Governments demand tax refund over VW scandal

Spain has joined the list of countries demanding Volkswagen pay back subsidies it received on its "green" clean diesel models.

While the US$51 million green subsidy payment from California to Volkswagen for its allegedly clean diesels grabbed the initial headlines, Spain is now demanding the company hand back a €1,000-a-car subsidy.

The payments, which started in 2009 and went to buyers of low-emission cars to help keep the car industry buoyant during the worst of the last financial crisis, have become a focal point for political outrage over the VW scandal in Spain.

The scandal relates to falsified nitrogen oxide (NOx) emission figures in the US, while tax regimes in Ireland and other EU states focus on carbon dioxide (CO2). VW this week said it would refit the software on affected cars in "the coming weeks and months".

They would not specify, however, whether this would impact on fuel economy or CO2 emissions. If it did then that would have implications for Irish owners, who may face higher tax bills going forward, and potentially a retrospective tax bill for underpayment of both motor tax and Vehicle Registration Tax when the car was first purchased. Ireland changed its tax regime for cars from one based on engine size to one based on CO2 emissions for all vehicles sold from July 1st 2008.

According to the Department of the Environment these emissions are taken from the car’s Certificate of Conformity provided by the manufacturer. “Should revised Vehicle Registration Certificates be issued in relation to such vehicles in order to reflect the actual level of emissions relating to them, this would affect the rates of motor tax applicable. The matter will be kept under review.”

An estimated 80,000 Irish motorists are affected by the scandal, across the four VW brands in Ireland: Audi, Seat, Skoda and Volkswagen (cars and commercial vehicles).

As with Ireland, the Spanish new car market has been regaining its strength for more than a year as the country recovers from recession. However it’s expected to take a severe blow after the national car company, Seat, yesterday admitted more than 700,000 of its cars had been caught in the scandal.

Seat, the Volkswagen Group's Spanish subsidiary, is at the core of the subsidy payback after the Spanish Industry Minister, Jose Manuel Soria, reacted yesterday.

Mr Soria demanded that Volkswagen, not the buyers or current owners of the subsidised EA189-powered diesel cars, repay the subsidy.

Spain also joined Volkswagen’s increasingly long list of legal trouble spots Monday, with a workers’ union filing criminal complaints against the head of Volkswagen’s three Spanish operations.

Meanwhile, the scandal is also taking its toll on German budget plans. Three German cities dominated by the Volkswagen Group have frozen their budgets for next year, reducing their 2016 spending by 15 per cent in anticipation of lowered tax revenues.

Ingolstadt, the Bavarian hometown of Volkswagen's premium brand Audi, yesterday joined Braunschweig and Wolfsburg, Volkswagen's hometown, in reducing future spending plans in case the crisis turned into a longer-term problem.

All three cities are debt free, but are heavily reliant on the tax revenues delivered by workers and trade from their car-making bases.