VRT row with European Commission set to escalate

Ireland's row with the European Commission over Vehicle Registration Tax (VRT) is set to intensify after the Danes made key concessions on the issue.

The Danes, the Irish and the British have argued that VRT is simply another tax, and thus it is a matter for national governments and not the Commission. The Commission argues that VRT is not just a tax but an anti-competitive practice which goes against free trade and even the Treaty of Rome establishing the common market.

Recently the Danes have decided to make refunds of VRT where the vehicle is being exported second-hand from Denmark, after VRT has been paid there. The Society of the Irish Motor Industry (SIMI) which opposes all aspects of VRT, claims the concession is a significant acknowledgement that whatever about the imposition of the tax within national territories, not making a refund when the car is exported represents a major interference in trade outside the national territory.

Ireland has resisted any such change, but pressure for a concession will mount on the State in coming months, not least because of moves by the European Parliament to overhaul the whole basis of motor taxation. The Parliament's Economic and Monetary Affairs Committee voted just last week to approve a Commission proposal to introduce a motor tax system which had regard to CO2 commitments.

According to Independent MEP Marian Harkin it would be based on usage and not "straightforward" taxes such as VRT. The Commission's proposal to have a common car tax mechanism across the EU was sensible, she added. While most industry watchers are sceptical that Ireland will opt for change, Cyril McHugh of SIMI said the Commission is angered about the second part of the tax, not giving a refund on cars exported from Ireland. He argued that while VRT is imposed on 40,000 vehicle imports into Ireland each year, it is not refunded on vehicles leaving the State, saying it is a major interference in trade.

The European Parliament's Economic and Monetary Affairs Committee seemed to side with the Commission, approving a motion to replace motor taxes with a system which would have regard to our Kyoto targets. In other words no more "straightforward" taxes like VRT but taxes based on the amount of emissions for which motorists are responsible.

That could be a circulation tax collected through road tolls, an emissions tax based on the damaging gases produced by the vehicle, or by a tax on fuel.