On 19 December 2018 the European Court of Justice gave its judgment in case C-51/18 (Commission vs Austria), dealing with the question of imposing VAT on the royalty payable to an author of an original work of art on the basis of the resale right.
Decision
1. Declares that, by providing that the royalty payable to an author of an original work of art on the basis of the resale right is subject to value added tax, the Republic of Austria has failed to fulfil its obligations under Article 2(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;
2. Orders the Republic of Austria to pay the costs.
Facts( simplified):
On 17 October 2014, the Commission sent a letter of formal notice to the Republic of Austria expressing its reservations in respect of the administrative practice of imposing VAT on the royalty payable to an author of an original work of art on the basis of the resale right.
In that letter, the Commission expressed the view that that royalty did not constitute consideration for the artistic service provided by the author of such a work of art. It also stated that the resale right was granted directly by law in order to bestow on the author a share in the economic success of his work. In the absence of a supply of goods or services provided by the author in the exercise of the resale right, VAT is not imposed on any transaction.
The Republic of Austria replied that the aim of the resale right was to ensure that the author shares in the economic success of his work. The fact that the author does not take part in the agreement between the seller and buyer during the resale of the work concerned does not preclude taxation of the royalty received by the author on the basis of the resale right. On the contrary, the principle of neutrality of the VAT system requires that VAT also be imposed on that royalty.
The Republic of Austria also indicated that the resale right enables the value added to the work in the event that it is resold to be taken into account, so that, as a subsidiary result, there is an increase in the taxable amount of the service provided by the author upon the first sale. Therefore, given that that first and only service is subject to VAT, the royalty payable on the basis of the resale right should also be subject to VAT.
Not being satisfied with the entirety of the Republic of Austria’s reply, on 25 July 2016, the Commission sent a reasoned opinion in which it reaffirmed that the royalty payable to an author on the basis of the resale right did not constitute consideration for the supply of goods or services provided by the author when first placed on the market, that the resale right is intended only to enable the author to profit from the economic advantages linked to the recognition of his artistic service and that the author could not oppose the resale of his work.
Judgment:
The European Court of Justice rules that:
By providing that the royalty payable to an author of an original work of art on the basis of the resale right is subject to value added tax, the Republic of Austria has failed to fulfil its obligations under Article 2(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
Source: Curia
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