According to the Court of Justice of the European Union (CJUE): “National legislation does not ensure that imported second-hand vehicles are subject to a tax the amount of which is equal to that of the tax charged on similar second-hand vehicles already present on the Portuguese market”.

In 2016 the Court of Justice declared that Portugal had failed to fulfil its obligations to ensure the free movement of goods between the Member States in normal conditions of competition. The court stated that: “In determining the amount of vehicle tax, the system for calculating the depreciation of the vehicles, which was applied in order to determine the taxable value of second-hand vehicles imported into Portugal from another Member State, did not take account of the depreciation of those vehicles during their first year of use or of depreciation of more than 52 percent in the case of vehicles which have been used for more than five years”.

According to the Portuguese tax code, the rates of tax charged are determined by engine capacity and an environmental clause.

“Portugal claims to have complied with the 2016 judgment by amending the code in order to increase the number of bands which are used to calculate the depreciation of second-hand vehicles imported into its territory. However, unlike the previous version of the code, the reduction rates based on the age of the vehicle now apply to only the vehicle’s engine capacity, with the environmental component being payable in full”.

According to the Commission, the result of the rules and method for calculating the tax is that a second-hand vehicle imported from another Member State is almost always taxed more heavily as compared with a similar second-hand vehicle registered in Portugal, which leads to discrimination between the two categories of vehicle.

Because of this the Court has declared that Portugal has failed to fulfil its obligations.

“Portugal claims that that situation is justified by the objective of environmental protection. It argues that the full payment of the environmental component has the aim of subjecting the admission of second-hand vehicles into Portugal to a selective criterion by applying exclusively environmental criteria, is in compliance with the ‘polluter pays’ principle”, states the court.

“Although the Member States are free to determine the rules for calculating the registration tax in a way that takes into account considerations linked to environmental protection, any form of discrimination, direct or indirect, against imports from other Member States or any form of protection of competing domestic products must be avoided.”

An action for failure to comply, directed against a Member State which has failed to fulfil its obligations under Union law, may be brought by the Commission or by another Member State.

If the Commission considers that Portugal has still not complied with the judgement then it may propose a new action which could potentially result in financial penalties.