By: CHRIS GRAEME
A CONTROVERSIAL new Portuguese vehicle tax introduced in March by the government despite severe criticisms from the European Commission could now land it in court.
The Commission is furious with Portugal because it has decided to add Value Added Tax (IVA) to the new vehicle tax, Imposto Sobre Veículos, in effect taxing a tax.
The European Commission has formally requested Portugal, and Poland, to change their laws as regards the inclusion of the amount of their car registration taxes within the taxable amount of VAT in the case of supply of road vehicles.
The new tax, which replaces the former Imposto Automóvel, has been defended by the Secretary of State for Financial Affairs, Amaral Tomaz, as legal under Portuguese tax law.
In addition, imported luxury cars, which are liable to a special separate tax, IVVA, also have to pay Value Added Tax, which the EU has been saying is illegal for 10 years.
Now the Portuguese government could face being hauled through the courts for doing something no other EU country, other than Poland, presently does.
The Commission considers that registration tax should not be included in the taxable amount of IVA. Yet, the Portuguese government decided to go ahead with the new ISV tax despite knowing that the European Commission considered it illegal.
Brussels made public its opposition to the new tax on July 3 although it had raised its misgivings in a letter to the government as far back as October 18, 2006.
However, the Ministry of Finances, backed up by arguments from the Centre for Fiscal Studies, Centro de Estudos Fiscais, defended Portugal’s right to introduce the new tax and the legality of the system.
Portugal is arguing that the automobile tax, Imposto Automóvel, and consequently the new Imposto Sobre Veículos, “is a special consumer tax that is applicable to the purchase and thereby consumption of determinate automobile vehicles and, as such, is separate to and cannot be treated as a licence plate tax as the Commission intends.”
Portugal now has until the end of the first week in September to once again explain its decision to advance with the new tax and, depending on its reply, Brussels will decide whether to take Portugal to court.
But even if the EU succeeds in overturning the Portuguese ruling, tax experts say that it will be virtually impossible for the public to get the Value Added Tax, IVA, paid on their vehicle tax returned.
Denmark has already been condemned by the European Commission Justice Tribunal, for applying a taxation system whereby Value Added Tax was slapped on top of the vehicle licence plate registration tax. In that case, the Danish government was ordered to pay the money back and did so.
But even if the European Commission court wins the case, which is likely, the case itself without appeal could take up to three years.
If Portugal then loses, the state will no longer be able to charge IVA on vehicle tax but then car purchasers who bought their vehicles before or during this three year period would have to go to court in Portugal to claw back the tax paid from the state and would only have a legal period under Portuguese law of four years, from the date of purchase, to do so.
The amount of IVA currently being charged on Imposto Sobre Veículos, Vehicle Registration Tax, for a basic Renault Clio amounts to 288 euros.
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