Court of Justice of the European Communities (including Court of First Instance Decisions)

Provisional text

JUDGMENT OF THE COURT (First Chamber)

13 July 2023 (*)

(Reference for a preliminary ruling – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 311 et seq. – Special arrangements for works of art – Margin scheme – Taxable dealers – Supply of works of art by creators or their successors in title – Intra-Community transactions – Right to deduct input tax)

In Case C‑180/22,

REQUEST for a preliminary ruling under Article 267 TFEU from the Bundesfinanzhof (Federal Finance Court, Germany), made by decision of 20 October 2021, received at the Court on 9 March 2022, in the proceedings

Finanzamt Hamm

v

Harry Mensing,

THE COURT (First Chamber),

composed of A. Arabadjiev, President of the Chamber, P.G. Xuereb, T. von Danwitz, A. Kumin and I. Ziemele (Rapporteur), Judges,

Advocate General: M. Szpunar,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

–        Harry Mensing, by O.-G. Lippross, Rechtsanwalt,

–        the German Government, by J. Möller and A. Hoesch, acting as Agents,

–        the European Commission, by R. Pethke and V. Uher, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 23 March 2023,

gives the following

Judgment

1        This request for a preliminary ruling concerns the interpretation of Article 311 et seq. of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’).

2        The request has been made in proceedings between the Finanzamt Hamm (Hamm Tax Office, Germany) and Mr Harry Mensing, an art dealer, concerning the calculation of the taxable amount of value added tax (VAT) where the margin scheme is applied to the supplies of works of art that were previously acquired by the person concerned in the context of intra-Community supplies.

 Legal context

 European Union law

3        Recitals 4, 7 and 51 of the VAT Directive state:

‘4.      The attainment of the objective of establishing an internal market presupposes the application in Member States of legislation on turnover taxes that does not distort conditions of competition or hinder the free movement of goods and services. It is therefore necessary to achieve such harmonisation of legislation on turnover taxes by means of a system of [VAT], such as will eliminate, as far as possible, factors which may distort conditions of competition, whether at national or Community level.

…

7.      The common system of VAT should, even if rates and exemptions are not fully harmonised, result in neutrality in competition, such that within the territory of each Member State similar goods and services bear the same tax burden, whatever the length of the production and distribution chain.

…

51.      It is appropriate to adopt a Community taxation system to be applied to second-hand goods, works of art, antiques and collectors’ items, with a view to preventing double taxation and the distortion of competition as between taxable persons.’

4        Article 193 of that directive provides:

‘VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199 and Article 202.’

5        The VAT Directive contains, under Title XII entitled ‘Special schemes’ a Chapter 4 entitled ‘Special arrangements for second-hand goods, works of art, collectors’ items and antiques’. Section 1 of that chapter contains Article 311 of that directive, which defines in particular the concepts of ‘works of art’ and of ‘taxable dealer’. Under Section 2 of that chapter, which lays down the special arrangements for taxable dealers, Subsection 1, entitled ‘Margin scheme’, includes Articles 312 to 325.

6        Article 312 of the VAT Directive reads as follows:

‘For the purposes of this Subsection, the following definitions shall apply:

(1)      “selling price” means everything which constitutes the consideration obtained or to be obtained by the taxable dealer from the customer or from a third party, including subsidies directly linked to the transaction, taxes, duties, levies and charges and incidental expenses such as commission, packaging, transport and insurance costs charged by the taxable dealer to the customer, but excluding the amounts referred to in Article 79;

(2)      “purchase price” means everything which constitutes the consideration, for the purposes of point (1), obtained or to be obtained from the taxable dealer by his supplier.’

7        Article 314 of that directive provides:

‘The margin scheme shall apply to the supply by a taxable dealer of second-hand goods, works of art, collectors’ items or antiques where those goods have been supplied to him within the [European] Community by one of the following persons:

(a)      a non-taxable person;

(b)      another taxable person, in so far as the supply of goods by that other taxable person is exempt pursuant to Article 136;

(c)      another taxable person, in so far as the supply of goods by that other taxable person is covered by the exemption for small enterprises provided for in Articles 282 to 292 and involves capital goods;

(d)      another taxable dealer, in so far as VAT has been applied to the supply of goods by that other taxable dealer in accordance with this margin scheme.’

8        Article 315 of that directive is worded as follows:

‘The taxable amount in respect of the supply of goods as referred to in Article 314 shall be the profit margin made by the taxable dealer, less the amount of VAT relating to the profit margin.

The profit margin of the taxable dealer shall be equal to the difference between the selling price charged by the taxable dealer for the goods and the purchase price.’

9        Article 316 of the VAT Directive provides:

‘1.      Member States shall grant taxable dealers the right to opt for application of the margin scheme to the following transactions:

(a)      the supply of works of art, collectors’ items or antiques, which the taxable dealer has imported himself;

(b)      the supply of works of art supplied to the taxable dealer by their creators or their successors in title;

(c)      the supply of works of art supplied to the taxable dealer by a taxable person other than a taxable dealer where the reduced rate has been applied to that supply pursuant to Article 103.

2.      Member States shall lay down the detailed rules for exercise of the option provided for in paragraph 1, which shall in any event cover a period of at least two calendar years.’

10      Article 317 of the VAT Directive reads as follows:

‘If a taxable dealer exercises the option under Article 316, the taxable amount shall be determined in accordance with Article 315.

In respect of the supply of works of art, collectors’ items or antiques which the taxable dealer has imported himself, the purchase price to be taken into account in calculating the profit margin shall be equal to the taxable amount on importation, determined in accordance with Articles 85 to 89, plus the VAT due or paid on importation.’

 German law

11      Paragraph 25a of the Umsatzsteuergesetz (Law on turnover tax), in the version published on 21 February 2005 (BGBl. I, p. 386, ‘the UStG’) is worded as follows:

‘(1)      Supplies within the meaning of Paragraph 1(1)(1) of movable tangible property shall be taxed in accordance with the following provisions (margin scheme) if the following conditions are met:

1.      The trader is a dealer. A dealer shall be deemed to be a person who deals with movable tangible property in the course of his or her business or sells such property in his or her own name by public auction.

2.      The objects were delivered to the dealer on the territory of the Community. In respect of that supply,

(a)      turnover tax was not payable or was not levied pursuant to Paragraph 19(1);

or

(b)      the margin scheme was applied.

3.      The objects are not precious stones (from headings 71 02 and 71 03 of the customs tariff) or precious metals (from headings 71 06, 71 08, 71 10 and 71 12 of the customs tariff).

(2)      The dealer may declare to the Tax Office no later than upon submission of the first advance return of a calendar year that he or she will apply the margin scheme from the beginning of that calendar year also to the following goods:

1.      works of art (number 53 in Annex 2), collectors’ items (number 49 point (f) and number 54 in Annex 2) or antiques (heading 9706 00 00 of the customs tariff) which he or she has imported himself or herself, or

2.      works of art, if the supply to him was subject to tax and was not carried out by a dealer.

The declaration shall be binding on the dealer for a period of at least two calendar years.

(3)      The transaction shall be assessed on the basis of the amount by which the sale price exceeds the purchase price of the goods; for supplies within the meaning of Paragraph 3(1b) and in the cases covered by Paragraph 10(5), the sale price shall be replaced by the value in accordance with Paragraph 10(4)(1). If the purchase price of a work of art (number 53 in Annex 2) cannot be determined or is negligible, the amount used to assess the transaction shall be 30% of the sale price. Turnover tax shall not form part of the taxable amount. In the case of point 1 of the first sentence of subparagraph 2, the purchase price shall be the value within the meaning of Paragraph 11(1), plus the import turnover tax. In the case of point 2 of the first sentence of subparagraph 2, the purchase price shall include the supplier’s turnover tax.

…

(7)      The following special provisions shall apply:

1.      The margin scheme shall not apply

(a)      to supplies of goods which the dealer has acquired within the Community, if the exemption in respect of intra-Community supplies has been applied to the supply of the goods to the dealer elsewhere in the territory of the Community,

(b)      to the intra-Community supply of a new vehicle within the meaning of Paragraph 1b(2) and (3).

2.      The intra-Community acquisition is not subject to turnover tax if the margin scheme has been applied to the supply of the goods to the customer, within the meaning of Paragraph 1a(1), elsewhere in the territory of the Community.

3.      The application of Paragraph 3c and the exemption in respect of intra-Community supplies (Paragraph 4(1)(b) and Paragraph 6a) are excluded in the case of the margin scheme.

…’

 The dispute in the main proceedings and the questions referred for a preliminary ruling

12      Mr Mensing is an art dealer established in Germany who operates art galleries in a number of German cities. In 2014, works of art originating from artists established in other Members States were supplied to him. Those supplies were declared in the Member States where the artists are established, as exempt intra-Community supplies. Mr Mensing paid VAT on those supplies in respect of the intra-Community acquisition.

13      Mr Mensing requested the Hamm Tax Office to apply the margin scheme to those supplies. Since Paragraph 25a(7)(1)(a) of the UStG provides that the margin scheme does not apply to the supply of goods acquired by the dealer in the course of an intra-Community acquisition, where the supply of the goods to the dealer benefited from the exemption for intra-Community supplies elsewhere in the territory of the European Union, the Hamm Tax Office refused to grant his request, and, therefore, declared Mr Mensing liable to pay an additional amount by way of VAT.

14      Following the rejection of his complaint contesting the tax assessment relating to that additional amount of VAT, Mr Mensing brought an action before the Finanzgericht Münster (Finance Court, Münster, Germany), claiming that the national legislation at issue is incompatible with EU law and requested the direct application of Article 316(1)(b) of the VAT Directive.

15      Since that court had doubts in that regard, it submitted a request for a preliminary ruling to the Court of Justice.

16      By judgment of 29 November 2018, Mensing (C‑264/17, EU:C:2018:968), delivered in response to that request, the Court held, first, that Article 316(1)(b) of the VAT Directive must be interpreted as meaning that a taxable dealer may opt for the application of the margin scheme to an input supply of works of art which were supplied to him in the context of an exempt intra-Community supply by the creator or his successors in title, when those persons do not fall within the categories of persons listed in Article 314 of that directive, and, second, that a taxable dealer may not opt for the application of the margin scheme to an input supply of works which were supplied to him or her in the context of an exempt intra-Community supply and, at the same time, claim a right to deduct input VAT in the situations in which such a right is precluded under Article 322(b) of that directive, if that latter provision has not been transposed into the national law.

17      Following that judgment, the Finanzgericht Münster (Finance Court, Münster), granted Mr Mensing’s request, by its judgment of 7 November 2019. In essence, that court held that the taxable amount had to be determined pursuant to EU law and that, having regard to the provisions of the first paragraph of Article 317 of the VAT Directive, read in conjunction with Articles 312, 315 and 316 of that directive, turnover tax must, as an element of the ‘purchase price’, reduce the profit margin.

18      The Hamm Tax Office brought an appeal on a point of law against that judgment before the Bundesfinanzhof (Federal Finance Court, Germany), which is the referring court in the present case. In essence, it argues that the turnover tax in respect of intra-Community acquisitions does not reduce the taxable amount. In that regard, the Hamm Tax Office refers to the Opinion of Advocate General Szpunar in Mensing (C‑264/17, EU:C:2018:722), who noted that, in the case of imports from third countries, the second paragraph of Article 317 of the VAT Directive requires the taxable amount of the goods imported, plus the VAT relating to their importation, to be deducted from the selling price, and considered, consequently, that the absence of a similar solution in the case of intra-Community acquisitions constitutes a loophole.

19      The referring court observes that, under national law, it is possible to take account of turnover tax when determining the taxable amount for the purposes of the margin scheme on the basis of an interpretation of the third sentence of Paragraph 25a(3) of the UStG’ which is consistent with EU law. However, that court has doubts as to whether the national court of last instance may, where a taxable person relies on the application of the margin scheme provided for in Article 311 et seq. of the VAT Directive, interpret Paragraph 25a(3) of the UStG as meaning that the tax on the intra-Community acquisition does not form part of the taxable amount.

20      In those circumstances the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)      In circumstances such as those in the main proceedings, in which a taxable person relies, on the basis of the judgment … of 29 November 2018, in Mensing (C‑264/17, EU:C:2018:968), on the fact that the supply of works of art that were supplied to him or her in the context of an exempt intra-Community supply by the creator (or his successors in title) also falls under the margin scheme of Article 311 et seq. of [Directive 2006/112] is the taxable amount to be determined, in accordance with paragraph 49 of that judgment, exclusively on the basis of EU law, with the result that it is not permissible for the national court adjudicating at last instance to interpret a provision of national law (in the present case: the third sentence of Paragraph 25a(3) of the [UStG]) to the effect that the tax due on the intra-Community acquisition does not form part of the taxable amount?

(2)      If the answer to Question 1 is in the affirmative: [are] Article 311 et seq. of [Directive 2006/112] to be understood as meaning that, where the margin scheme is applied to supplies of works of art that were previously acquired from the creator (or his or her successors in title) in the context of an intra-Community acquisition, the tax due on the intra-Community acquisition reduces the profit margin, or is there an unintentional loophole in EU law in that respect that can only be removed by the EU legislature, not by the development of the law through case-law?’

 Consideration of the questions referred

 The second question

21      By its second question, which it is appropriate to examine first, the referring court asks, in essence, whether Articles 312 and 315 and the first paragraph of Article 317 of the VAT Directive must be interpreted as meaning that the VAT paid by a taxable dealer in respect of the intra-Community acquisition of a work of art, the subsequent supply of which is subject to the margin scheme under Article 316(1) of that directive, forms part of the taxable amount of that supply.

22      According to the Court’s settled case-law, in interpreting a provision of EU law, it is necessary to consider not only its wording but also the context in which it occurs and the objectives pursued by the rules of which it is part (judgment of 29 November 2018, Mensing, C‑264/17, EU:C:2018:968, paragraph 24 and the case-law cited).

23      It should be noted at the outset, as regards the wording of the provisions at issue, that it follows from the first paragraph of Article 317 of the VAT Directive that where a taxable dealer opts, in accordance with Article 316 of that directive, for the application of the margin scheme to the supplies of goods referred to in that provision, the taxable amount is to be defined in accordance with Article 315 of that directive.

24      According to the first paragraph of Article 315, the taxable amount in respect of supplies of goods to which the margin scheme applies must be the profit margin made by the taxable dealer, calculated in accordance with the second paragraph of that article, less the amount of VAT relating to the profit margin itself.

25      In that regard, first, it is clear from the second paragraph of Article 315 of the VAT Directive that the taxable dealer’s profit margin is equal to the difference between the ‘selling price’ charged by the taxable dealer for the goods and the ‘purchase price’.

26      In particular, Article 312(1) of the VAT Directive defines the ‘selling price’ as ‘everything which constitutes the consideration obtained or to be obtained by the taxable dealer from the customer or from a third party, including subsidies directly linked to the transaction, taxes, duties, levies and charges and incidental expenses such as commission, packaging, transport and insurance costs charged by the taxable dealer to the customer’. The concept of ‘purchase price’ is defined in Article 312(2) of that directive as ‘everything which constitutes the consideration, for the purposes of point (1), obtained or to be obtained from the taxable dealer by his supplier’.

27      As the Advocate General stated in points 31 to 33 of his Opinion, it is thus apparent from the very wording of Article 312 of the VAT Directive that the concepts of ‘selling price’ and ‘purchase price’, referred to in that provision, refer, respectively, first, to the cost elements which the taxable dealer has received in return for a supply transaction subject to the margin scheme and, second, to those which he or she paid to the supplier by purchasing the goods to be supplied under that scheme.

28      It follows, as regards specifically the concept of ‘purchase price’, that it does not include the cost elements which the taxable dealer has not paid to the supplier, but that he or she has paid to third parties, with the result that that purchase price does not include the VAT paid to the Treasury in respect of the intra-Community acquisition of the goods which are subsequently the subject of the supply transaction at issue.

29      Second, as regards the amount of VAT relating to the profit margin itself, which must, in accordance with the first paragraph of Article 315 of the VAT Directive and as recalled in paragraph 24 of the present judgment, be subtracted from the profit margin made by the taxable dealer, it should be noted – as the German Government observed and as the Advocate General stated in point 37 of his Opinion – that that VAT is the tax which the taxable dealer must pay on the sale which he or she has made on the work of art. By contrast, that VAT cannot include the tax paid by the taxable dealer in respect of the intra-Community acquisition of the work of art, which is related to the purchase price of that work.

30      Having regard to the wording of Articles 312 and 315 and the first paragraph of Article 317 of the VAT Directive, it must therefore be held that the VAT paid by the taxable dealer in respect of the intra-Community acquisition of a work of art which is the subject of a subsequent supply transaction subject to the margin scheme does not form part of the purchase price of those goods, within the meaning of Article 312(2) of that directive, with the result that it is not necessary to exclude the amount of that tax from the taxable amount of that subsequent supply.

31      However, both Mr Mensing and the European Commission consider, in essence, that a strictly literal interpretation of Articles 312 and 315 and the first paragraph of Article 317 of the VAT Directive fails to take account of the objectives pursued by those provisions and the context in which they operate. In particular, the Commission notes that to interpret Article 312 of the VAT Directive as meaning that the purchase price of a work of art acquired by a taxable dealer from a supplier established in another Member State, in the context of an intra-Community acquisition of that work, includes VAT paid in respect of that acquisition, would make it possible to avoid double taxation and distortion of competition, irrespective of the fact that that work had been acquired in the same Member State, in another Member State or in a third country.

32      In that regard, in the first place, it is true, as regards the objectives pursued by the VAT Directive, that it is apparent from recital 4 thereof that the directive aims to establish a VAT system that does not distort conditions of competition or hinder the free movement of goods and services. In addition, according to recital 7 of that directive, the common system of VAT should, even if rates and exemptions are not fully harmonised, result in neutrality in competition, such that within the territory of each Member State similar goods and services bear the same tax burden, whatever the length of the production and distribution chains. Furthermore, as the Court recalled in its judgment of 29 November 2018, Mensing (C‑264/17, EU:C:2018:968, paragraph 32 and the case-law cited), it follows from settled case-law that the principle of fiscal neutrality is inherent to the common system of VAT established by the VAT Directive and that that principle precludes, in particular, economic operators carrying out the same transactions from being treated differently in relation to the collection of VAT.

33      In addition, as regards, more specifically, the objectives pursued by the margin scheme, it is true that the Court has already pointed out that, according to recital 51 of the VAT Directive, that scheme seeks, in the field of second-hand goods, works of art, antiques and collectors’ items, to prevent double taxation and the distortion of competition as between taxable persons (judgment of 29 November 2018, Mensing, C‑264/17, EU:C:2018:968, paragraph 35).

34      However, it must be borne in mind that, in accordance with the settled case-law of the Court, the interpretation of a provision of EU law in the light of its context and aims cannot have the result of depriving the clear and precise wording of that provision of all effectiveness. Thus, where the meaning of a provision of EU law is absolutely plain from its very wording, the Court cannot depart from that interpretation (see, to that effect, judgments of 26 October 2006, European Community, C‑199/05, EU:C:2006:678, paragraph 42, and of 20 September 2022, VD and SR, C‑339/20 and C‑397/20, EU:C:2022:703, paragraph 71 and the case-law cited).

35      In that regard, while the principle of fiscal neutrality is inherent in the common system of VAT established by the VAT Directive, that principle, as it is a specific expression of the principle of equality at the level of secondary EU law and in the particular field of taxation, does not allow the scope of a provision of that directive to be extended in such a way as to run counter to the clear wording of that directive (see, to that effect, judgment of 15 November 2012, Zimmermann, C‑174/11, EU:C:2012:716, paragraph 50 and the case-law cited), which can be amended only following the intervention of the EU legislature, as the Advocate General stated in point 61 of his Opinion.

36      Second, it is common ground, as the Commission observed, in essence, that the literal interpretation of Articles 312 and 315 and of the first paragraph of Article 317 of the VAT Directive, referred to in paragraph 30 above, leads to a differentiated tax burden on supplies in a Member State, depending on whether the work of art was the subject of such an intra-Community acquisition, was acquired by the taxable dealer in the territory of the same Member State or was imported from a third country.

37      It is clear, however, that that situation results directly from the wording of the applicable provisions.

38      Indeed, whereas, as has been noted in paragraph 30 above, the VAT paid by the taxable dealer in respect of the intra-Community acquisition of a work of art which is the subject of a subsequent supply transaction subject to the margin scheme does not form part of the purchase price of those goods, within the meaning of Article 312(2) of the VAT Directive, the VAT paid by that taxable dealer in respect of the acquisition of a work of art in a Member State and which is the subject of a subsequent supply transaction subject to that scheme in the same Member State is, generally, paid by that taxable dealer directly to his or her supplier, who is, in principle, liable to the Treasury, in accordance with Article 193 of that directive, with the result that it falls within the concept of ‘purchase price’ within the meaning of Article 312(2) of that directive.

39      Furthermore, in respect of the supply of works of art which the taxable dealer has imported himself or herself, the second paragraph of Article 317 of that directive expressly provides that the purchase price to be taken into account in calculating the profit margin is to be equal to the taxable amount on importation plus the VAT due or paid on importation.

40      In accordance with the case-law referred to in paragraph 34 above, the Court cannot depart from the clear and precise wording of those provisions.

41      In those circumstances and as EU law currently stands, Articles 312 and 315 and the first paragraph of Article 317 of the VAT Directive must be interpreted as meaning that the VAT paid by a taxable dealer in respect of the intra-Community acquisition of a work of art, the subsequent supply of which is subject to the margin scheme under Article 316(1) of that directive, forms part of the taxable amount of that supply.

 The first question

42      In the light of the answer provided to the second question, there is no need to answer the first question.

 Costs

43      Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (First Chamber) hereby rules:

Articles 312 and 315 and the first paragraph of Article 317 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax,

must be interpreted as meaning that the value added tax paid by a taxable dealer in respect of the intra-Community acquisition of a work of art, the subsequent supply of which is subject to the margin scheme under Article 316(1) of that directive, forms part of the taxable amount of that supply.

[Signatures]

*      Language of the case: German.

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