Bill 180/XIII, which intends to reduce the IUC on imported used cars, was one of the news that marked the last week. However, it has nothing to do with the last infringement process opened by the European Commission (EC) to Portugal (in January) on the rules for calculating the ISV of imported used cars . What is it all about?
According to the EC, what is the offense being committed by the Portuguese State?
The EC claims that the Portuguese State is violate article 110 of the TFEU (Treaty on the Functioning of the European Union).Article 110 of the TFEU is clear when it states that “no Member State shall impose, directly or indirectly, on the products of other Member States, internal taxes, whatever their nature, higher than those that directly or indirectly affect similar domestic products. Furthermore, no Member State will impose internal taxes on products from other Member States in order to indirectly protect other products.”
How does the Portuguese State violate Article 110 of the TFEU?
The Vehicle Tax or ISV, which includes a displacement component and a CO2 emissions component, is applied not only to new vehicles, but also to used vehicles imported from other Member States.
ISV vs IUC
Vehicle Tax (ISV) is the equivalent of registration tax, paid only once, when a new vehicle is purchased. It consists of two components, displacement and CO2 emissions. The Circulation Tax (IUC) is paid annually, after acquisition, and also includes the same components as the ISV in its calculation. 100% electric vehicles, at least for now, are exempt from ISV and IUC.
The way in which the tax is applied is at the origin of the violation. As it does not take into account the devaluation that used vehicles suffer, it excessively penalizes second-hand vehicles imported from other Member States. That is: an imported used vehicle pays as much ISV as if it were a new vehicle.
After rulings handed down by the European Court of Justice (ECJ) in 2009, the variable “devaluation” was introduced in the calculation of the ISV for imported second-hand vehicles. Represented in a table with reduction indices, this devaluation associates the vehicle's age with a percentage amount of tax reduction.
Thus, if the vehicle is up to one year old, the tax amount is reduced by 10%; progressively rising to a reduction of 80% if the imported vehicle is more than 10 years old.
However, the Portuguese State applied this rate of reduction only to the displacement component of the ISV, leaving aside the CO2 component, which motivated the continuation of the traders' complaints, as the violation of article 110 of the TFEU persists.
The result is an excessive tax increase for second-hand vehicles imported from other Member States, where, in multiple cases, as much or more in tax is paid than the value of the vehicle itself.
What is the current situation?
In January of this year, the EC returned, once again (as we have already mentioned, this topic dates back to at least 2009), to initiate an infringement process against the Portuguese State, precisely because “this Member State does not take into account the environmental component of the registration tax on second-hand vehicles imported from other Member States for depreciation purposes.”
The two-month period granted by the EC for the Portuguese State to review its legislation has expired. To date, no changes have been made to the calculation formula.
Also missing is the “reasoned opinion on this matter” that would be presented by the EC to the Portuguese authorities, if there were no changes to the legislation in force in Portugal within the deadline for reply.
Source: European Commission.