Opinion of Advocate General SZPUNAR on 13 September 2018 in case C-264/17 (Harry Mensing) regarding VAT margin scheme on works of art and right to deduct input VAT by taxable dealer.
Summary (Unofficial translation):
- Harry Mensing trades in art objects in various cities in Germany. He acquired art objects from makers from other member states. These deliveries were exempt from VAT in the Member State of origin, but Mensing did pay tax on the intra-Community acquisitions in Germany. He did not make use of the right to deduct the input VAT.
- Mensing requested to apply the VAT profit margin scheme, which exists for works of art acquired from its creators. However, the Germany tax authorities denied him the right to apply this scheme.
- By using this scheme, Mensing would have been able to only charge VAT on its profit margin, instead of on the full sales price.
- The Geman Tax Court at first instance decided to ask questions to the ECJ regarding the application of the profit margin scheme for art traders:
- Can the profit margin scheme be applied on the intra-Community acquisition of works of art that have acquired from persons, other than mentioned in article 314 of the VAT Directive?
- If yes, can the input VAT deduction be denied on the basis of article 322 of the VAT Directive, even if this article has not been implemented in the national VAT Law?
Considerations:
Where a transaction subject to value added tax (‘VAT’) relates to goods of which the price already includes input tax charged at previous marketing stages, without possibility of deduction (which often occurs with goods such as works of art), and which goods are marketed on the secondary market, the normal tax mechanism does not guarantee that a basic principle of VAT, namely the principle of tax neutrality for taxable persons, is respected. For that reason, the EU legislation has introduced a special tax regime whereby only the profit margin of the taxable person, namely the added value generated at the relevant marketing stage, is included in the tax.
Although the relevant provisions of European Union law appear to be entirely clear in isolation, their joint application does not always lead to the attainment of the objective pursued. However, it is questionable whether this is sufficient reason for not applying these provisions in certain situations at all. The Court will have to answer this question in the present case.
Conclusion:
The AG is of the opinion that:
- Taxable dealers are eligible for the application of the margin scheme at works of art acquired by the maker or his successors from other Member States and not belonging to the categories of persons referred to in Article 314 of the VAT Directive, including where those persons have benefited from the exemption for intra-Community supplies.
- Article 322 of the VAT Directive excludes the right of a taxable dealer to deduct the VAT paid by him on the intra-Community acquisition of works of art on the supply of which he applies the profit margin scheme applies, even where the national law of the Member State does not exclude such a right to deduct tax.
Source: Curia (Dutch)
