8 July 2005

The European Commission has proposed legislation that would require Member States to re-structure their passenger car taxation systems by eliminating car registration taxes and transforming the circulation (road) tax into a new unified single levy, that would be tied up in part to the vehicle’s CO2 emissions. The proposal aims only to establish an EU structure for passenger car taxes—it would not harmonize tax rates among Member States.

Car registration taxes should be abolished over a transitional period of five to ten years, according to the proposal. The gradual abolition of registration taxes would be accompanied by a parallel increase of annual circulation taxes, to maintain the Member States’ revenues. The registration tax—currently charged in 16 out of the 25 Member States, at rates ranging from a couple of hundreds of euro to as much as €16,000 in Denmark—gives rise to double taxation for European citizens who move to another EU nation and are required to register their vehicle again.

The proposal introduces a CO2 element into the tax base of both annual circulation taxes and registration taxes. Tax would be differentiated on the basis of CO2 emitted per kilometer by a car. At least 25% of the total tax revenue (road/circulation and registration taxes) should derive from the CO2 element by the end of 2008, and 50% by 2010.

The proposed Directive follows a consultation paper issued by the Commission in September 2002.

Source: European Commission (press release | FAQ | COM(2005)261 final)

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