The European Commission has formally requested Ireland and Spain to change the way in which they tax leased or rented vehicles from another Member State, as well as company cars in the case of Spain.

According to EU rules, a Member State can only levy a registration tax on a leased or rented vehicle from another Member State in proportion to the use in its own territory. This means that a Member State may only levy a full registration tax on a leased or rented vehicle from another Member State if it is used or intended to be used on a permanent basis.

Under Irish law, an Irish resident who rents or leases a vehicle in another Member State is obliged to pay the full amount of the registration tax. An exemption or refund is therefore not available if a car is used in Ireland for a short period. Leasing or rental companies in other Member States may face additional taxation when offering their services to Irish residents according to the Commission.

Spain also levies the full amount of registration tax on a leased or rented vehicle by a Spanish resident in another Member State (unless the leasing period is shorter than three months in any twelve months).

In the Commission's view, Ireland and Spain's provisions are contrary to EU rules on free movement of workers and on freedom of establishment, fundamental principles of the EU's Single Market.

In the absence of compliance with EU law within two months, the Commission may refer Ireland and/or Spain to the EU's Court of Justice.

For further details see http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1281&format=HTML&aged=0&language=en&guiLanguage=en