The Court of Justice of the European Union has ruled that the refusal to apply VAT to a premium on supplies preceded by an intra-Community transaction may infringe the rules on which the VAT system is based.
On 29 November 2018 The Court of Justice of the European Union (TEU) ruled in Case C 264/17. The application in the present case was made in the context of a dispute between the German art merchant and the Hamm Tax Office in Germany. The tax office refused to grant the benefit of the VAT system a margin on the supply of works of art acquired by a trader in other Member States.
The CJEU ruled that the refusal of VAT to apply a VAT margin for supplies preceded by an intra-Community transaction may discriminate against the origin of works of art which are supplied to the taxable person, since the taxable trader cannot opt for the supply of works of art on the basis of an intra-Community transaction, and that the VAT system only applies the margin for works of German origin
German art merchant who runs galleries in many German cities, in 2014 works of art from artists living in other European Union countries have been delivered. These supplies were notified by the sellers in the countries from which the works of art came as VAT-exempt intra-Community supplies.
In that case, the tax should be settled by the buyer. The German taxpayer asked the Hamm Tax Office to apply the VAT margin to these supplies, while the tax office rejected his application and the man was called upon to pay an additional VAT amount of 19,763.31 EUR.
Following the rejection of the taxpayer’s application and the contested tax assessment, the trader brought an action before the Münster Finance Court in Germany. The German taxpayer claimed that national legislation was against European Union law and demanded direct application Article 316(1) lit.
(b) Directive 2006/112 Council of 28 November 2006 on the common system of value added tax.
The referring court had doubts as to compatibility with the tax office as it would have been apparent that, under German law, the VAT system does not apply to the supply of goods which the trader would have purchased in the European Union if the supply of goods to the trader had already been subject to intra-Community exemption.
According to the Court, such exclusion does not arise from Article 316(1) point (b) of the VAT Directive and may lead to distortions of competition.
The German court also took an interest in the situation in which the taxpayer would benefit from the application of the margin scheme provided for in Article 316(1) point (b) of the VAT Directive, and at the same time referred to the right to deduct input tax. In these circumstances, the Münster Finance Court decided to address the Court.
The Court of Justice of the European Union has ruled that the refusal to apply VAT a mark-up for supplies preceded by an intra-Community transaction may discriminate against the origin of works of art which are supplied to the taxable person, since the taxable trader cannot choose to supply works of art on the basis of an intra-Community transaction and apply the VAT system to the works of German origin only.
In the event that the court has doubts as to the right to apply simultaneously the VAT margin for intra-Community supplies and the deduction of input tax, the taxable person may not choose the VAT system for the margin established in Article 316(1) lit.
(b) Directive 2006/112 Council of 28 November 2006 on the common system of value added tax.
In this case, the tax at the purchase price is not reflected in the tax chargeable to the sale, and the taxable person can benefit from the VAT system on the basis of this Article only if he does not exercise for the same supplies the right to deduct input VAT.
Author: Paweł Boś, law student at the Kozminski Academy in Warsaw, employee of Russell Bedford