Facts
- Mr Mensing, an art dealer in Germany, requested the application of the margin scheme to works of art supplied to him from other EU Member States.
- The Hamm Tax Office refused his request, citing national legislation that disallows the margin scheme for goods acquired by the dealer through an exempt intra-Community supply.
- Mr Mensing contested the tax assessment in court, arguing that the national legislation is incompatible with EU law.
- The court submitted a request for a preliminary ruling to the Court of Justice, which held that a taxable dealer may opt for the margin scheme for an input supply of works of art received through an exempt intra-Community supply by the creator or his successors in title, provided they do not fall within certain categories of persons listed in the VAT Directive.
- The court also ruled that a taxable dealer cannot opt for the margin scheme and claim a right to deduct input VAT in situations where such a right is precluded under the VAT Directive.
- Following this judgment, the Finanzgericht Münster granted Mr Mensing’s request. However, the Hamm Tax Office appealed on a point of law before the Bundesfinanzhof, arguing that turnover tax in respect of intra-Community acquisitions does not reduce the taxable amount.
- The referring court has doubts as to whether national law allows for turnover tax to be taken into account when determining the taxable amount for the margin scheme, and whether it may interpret national law to exclude tax on intra-Community acquisitions from the taxable amount.
Questions
- The German Federal Finance Court has referred two questions to the European Court of Justice regarding the determination of taxable amounts for works of art supplied in the context of an exempt intra-Community supply.
- The first question asks whether the taxable amount should be determined exclusively on the basis of EU law, meaning that national law cannot be interpreted to exclude tax due on intra-Community acquisition.
- The second question asks whether the tax due on intra-Community acquisition reduces the profit margin under the margin scheme for supplies of works of art, or if there is a loophole in EU law that can only be fixed by the EU legislature.
Decision
- The referring court has asked whether VAT paid by a taxable dealer on the intra-Community acquisition of a work of art, which is subsequently supplied under the margin scheme, forms part of the taxable amount of that supply.
- In interpreting EU law, it is necessary to consider the wording, context, and objectives of the rules. The taxable amount for supplies under the margin scheme is defined in accordance with Article 315 of the VAT Directive, which states that it must be the profit margin made by the taxable dealer, calculated in accordance with Article 315(2), less the amount of VAT relating to the profit margin itself.
- The concept of “purchase price” does not include VAT paid to third parties, and VAT relating to the profit margin is the tax paid on the sale made by the taxable dealer, not the intra-Community acquisition.
- Therefore, VAT paid on the intra-Community acquisition does not form part of the purchase price and does not need to be excluded from the taxable amount of the subsequent supply.
