The impetus for this proposal is two-fold. First is the perceived need to normalize the EU tax rules to prevent double taxation as vehicle owners (and vehicles) move freely within member states. Second is the desire to use taxation as a policy tool to provide incentive for reducing greenhouse gas emissions.

Following the extensive consultations that the Commission has conducted with stakeholders, we believe that there is strong support for the abolition of registration taxes which give rise to double taxation for European citizens and create fragmentation within the European car industry. There is also considerable support for tax measures that would encourage consumers to select more environmentally friendly passenger cars.

—EU Taxation and Customs Commissioner László Kovács

The passenger car tax proposal contains three main elements:

• Abolition of car registration taxes over a transitional period of five to ten years. The Member States’ revenues would not be affected if the gradual abolition of registration taxes is accompanied by a parallel increase of annual circulation taxes and, if necessary, other taxes. A gradual change would protect car owners from dramatic devaluations of their cars. The transitional period would also allow those Member States applying high registration taxes to make the necessary structural changes to their car tax systems.

• A system of refunds—until the registration tax is eliminated—to prevent double taxation where a passenger car that is registered in that Member State is subsequently exported or permanently transferred to another Member State.

• The introduction of a CO₂ element into the tax base of both annual circulation taxes and registration taxes. This would mean a tax differentiation on the basis of the number of grams of carbon dioxide emitted per kilometer by a car.

Resources:

• EU Passenger Car Taxation

• EU Passenger Car Taxation FAQ