Payment of diesel tax rebates unlawfully suspended

Deputy-Ombudsman criticises Ministry of Finance and Finnish Vehicle Administration

11.1.2007

Deputy-Ombudsman Petri Jääskeläinen has criticised the Ministry of Finance and the Finnish Vehicle Administration for having followed an unlawful procedure. In March 2002 the Ministry of Finance acted contrary to the law in force when it asked the Vehicle Administration to suspend repayment of diesel tax (an actual vehicle tax) rebates to Finnish transport sector businesses operating in Europe. The Ministry later asked that these repayments be discontinued altogether. However, it did not have the power, on the basis of either national or Community law, to take this action. Nor did either national or Community law give the Vehicle Administration the power to cease processing tax rebate applications merely because the Ministry had requested it.

Under the provisions of motor vehicle tax legislation that entered into force at the beginning of 1996, a rebate amounting to 80 per cent of the charges paid for the use by a heavy goods vehicle of motorways in Member States of the European Communities during the previous fiscal year was, upon request, repaid out of the vehicle tax paid with respect to the HGV. Under the decree associated with the provision, charges for the use of roads in the Netherlands, Belgium, Luxembourg, Sweden, Denmark and Germany qualified for the rebate. For example in 2001, rebates totalling 8,554,276 markkas or ?1,438,725 were paid with respect to 3,110 HGVs in all.

In the background to the provision was an EC Council Directive aimed at eliminating barriers to competition between transport companies in the Member States by harmonising road haulage taxes. Because the level of vehicle tax in some countries had become lower than in Finland due partly to the changeover to the road charge, the preservation of the competitiveness of Finnish vehicles in transport required arrangements to even out the competitive inequalities caused by taxation. This led in Finland to the tax rebate system.

In 2002, officials from the European Commission turned their attention to the Finnish tax rebate practice. They suspected that the system was in conflict with the Community's state subsidies system. On the basis of the Commission officials' unofficial views, the Ministry of Finance and the Vehicle Administration suspended payment of the rebates and thereby ignored current national law.

In the view of the Deputy-Ombudsman, the question of whether the diesel tax rebate could be regarded as a state subsidy contrary to Community law remained subject to interpretation. He is of the opinion that Finnish companies that were using their HGVs to perform their transport task in the European countries mentioned had good cause for confidence in the permanence of the rebate system, based as it was on legislation enacted by the Eduskunta in 1996, and no reason to suspect that the authorities could retroactively intervene in a statutory system safeguarding their interest. For reasons relating to the background to the enactment of the legislation, protecting the confidence of transport entrepreneurs and the protection of property that the Constitution guarantees, suspension and termination of these legal tax rebates would, in the opinion of the Deputy Ombudsman, have required either a decision of the Eduskunta to amend the legislation or a legally binding decision by a competent EU institution, in the final instance the Court of Justice.

It was not until a Government bill concerning vehicle tax was introduced in the Eduskunta on 24.10.2003 that the Commission officials' unofficial suspicions that the rebate constituted a state subsidy were confirmed and on this basis the Government proposed repealing, retroactively to 1.1.2002, the provision in the act that had made the diesel tax rebate possible. The Eduskunta passed the legislation and it entered into force on 1.1.2004. Under its provisions, the Vehicle Administration rejected the 2002 and 2003 applications, processing of which it had earlier suspended, and the transport entrepreneurs did not receive their rebates. In the view of the Deputy-Ombudsman, retroactive repeal of the provision had not been of decisive significance from the perspective of appraising the procedure that the Ministry of Finance and the Vehicle Administration had followed.

Additional information will be provided by Senior Secretary Ulla-Maija Lindström, tel. +358 (0)9 432 3355.