The European Commission had asked the CJEU to look into Irish legislation that requires importers to pay the full tax when registering a vehicle, regardless of the intended or actual duration of time they will spend in the country. The rule also applies to cars that are hired or leased from abroad for pre-determined, limited periods of time.
While it is possible to apply for a refund of any excess tax paid, a refund can only be granted after an inspection and exportation of the vehicle. A €100 fee is charged for the refund procedure, reduced from €500 after the European Commission's opinion was published, and interest is now paid on the repaid tax.
The regulations impose a disproportionate cash-flow and financial burden on Irish residents who import hired or leased cars for pre-determined, limited periods of time, the European Commission said in referring the matter to the CJEU.
The CJEU said that the tax is likely to make renting or leasing vehicles from another member state more onerous than from within Ireland, creating a restriction on the freedom to provide services under EU law.
The obligation to pay the full amount of tax in advance is not proportionate to the objective pursued by the tax, which is to compensate for the external effects and environmental effects of vehicle use, the CJEU said
According to previous case law, economic objectives cannot constitute an overriding reason in the public interest justifying a restriction of the freedom to provide services, the court said.
Although environmental protection may constitute such an overriding reason, the Irish system of registration tax does not pursue that objective proportionately, it said. Since the duration of the use of the vehicles is limited and known in advance, a registration tax proportionate to the duration of use could be levied on registration.