi,

People keep saying that VRT is in fact an illegal tax? is this true? If it illegal why has not been challenged by people in the European courts?

The day after (or even the same day) VRT is declared illegal, they will replace it with another tax of about the same (or higher) cost.

This tax may also be illegal, but different eneough from VRT that a seperate legal challange will be required to challange it.

And when that tax is eventally challanged....

pirelli

Maximilian wrote:

Well, its arguably illegal although who knows why action hasn't been taken by the Commission if it is. I think though they have asked the Government to abolish it, who of course have done nothing of the sort.

The reason its arguably illegal is that it functions in effect as an import duty, contrary to Art.25 of the Treaty of Rome. All our cars come from outside the country, so it only effects imports.

The british had a similar case when importing turkeys the turkeys were taxed in a biased way to protect the doemstic turkey market.OOH what ever. It too was found to be in contravention of the treaty of rome..

Check out this poll it would be of great help.

http://www.misterpoll.com/4269279006.html

Bee

VRT? It is a disgraceful tax, just another example of an anti-competitive measure used purely for the extraction of money from the motorist. It bears no relation to road expenditure and has been calculated by a cosy arrangement between the brown paper bag Govt and the car importers.

Some bureaucratic pen-pusher devised the VRT system. Some idiot with absolutely no comprehension as to the dynamics of cars, the engineering and safety, and settled for a cc-based system which is totally illogical. Obviously a dublin city council traffic engineer type

Let's face it, a 1.6 litre Focus or Golf is a hell of a lot safer than a 1.4 litre version of the same car (just try a few overtaking manoeuvers in both and see how much safer the more powerful car is.) but our Govt sees this as an opportunity to extract/fleece the purchaser of another few euro. Why should an Airbag cost more in a 1.6l car over a 1.4 litre car? Because Mr Idiot_civil Servant decided it should.

As for imports of used cars? It's based on the original market value, a non-sensical formula that is all smoke and mirrors to extract the highest amount from the consumer. How does the Revenue calculate the OMSP? Nobody seems to know and they are not telling. They make it up as they go along.

We joined the EU with a promise of a free market. We have anything but, and our Govt are one of the most culpable in operating restrictive markets, and therefore higher prices for us all.

Tom Young

Move to the UK.

sinbadtinker

Tom Young wrote: »

Article 90 is there to prevent discrimination against a product once they have entered into another member state.

I agree that article 90 is more applicable than 25. To continue the point/question --> is it then the VRT calculation (with it's aspect of double taxation i.e. OMSP figures already includes VRT, so the VRT charged is too high) that discriminates against the imported car, because the Irish car (i.e. first registered in Ireland rather than any other member state) doesn't have this element of double-taxation in it's "VRT due" calculation?

Maybe, that's still not discriminatory, because the imported car after paying VRT still ends up being better value than the Irish car? (Irish car = one that was first registered in Ireland)... Maybe that's why VRT has not been challenged in Ireland? ... but even if the imported car + VRT is still better value than Irish car, the overly high VRT (due to double taxation) is per se contrary to article 90 as it seeks to reduce the gap in value between the Irish and the Imported car?

Sorry if I'm about 3 or 4 years behind in the debate!, I am looking for more up to date threads that are getting in to the nitty gritty of the articles 25 and 90

jakdelad

Tom Young wrote: »

Move to the UK.

so you concur with bee?

taram

The one major issue I have with it is that I currently own a UK car, whilst living in the UK, however, when I return to Ireland in the future to live, I'll want to bring my car, but with this law, I can't sell it for a year after moving without paying VRT. I understand the general cog it puts in the works of people popping up north to get a cheaper car and bring it south, but that 12 month rule is a bit unfair!

234

sinbadtinker wrote: »

Sorry if I'm about 3 or 4 years behind in the debate!, I am looking for more up to date threads that are getting in to the nitty gritty of the articles 25 and 90

Well first of all, since Lisbon Art 25 has become Art 30 and Art 90 has become Art 110. Art 30 is a strict prohibition. There is more flexibility in Art 110.

johnnyskeleton

I would have thought that if a situation arose where a company based in Ireland made cars that were exempt from VRT then it would clearly violate EU law, but as there is nothing that directly threatens the free market it is quietly tolerated.

Not sure why some wag hasn't had a bash at challenging it though.

Our man in Havana

The thing is other countries also have a VRT of sorts. Nothing is being done about them either.

jmc19

Have a look at the thread I posted over here: http://www.boards.ie/vbulletin/showthread.php?t=2056266184

beeftotheheels

Our man in Havana wrote: »

The thing is other countries also have a VRT of sorts. Nothing is being done about them either.

That's actually a really poor argument if you look at the history of infraction/ infringement proceedings when the Commission frequently initiates proceedings against multiple member states in respect of the same/ similar provisions.

The better argument is, I think, that in order to prove the breach of Art 110 you have to evidence the favorable domestic comparable which does not exist.

The lack of an Irish car manufacturer in no way impedes the proper functioning of the common market so why should EC law render VRT illegal under provisions designed to protect the proper functioning of that market?

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61987J0323:EN:PDF

The Court has consistently held that the purpose of Article [110], as a whole, is to ensure the free movement of goods between the Member States under normal conditions of competition, by eliminating all forms of protection which might result from the application of discriminatory internal taxation against products from other Member States, and to guarantee absolute neutrality of internal taxation as regards competition between domestic and imported products (see the judgment of 9 July 1987 in Case 356/85 Commission v Belgium [19871 ECR 3299)

@ beeftotheheels

Under Article 110 could it not be argued in the case of my brother that asking him to pay €10,000 - €15,000+ VRT on a 1992 car shell is unfair and unjust when the same fully running car for sale here currently has an Irish open market selling price of between €10,000 - €18,000. Not only this but he is building the car here in Ireland using parts sourced here, be they new parts that he has already paid tax on or second hand parts that cannot have tax applied to them. Also, even though he might be able to appeal the VRT rate with the Revenue, if he won the appeal he would only get back 10% - 20% of the VRT rate, so is that not unfair also?

MagicSean

Our man in Havana wrote: »

The thing is other countries also have a VRT of sorts. Nothing is being done about them either.

I think the method of calculation is the problem in Ireland. A percentage based on the value of the car is basically a tax whereas a fixed charge for every car is not. I think most other countries have a more fixed charge approach. I'm open to correction though.

hellboy99 wrote: »

@ beeftotheheels

Under Article 110 could it not be argued in the case of my brother that asking him to pay €10,000 - €15,000+ VRT on a 1992 car shell is unfair and unjust when the same fully running car for sale here currently has an Irish open market selling price of between €10,000 - €18,000. Not only this but he is building the car here in Ireland using parts sourced here, be they new parts that he has already paid tax on or second hand parts that cannot have tax applied to them. Also, even though he might be able to appeal the VRT rate with the Revenue, if he won the appeal he would only get back 10% - 20% of the VRT rate, so is that not unfair also?

There is no charge for importing a car in Ireland. The VRT is a charge for allowing the car to be driven on Irish roads. So it isn't actually an import charge/tax. I believe this is how it is exempt. AFAIK your brother doesn't have to worry about VRT until the car is ready to be brought out on the roads as long as it is kept on his private property.

beeftotheheels

Seanbeag1 wrote: »

I think the method of calculation is the problem in Ireland. A percentage based on the value of the car is basically a tax whereas a fixed charge for every car is not. I think most other countries have a more fixed charge approach. I'm open to correction though.

Why should the method of calculation change anything? Lets think of the classic example from the cases - whiskey vs brandy.

If tomorrow we levied a €10 flat rate tax on all fruit based spirits and none on grain based spirits then that would invoke Art 110.

If tomorrow we levied a 25% value added tax on fruit based spirits but not on grain based ones that would also invoke Art 110.

But if we levy either the flat rate, or the value based tax on all spirits then Art 110 is not invoked.

The method of calculation of the tax is not in and of itself problematic. But in order to invoke Art 110 you have to show a domestic comparable which is provided with preferential treatment. Ireland makes no cars so there is no comparable. If Ireland started making cars in the morning they would be subject to the same VRT rules as imported cars.

234

hellboy99 wrote: »

@ beeftotheheels

Under Article 110 could it not be argued in the case of my brother that asking him to pay €10,000 - €15,000+ VRT on a 1992 car shell is unfair and unjust when the same fully running car for sale here currently has an Irish open market selling price of between €10,000 - €18,000. Not only this but he is building the car here in Ireland using parts sourced here, be they new parts that he has already paid tax on or second hand parts that cannot have tax applied to them. Also, even though he might be able to appeal the VRT rate with the Revenue, if he won the appeal he would only get back 10% - 20% of the VRT rate, so is that not unfair also?

Art 110 has been interpreted in a way that prevnetst tax schemes that have a discriminatory or protectionist effect. Since there is no Irish car manufacturing market there is no question of discrimination or portectionism. Your brother won't be charged VRT until the car meets the definition of a mechanically propelled vehicle so the shell won't be charged any tax. Once he is finished with the car he will have to VRT it.

keithclancy

Holland has the same in the form of BPM.

In fairness though you have such a high net wage in Ireland in comparison that the only option is to keep the price of cars artificially high to avoid every tom dick and harry having one.

My effective tax rate in 2009 was 43.2% and thats off my total gross, thats only on my income, then I have to pay local taxes on top of that.

They satisfy the free movement requirement by allowing your to move with your own vehicle if you have owned it for 6 months.

However the EU has no governence on local taxation policy. If they did, they may sort out that VRT issue, but you might be shooting yourselves in the foot if they change that corporation tax rate :P

234

234 wrote: »

Your brother won't be charged VRT until the car meets the definition of a mechanically propelled vehicle so the shell won't be charged any tax. Once he is finished with the car he will have to VRT it.

True, but him been asked to pay €10,000 - €15,000+ VRT on a 1992 car is unrealistic when the same fully running car for sale here currently has an Irish open market selling price of between €10,000 - €18,000.

keithclancy

hellboy99 wrote: »

True, but him been asked to pay €10,000 - €15,000+ VRT on a 1992 car is unrealistic when the same fully running car for sale here currently has an Irish open market selling price of between €10,000 - €18,000.

Yup, this is the case, even if you import a trashed wreck its based on the OMSP to avoid people scamming the system and importing the car in a dismantled state and reassembling later on.

234

hellboy99 wrote: »

True, but him been asked to pay €10,000 - €15,000+ VRT on a 1992 car is unrealistic when the same fully running car for sale here currently has an Irish open market selling price of between €10,000 - €18,000.

Ok grand, the system might not be perfect but people shouldn't throw arounds that "sure VRT is illegal anyway" crap without something to back it up.

234

234 wrote: »

Ok grand, the system might not be perfect but people shouldn't throw arounds that "sure VRT is illegal anyway" crap without something to back it up.

keithclancy wrote: »

Yup, this is the case, even if you import a trashed wreck its based on the OMSP to avoid people scamming the system and importing the car in a dismantled state and reassembling later on.

I think your missing the point here, first off he is not looking to scam the system nor is he looking for a way out of paying VRT.

The point I'm making is that the current Irish OMSP for this type of car at the minute is €10,000 - €18,000 and that's coming from the Ford dealers and ones that are been sold private. Ones going for €18,000 would be showroom condition.
So with the highest rate of VRT @ 36% on €18,000 that gives you a VRT sum of €6480, and yet my brother has been told a sum of €10,000 - €15,000+, now that's a big difference. The person my brother spoke to in Revenue based his valuations of the car on one at £22,000 sterling in Scotland and the other at £27,000 sterling in the Isle of White.

Correct me if I'm wrong but are the Revenue only suppose to base valuations on the Irish OMSP?

Our man in Havana

Correct me if I'm wrong but are the Revenue only suppose to base valuations on the Irish OMSP?

You are correct. Only the Irish OMSP is in play here.
Otherwise what is to stop the revenue from quoting OMSPs from Bulgaria or Romania where cars are very expensive?

Our man in Havana

Our man in Havana wrote: »

You are correct. Only the Irish OMSP is in play here.

Tell that to the head of VRT :rolleyes:

Del2005

hellboy99 wrote: »

I think your missing the point here, first off he is not looking to scam the system nor is he looking for a way out of paying VRT.

The point I'm making is that the current Irish OMSP for this type of car at the minute is €10,000 - €18,000 and that's coming from the Ford dealers and ones that are been sold private. Ones going for €18,000 would be showroom condition.
So with the highest rate of VRT @ 36% on €18,000 that gives you a VRT sum of €6480, and yet my brother has been told a sum of €10,000 - €15,000+, now that's a big difference. The person my brother spoke to in Revenue based his valuations of the car on one at £22,000 sterling in Scotland and the other at £27,000 sterling in the Isle of White.

Correct me if I'm wrong but are the Revenue only suppose to base valuations on the Irish OMSP?

If you look at the huge thread in Motors, you'll see that people have successfully appealed high VRT rates with several print outs of similar cars for sale in Ireland. The problem is that you have to pay to appeal, but you will get the money back.

Article in Sunday's Business Post:

http://www.sbpost.ie/news/ireland/vrt-receipts-for-imported-vehicles-down-75-since-2007-56305.html

VRT receipts for imported vehicles down 75% since 2007

15 May 2011 By Kieron Wood

Vehicle registration tax (VRT) receipts for imported vehicles last year were down by 75 per cent on 2007, according to new figures from Revenue.

In 2010, €384 million was collected in VRT receipts, compared to €1.4 billion in 2007.

Receipts fell slightly in 2008 to €1.12 billion, but the figure collapsed to €375 million in 2009. This year, the Revenue had taken in €147 million by the end of the first quarter.

VRT is based on a notional ‘‘open market selling price’’ (OMSP) of imported vehicles, based on factors such as age, mileage and vehicle condition, rather than the actual purchase price.

The OMSP is typically higher than the purchase price, resulting in higher VRT for the importer. VRT is charged at rates of up to 36 per cent of the OMSP, depending on a vehicle’s emissions.

The European Commission began proceedings against Ireland in 2009 for infringing EU law by charging VRT on vehicles imported from other EU member states. The commission questions whether the tax breaches the principle of the free movement of goods within the EU.

A spokeswoman for Revenue said: ‘‘The proceedings are ongoing. There have been a number of exchanges of documentation and information between the Commission and the Irish authorities in the intervening period."

Last January, the Revenue issued a ‘‘request for information relating to the valuation of used vehicles’’ on the government’s eTenders website.

It said: ‘‘The valuation of used vehicles brought into the state should not be so low as to disadvantage the normal sale of similar or equivalent used vehicles already registered in the state.

Equally, the valuation should not be so high as to ‘protect’ Irish vehicles against their equivalent imports.

‘‘At present, this valuation process is manual and resource intensive.

The Revenue now requires a new efficient, automated valuation system that, while retaining the advantages of the current system, can provide an accurate valuation of vehicles in a more efficient way."

High Court proceedings challenging the VRT regime brought in 1995 by Niall O’Dowling of Used Car Importers of Ireland have now been listed for hearing.

O’Dowling is challenging the ‘‘secretive and arbitrary’’ way the tax is imposed, and claims there is unfair discrimination in favour of importers of new vehicles.

Trhiggy83

Just another thing to note. I registered my car in january via the nct centre in tallaght. They also wanted the reciept and to know how much in sterling you paid for the car. I think there is a sinister reason they are asking this question. I asked them WHY they wanted the reciept. To be fair its none of their business how much i paid and i told them that, all i wanted to do is register the car. The girl dealing with me did not know why a reciept was needed but i gave it to them eventually.Seems strange though, all i can think of is that they re-adjust the OSMP to reflect the value of the car in the UK. When you add on the vrt then the differance between importing and buying here would not be huge.

Does anyone else think this is what they are at

Trhiggy83

Trhiggy83 wrote: »

I registered my car in january via the nct centre in tallaght. They also wanted the reciept and to know how much in sterling you paid for the car. I think there is a sinister reason they are asking this question. I asked them WHY they wanted the reciept. To be fair its none of their business how much i paid and i told them that

Your right, it's none of there business as to how much you paid for it and they shouldn't be asking to look at the receipt. VRT can only be calculated on the cars Irish OMSP.