Flashback on ECJ cases C-169/00 (Commission v Finland) – Exemption for the services supplied by authors, artists and performers of works of art

On March 7, 2002, the ECJ issued its decision in the case C-169/00 (Commission v Finland).

Context: Failure by a Member State to fulfil its obligations – Sixth VAT Directive, Articles 2 and 28(3)(b) and point 2 of Annex F – Act of Accession of the Republic of Finland – Exemption for the services supplied by authors, artists and performers of works of art – Derogating provisions.

Article in the EU VAT Directive

Article 2, 5(1), 6(1), 12(3)(c), 13(A)(1)(n), 28(3)(b) of the Sixth Directive (Article 2, 14, 24, 132(1)(n)).

Article 2

The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;
2. the importation of goods

According to Article 5(1) of the Sixth Directive,

Supply of goods shall mean the transfer of the right to dispose of tangible property as owner

According to Article 6(1) of the Sixth Directive,

Supply of services shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5

Article 12(3)(c) of the Sixth Directive provides:

Member States may provide that the reduced rate, or one of the reduced rates, which they apply in accordance with the third paragraph of (a) shall also apply to imports of works of art …

Where they avail themselves of this option, Member States may also apply the reduced rate to supplies of works of art …

– effected by their creator or his successors in title,

Article 13A(1) of the Sixth Directive, entitled ”Exemptions for certain activities in the public interest” provides:

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:

(n) certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned.

Article 28(3)(b) of the Sixth Directive provides that, during the transitional period referred to in paragraph 4, the Member States may ”continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned”.

Annex F to the Sixth Directive, which lists the transactions which may be exempt in line with that article, refers, under point 2, to ”Services supplied by authors, artists, performers, lawyers and other members of the liberal professions”.

The first paragraph and first indent of Title IX(2)(n) of Annex XV to the Act concerning the conditions of accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden and on the revision of the Treaties on which the European Union is founded (OJ 1994 C 241, p. 21, and OJ 1995 L 1, p. 1, the Act of Accession) provides:

For the purposes of implementing Article 28(3)(b), and so long as the same exemption is applied by any of the present Member States, the Republic of Finland may exempt from value added tax:

– services supplied by authors, artists and performers referred to in point 2 of Annex F.

Facts & Questions

The Commission claims that the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Directive by maintaining in force legislation under which supplies of works of art by artists or their agents and imports of works of art bought directly from artists are exempted from VAT.
The Commission points out that Article 2 of the Sixth Directive lays down the principle that supplies and imports of goods are to be subject to VAT. It maintains that the Sixth Directive does not provide for the possibility of exempting from VAT the supply or importation of works of art, even where that supply is effected by the artist or his agent. Thus, Annex F to the Sixth Directive, which sets out the transactions which may be exempt, refers in point 2 only to services supplied by authors, artists or performers, so that the sale and importation of works of art are not within the scope of the exception. The Commission adds that Article 12(3)(c) of the Sixth Directive allows a reduced rate of tax to be applied to the supply and importation of works of art.
According to the Commission, the interpretation of the exception laid down in point 2 of Annex F to the Sixth Directive must be based on the wording of that provision. In addition, as it is an exception to the primary rule, the provision must be interpreted strictly.
The Finnish Government contends that, when it acceded to the European Union, the Republic of Finland negotiated an exception allowing it to maintain in force the exemption laid down in its national law for works of visual art which are the property of the artist.
It takes the view that the interpretation of point 2 of Annex F to the Sixth Directive as regards the first sale of a work of art by the artist himself and importation by the owner-artist cannot be based on the wording of that provision alone. Such an interpretation would reduce the scope of application of that provision to the point of rendering it practically non-existent, leaving it to cover almost exclusively the painting of frescos, in respect of which the work created is integrated directly into immovable property of which the purchaser is the owner.
According to the Finnish Government, for the interpretation of point 2 of Annex F to the Sixth Directive, account should be taken of the aim of the provision and of the legal context, that is to say the other provisions of the Sixth Directive relating to cultural activities, as well as to the principle of tax neutrality. Account must also be taken of the special nature of the first sale of an object of art, which is essentially the creative inspiration of the artist.
First, the aim of point 2 of Annex F to the Sixth Directive is to give to Member States the option of continuing to apply their national rules exempting the activity of authors, artists and performers of works of art.
Next, Article 13A(1)(n) of the Sixth Directive, which provides for the exemption of certain cultural services supplied, shows the special status of cultural activities under the Sixth Directive.
Finally, an interpretation in line with the strict wording of point 2 of Annex F to the Sixth Directive would undermine the principle of tax neutrality. It would mean that a distinction would be drawn between art forms, for tax purposes, according to whether or not the transfer of the work was effected through the sale of movable property.
As regards dealings in works of art of which the owner is the artist, the Finnish Government accepts, however, that the proceedings are founded.

AG Opinion

(a) declare that, by maintaining legislation exempting both the sale of works of art by the artist himself or by intermediaries and the importation of works of art purchased directly from the artist, the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment.

(b) order the Republic of Finland to pay the costs in accordance with Article 69(2) of the Rules of Procedure.

Decision

1. Declares that, by maintaining in force legislation exempting from value added tax the sale of a work of art by the artist, either directly or through an agent, and the importation of a work of art by the owner-artist, the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment.

2. Orders the Republic of Finland to pay the costs.

Summary

By maintaining legislation exempting both the sale of a work of art by its creator or by an intermediary and the importation of a work of art by the owner-creator from VAT, the Republic of Finland does not fulfill its obligations.

Source