The future of vehicle registration tax (VRT) is in doubt after the European Court of Justice ruled yesterday that aspects of the tax are against EU law. The European Commission called earlier this month for the abolition of the tax, which varies greatly between member-states.
Ireland, along with Denmark, has the highest rate of VRT in the EU. But the Department of Finance reacted cautiously to the judgment, saying it appeared to be "narrow" in its implications.
Groups representing Irish car owners and the motor industry welcomed it, however, seeing the ruling as more pressure from Europe for the eventual abolition of the tax, which the Automobile Association called a "three-card trick perpetrated by the Irish Government in 1993 to evade the implications of the single market".
Yesterday's ruling came after Mr Antti Siilin, a Finnish citizen, took a case against his own government.
Mr Siilin bought a used Mercedes in Germany and imported it into Finland a few weeks later. The Finnish authorities calculated the tax he had to pay by comparing the car to a new car of the same make with similar characteristics.
The court found that the tax constituted a form of double taxation because it exceeded the amount of tax charged on a used car already in Finland.
"The taxable value used to apply the tax on the registration of vehicles must be defined in the same way for imported used cars as for new vehicles registered in the national territory," the court said.
The Internal Market Commissioner, Mr Frits Bolkestein, called this month for VRT to be reduced and eventually abolished.
He argued that the tax represented a hindrance to the free movement of cars throughout the internal market.
Yesterday's ruling could affect Ireland, where the system of charging VRT is similar to Finland's.
But a Department of Finance spokesman said the judgment appeared to relate only to second-hand car imports from other member-states, a very small section of the overall market.
The Society for the Irish Motor Industry agreed that the ruling would have little immediate effect. However, the group's chief executive, Mr Cyril McHugh, said that for the longer term, it was a signal that the European Court, as well as the Commission, were "unhappy" with VRT.
