EU countries fear ‘race to the bottom’ on taxes for trucks

Aug 18, 2023

By Jonathan Packroff | EURACTIV.com

09-11-2022

To comply with EU law, member states must charge a minimum tax rate for heavy goods vehicles, which is dependent on the vehicle's weight and the number of driving axles. [ingehogenbijl/Shutterstock]

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EU finance ministers on Tuesday (8 November) discussed plans to phase out minimum yearly taxes for trucks, but failed to find an agreement.

Last February saw the adoption of a revision of the ‘Eurovignette’ directive, aimed at incentivising more climate-friendly freight transport by making duties for travelling on Europe's main arteries dependent on the number of kilometres driven and by the CO2 emissions ratings of the trucks.

However, the old system in which vehicles are charged on an annual basis, independent of how many kilometres are driven, is still in place.

To comply with EU law, member states must charge a minimum tax rate for heavy goods vehicles, which is dependent on the vehicle's weight and the number of driving axles.

Finance ministers discussed a proposal on Tuesday to allow countries to reduce the annual vehicle taxation to zero within five years, paving the way for distance-only charging, but could not reach an agreement.

As with all tax-related matters, the proposal would need to be adopted unanimously between EU countries.

Multiple countries spoke out against the proposal, as they fear a ‘race to the bottom’ on vehicle taxation, which would reduce their tax revenues and could undermine the objective of moving freight transport to trains.

"This is an awkward time to go for lower taxes because we desperately are trying to keep our budgets in order in the face of the pandemic and the energy crisis," said Harald Waiglain, head of economic policy at the Austrian finance ministry.

His concerns were echoed by multiple other EU member states, among them Germany, Greece, and Portugal.

Controversial revisions to EU rules on road tolls were adopted by the European Parliament on Thursday (17 February), clearing the final hurdle of a multi-year legislative odyssey, which started in 2017.

The proposal was initially put forward by the European Commission under former president Jean-Claude Juncker and is the last outstanding issue of the so-called ‘mobility package’ of 2017.

Czech finance minister Zbyněk Stanjura, the current president of the EU's economic and financial affairs council, said the file is a priority for the Czech presidency when it comes to taxation.

The main objective would be to provide "more flexibility in setting the taxation rates on heavy good vehicles," Stanjura said, underlining that countries who want to keep annual vehicle taxation can do so.

By giving countries the option to scrap annual taxes completely, the proposal could help to reduce the administrative burden of tax authorities and also lower the taxes for the transport sector, which is largely comprised of small and medium enterprises (SMEs), he added.

"The preference for switching from the annual vehicle tax to road charges and tolls makes sense also in the light of the ‘polluter pays’ and the ‘user pays’ principles," Stanjura said.

While agreeing to those principles, Portuguese finance minister Fernando Medina questioned the current proposal, which would see minimum annual taxes reduced. In his view, the adoption of the changes to the ‘Eurovignette’ directive earlier this year has already accomplished the implementation of those principles at the EU level.

"More than 90% of the costs with tolls, tax and vignettes are already calculated considering the distance that is travelled," Medina said, "so we don't see the current proposal as a contribution to the ‘user pays’ principle application".

Instead, the proposal would lead to disparities between member states and would see tax revenues decrease. "We failed to see the compatibility with the ‘Fit for 55’ [climate] goals in that respect, notably if we want to motivate the transfer of the transport mode to train," he added.

The European Commission defended its proposal, saying that its adoption is "very important" to complete the 2017 package.

Compared to annual vehicle taxes, which are independent of the actual use of vehicles, a move to tolls would better reflect the ‘user pays’ and ‘polluter pays’ principles enshrined in the treaties, Economy Commissioner Paolo Gentiloni said during the meeting, adding that "by having the possibility to reduce this vehicle tax, member states can compensate for an introduction or increase of tolls."

Addressing member states’ concerns, he stressed that "the risks of the distortion of competition and ‘race to the bottom’ on vehicle tax rates are really minimal".

Stanjura announced that the Czech presidency will try to work out a new compromise at the technical level "in the coming weeks", with the aim to accommodate the concerns. "I remain convinced that it is possible to find a balanced compromise acceptable for all member states," he said.

A European association representing automotive industry suppliers has criticised the EU for violating the principle of technology neutrality in road transport, saying that policymakers might soon table a ban on the sale of combustion engine trucks.

[Edited by Sean Goulding Carroll/Nathalie Weatherald]

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