Work
18.January 2008 - 00:00
Levying of VAT on used cars imported from EU countries
In recent years the purchase and import of used cars from one EU country to another has become more and more widespread. In Finland, the majority of imports have naturally been of cars purchased in Germany. However, this has not been entirely unproblematic and a number of irregularities have arisen which have caused headaches for the buyers of used cars. The levying of VAT is a particular problem area when used cars are purchased inclusive of tax — in other words when the purchase price includes the VAT of the country of purchase — and are then sold on. In Finland, for example, it has happened that the importer of a used car has made a VAT return after selling the car on, stating as the amount of VAT due the difference between the taxable purchase price and the sale price, in accordance with the rules on marginal taxation (Finnish VAT Act, para. 79).
In the course of the tax inspection process, however, the tax authorities have regarded such purchases as ‘zero tax purchases’, which means that the VAT paid in Germany is completely disregarded. As a consequence the tax authorities consider that the seller should also pay VAT on the VAT which the seller in Germany (for example) has already paid on the car when it was purchased. In practice this results in tax being paid on the same car both to the German and to the Finnish authorities.
Has the Commission heard of such cases or has it investigated the matter in the interest of the smooth operation of car purchase and sales transactions?
Does the Commission consider that the payment of VAT to two EU countries on the same item is reasonable and in accordance with the fundamental principles of EU legislation?
If, for example, the view of the Finnish tax authorities were to be upheld, would the German seller be obliged to reimburse to the purchaser the VAT paid on the car to the German authorities? How would this take place in practice, and how could the seller be required to do this long after the event?
Answer given by Mr Kovács on behalf of the Commission
It follows from the harmonised value added tax (VAT) system that in principle there should be no double taxation of VAT within the Community. According to the general principle, VAT on goods is due in the Member State of supply if goods are purchased by private persons and in the Member State of destination if goods are purchased by taxable persons. Different rules apply to the levying of VAT on cars acquired in another Member State depending on whether the vehicle is new or used.
In the case of an intra-Community acquisition of a used vehicle by a private person, no VAT is due. However, according to Article 2(1) of the Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax(1), intra-Community acquisitions of new means of transport shall be subject to VAT.
It follows from Article 2(2)(b) that a car is considered as new where the supply takes place within six months of the date of first entry into service or where the vehicle has travelled less than 6 000 km. VAT on such a vehicle, if purchased by a private or a taxable person, shall in that case, according to Article 40 of the VAT Directive, be paid in the Member State of destination. In the case where double taxation occurs, the VAT that has been paid in the Member State of acquisition shall be reimbursed upon request.
In the case of used cars, the taxable dealer may, under certain conditions, apply the special margin scheme provided for under Article 312 and subsequent Articles of the VAT Directive. This scheme means that the VAT can be calculated on the difference between the sales price and the purchase price. In order for the special margin scheme to apply certain conditions have to be fulfilled, for example the goods must have been acquired from a private person or a taxable person who has applied the special margin scheme, and the purchaser must be a taxable dealer.
As far as the Commission is aware, Finland has implemented the rules concerning the margin scheme in § 79 of Mervärdesskattelag 30.12.1993/1501 and there are no indications that the rules are not applied in accordance with Community law. In fact, the Commission has not received any complaints in this regard.
Moreover, since civil law applies to the contractual relationship between the supplier and the purchaser, issues concerning the relationship fall outside the competence of the Commission.
In recent years the purchase and import of used cars from one EU country to another has become more and more widespread. In Finland, the majority of imports have naturally been of cars purchased in Germany. However, this has not been entirely unproblematic and a number of irregularities have arisen which have caused headaches for the buyers of used cars. The levying of VAT is a particular problem area when used cars are purchased inclusive of tax — in other words when the purchase price includes the VAT of the country of purchase — and are then sold on. In Finland, for example, it has happened that the importer of a used car has made a VAT return after selling the car on, stating as the amount of VAT due the difference between the taxable purchase price and the sale price, in accordance with the rules on marginal taxation (Finnish VAT Act, para. 79).
In the course of the tax inspection process, however, the tax authorities have regarded such purchases as ‘zero tax purchases’, which means that the VAT paid in Germany is completely disregarded. As a consequence the tax authorities consider that the seller should also pay VAT on the VAT which the seller in Germany (for example) has already paid on the car when it was purchased. In practice this results in tax being paid on the same car both to the German and to the Finnish authorities.
Has the Commission heard of such cases or has it investigated the matter in the interest of the smooth operation of car purchase and sales transactions?
Does the Commission consider that the payment of VAT to two EU countries on the same item is reasonable and in accordance with the fundamental principles of EU legislation?
If, for example, the view of the Finnish tax authorities were to be upheld, would the German seller be obliged to reimburse to the purchaser the VAT paid on the car to the German authorities? How would this take place in practice, and how could the seller be required to do this long after the event?
Answer given by Mr Kovács on behalf of the Commission
It follows from the harmonised value added tax (VAT) system that in principle there should be no double taxation of VAT within the Community. According to the general principle, VAT on goods is due in the Member State of supply if goods are purchased by private persons and in the Member State of destination if goods are purchased by taxable persons. Different rules apply to the levying of VAT on cars acquired in another Member State depending on whether the vehicle is new or used.
In the case of an intra-Community acquisition of a used vehicle by a private person, no VAT is due. However, according to Article 2(1) of the Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax(1), intra-Community acquisitions of new means of transport shall be subject to VAT.
It follows from Article 2(2)(b) that a car is considered as new where the supply takes place within six months of the date of first entry into service or where the vehicle has travelled less than 6 000 km. VAT on such a vehicle, if purchased by a private or a taxable person, shall in that case, according to Article 40 of the VAT Directive, be paid in the Member State of destination. In the case where double taxation occurs, the VAT that has been paid in the Member State of acquisition shall be reimbursed upon request.
In the case of used cars, the taxable dealer may, under certain conditions, apply the special margin scheme provided for under Article 312 and subsequent Articles of the VAT Directive. This scheme means that the VAT can be calculated on the difference between the sales price and the purchase price. In order for the special margin scheme to apply certain conditions have to be fulfilled, for example the goods must have been acquired from a private person or a taxable person who has applied the special margin scheme, and the purchaser must be a taxable dealer.
As far as the Commission is aware, Finland has implemented the rules concerning the margin scheme in § 79 of Mervärdesskattelag 30.12.1993/1501 and there are no indications that the rules are not applied in accordance with Community law. In fact, the Commission has not received any complaints in this regard.
Moreover, since civil law applies to the contractual relationship between the supplier and the purchaser, issues concerning the relationship fall outside the competence of the Commission.