VRT on short-stay cars incompatible with EU law, says court

EC had complained Ireland restricted foreign car hire firms’ ability to service Irish market

The EU’s Luxembourg-based court on Tuesday ruled for the European Commission which had complained that the Irish tax authorities were in effect restricting the ability of foreign car hire companies to provide services in the Irish market and discriminating in favour of domestic providers.

The EU’s Luxembourg-based court on Tuesday ruled for the European Commission which had complained that the Irish tax authorities were in effect restricting the ability of foreign car hire companies to provide services in the Irish market and discriminating in favour of domestic providers.

 

Ireland has been found guilty of failing to comply with European law over the application of tax to cars imported for rental purposes.

The European Court of Justice (ECJ) decision relates to those cars which may only be imported to Ireland for limited amounts of time.

Irish law requires importers to pay the entire tax for permanent registration, regardless of the intended and actual duration of their use in the State. This approach includes cars that are hired or leased from abroad for pre-determined, limited periods of time.

Ireland does not face any financial sanction following the court’s ruling, although it will bear legal costs.

The Luxembourg-based court ruled on Tuesday in favour of the European Commission, which had complained that Irish tax authorities were in effect restricting the ability of foreign car hire companies to provide services in the Irish market and discriminating in favour of domestic providers.

The court also found the tax obligation was not proportionate to its objective - to compensate for the external and environmental effects of vehicle use.

Less restrictive system

Since the duration of use for leased vehicles from a company in another member state is limited and known in advance, the court held that a less restrictive system could be used. This might consist of a registration tax proportionate to that duration.

Ireland had introduced a system whereby excess tax could be refunded following an inspection of the vehicle. However, the court also ruled that by failing to refund the interest and by deducting €500 for “administration” from the refund, Ireland had failed to fulfil its obligations under EU law.

While Ireland had amended its legislation on this issue at the beginning of 2016, the commission said it had not done so within the prescribed timeframe ending in April of the previous year.

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