Opinion of the Advocate General — ECLI:EU:C:2005:110
Date: 2005-02-24
Language of the case: English
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Taxation;Value added tax
Procedure: Action for failure to fulfil obligations - successful
Origin: United Kingdom

Summary of the disputed provisions 61. The parties are in dispute essentially over whether the auctioneer’s margin, where works of art are auctioned while they are still under the temporary importation arrangements, is to be taxed at the standard rate as a supply within the country. The Commission concentrates here on the infringement of Article 16(1) of the Sixth Directive. 62. It also claims infringement of Articles 2(1), 5(4)(c) and 12(3) of the Sixth Directive. Before I examine more closely whether the contested tax practice is in breach of Article 16(1), I should discuss what importance the other provisions adduced have for the present dispute. – Article 2(1) of the Sixth Directive 63. Under Article 2(1) of the Sixth Directive, supplies of goods within the territory of the country effected by a taxable person acting as such are subject to value added tax. Article 3(2) of the Sixth Directive explains in more detail what is to be understood by the ‘territory of the country’, namely in particular the territory of the Member States which is the area of application of the EC Treaty. In accordance with the wording of those provisions, there could be a supply within the country, since the works of art are physically within the territory of the Community at the time of auction. 64. The auctioneer’s supply would then not be exempt from tax under Article 14(1)(i) of the Sixth Directive. That exemption relates to supplies of services in connection with the importation of goods where the value of the services is included in the taxable amount in accordance with Article 11(B)(3)(b) of the Sixth Directive. A possible example would be the performance of import formalities. The organisation of the auction is not, however, immediately connected with the importation but with the supply of goods. 65. There is doubt as to whether there is a supply of goods within the country, however, because the goods are indeed in the territory of the Community but de jure have not yet been (definitively) imported while they are being auctioned. This discrepancy between the actual and the legal (in customs law) position is possible because of the special arrangements for temporary importation. 66. The consequences for the charging of value added tax of the application of those special customs arrangements are regulated exhaustively in the special provision in Article 16. That provision suggests, on the one hand, that in the absence of a definitive importation one cannot speak of a supply of goods within the country. However, it also requires, on the other, that transactions during the temporary importation arrangements are to be equated with transactions within the country. Whether there is a breach of Article 2(1) of the Sixth Directive thus depends ultimately on the conditions laid down by Article 16 for such an equation. – Article 5(4)(c) of the Sixth Directive 67. Nor may an infringement of Article 5(4)(c) of the Sixth Directive be ascertained in isolation from Article 16. Article 5(4)(c) says that the transfer of goods from a principal to an agent and the onward transfer from the latter to the buyer are each to be classified as a supply of goods within the meaning of the directive. 68. A condition for the existence of a taxable transaction under Article 5 is, however, that the scope of the Sixth Directive under Article 2(1) is involved in the first place because the supply is effected within the country. That depends – as already stated – on what consequences of value added tax law follow under Article 16 from the application of the temporary importation procedure. – Article 12(3) of the Sixth Directive 69. Article 12(3) of the Sixth Directive fixes the minimum standard rate of value added tax to be applied, and contains detailed provisions on the amount and conditions of application of reduced rates of tax. The Commission adduces this provision because the United Kingdom allegedly does not apply the standard rate to the auctioneer’s commission in the circumstances of the present case. 70. On this point, it may be stated at once that the complaint is not justified. It is indeed correct that only an effective rate of 5% is applied to the import value including the auctioneer’s commission. That result is, however, achieved by the deemed reduction of the taxable amount under Article 11(B)(6) of the Sixth Directive. Value added tax is then charged on the adjusted amount at the standard rate, not at a reduced rate. 71. It may perhaps be doubtful whether, in respect of the supply by the auctioneer, the United Kingdom ought not to make the full value of the consideration the taxable amount in accordance with Article 11(A)(1)(a) of the Sixth Directive, without extending to it the correction mechanism under Article 11(B)(6) for the import of works of art. But since the Commission has not argued that there is any breach of Article 11 of the Sixth Directive, there is no need to look into a possible infringement of that provision. 3. Infringement of Article 16(1) of the Sixth Directive 72. Article 16(1) of the Sixth Directive provides that Member States may exempt transactions concerning temporarily imported goods from value added tax. It must be ensured that when they subsequently cease to be under the special arrangements and are definitively imported the same amount of value added tax is charged as would have been payable in the case of transactions within the country. 73. In the Commission’s opinion, that condition is not satisfied in the case of taxation in the United Kingdom. It supports that argument with a comparative view, as required by Article 16(1). The auction of works of art which have been imported temporarily and are not imported definitively until after the auction is compared by the Commission with the following case: the works of art are definitively imported straight away and hence auctioned within the country when already in free circulation there. 74. In the comparable case, it submits, value added tax is payable first on importation at the effective rate of 5%. Value added tax is then due on the supply by the auctioneer, his margin forming the basis of assessment in accordance with Article 26a of the Sixth Directive. The margin would be taxable at the standard rate of 17.5% value added tax. The taxation practice in the United Kingdom with respect to works of art which are first imported provisionally and subsequently auctioned and then imported definitively does not lead to the same amount of tax as in the comparable case, since the auctioneer’s margin is subject only to an effective rate of tax of 5%. 75. To arrive at the same level of tax in both cases, in the Commission’s view, the following procedure should be adopted: the basis of assessment (the auction price) is divided into two parts: the auctioneer’s margin which is to be taxed at the standard rate, and the price less the margin which corresponds to the import value. The reduced rate of 5% is to be applied only to that deemed import value. 76. Against that opinion of the Commission, the United Kingdom Government raises a number of objections, to be examined below. – Optional nature of the special system 77. To begin with, the United Kingdom Government points to the optional nature of the first part of Article 16(1), which gives Member States the possibility of taking special measures to exempt the transactions concerned. Under the original version of Article 16 (15) the United Kingdom practice had been regarded as such an acceptable special measure. It says that the minor amendments to the wording made to Article 16 by Directive 95/7 (16) made no difference in that respect. 78. It is true that Article 16 is not mandatory, in that it leaves it open to the Member States to take special measures with respect to goods subject to the temporary importation arrangements. The use of the term ‘special measures’ makes it clear, moreover, that Article 16 authorises the Member States to diverge from the general rules of the Sixth Directive. 79. However, if a Member State makes use of that option, it must comply with the mandatory conditions laid down by Article 16 for the form of the special measures, as the Commission rightly contended. In particular, there is a duty to tax the goods, after the cessation of the special arrangements, to the same extent as corresponding transactions within the country. 80. It cannot be seen why the United Kingdom practice should be more likely to be permissible under the earlier wording of Article 16(1) of the Sixth Directive than under the present wording. That may be left open, however, since what matters in the present case is the current legal position. – Determination of the basis of assessment and avoidance of double taxation 81. Next, the United Kingdom Government emphasises that the final indent of Article 16(1) of the Sixth Directive obliges the Member States to take measures to avoid double taxation when goods leave the temporary importation arrangements and are imported definitively. It says that, since the auctioneer’s margin is a component of the import value under Article 11(B)(1) of the Sixth Directive in conjunction with Article 29 of the Customs Code, value added tax on importation must be charged on it. To tax the margin a second time, as a supply of goods within the country, is incompatible with the prohibition of double taxation. 82. The United Kingdom Government is correct in stating that the prohibition of double taxation in the final indent of Article 16(1) is binding on the Member States when they design special measures. It is also correct that at least the seller’s commission is part of the customs value under Article 29 of the Customs Code. The customs debt is determined, under Article 582(1) of the customs implementing regulation, by the basis of assessment at the time of the declaration for free circulation. At that time the transaction value to be adduced for the application of Article 29 of the Customs Code is known. It includes the seller’s commission. 83. Not clear, on the other hand, is the classification of the buyer’s premium. This could be a buying commission within the meaning of Article 32(1)(a)(i) and (4) and Article 33(1)(e) of the Customs Code, which is not part of the customs value. That would be the case if the premium were to be regarded as remuneration for services of the auctioneer for the benefit of the buyer. That view is supported in particular by the fact that in English legal writing the auctioneer is regarded as also being an agent of the buyer. (17) The United Kingdom Government does not accept, however, that the premium is a buying commission for the purposes of customs law. 84. The question as to the classification of the premium may be left unanswered, however, if in divergence from Article 11(B)(1) of the Sixth Directive the customs value is not to be adduced unrestrictedly in the present case for determining the import value for the purposes of value added tax law. The reference in Article 11(B)(1) of the Sixth Directive to the customs value as the basis of assessment of the import value cannot be interpreted in isolation from Article 16(1) of that directive. In so far as a different basis of assessment for the value added tax on importation results from that more specific provision for the temporary importation procedure, that provision takes priority. 85. Under Article 16, two objectives must be achieved: firstly, the application of the temporary importation arrangements is to be neutral from the point of view of tax law if the work of art is later imported. That is to be ensured by means of the (subsequent) equation with transactions within the country. Secondly, double taxation is to be avoided. One could sum that up shortly by saying that the application of the temporary importation procedure must not lead either to better or to worse treatment in comparison with immediate importation without the temporary arrangements being interposed. 86. The method used in the United Kingdom achieves only the second objective. It misses the first one. While the auctioneer’s margin would be taxable at the standard rate in the case of goods in free circulation, the value added tax under the United Kingdom model is only 5% when works of art under the temporary import arrangements are auctioned. The special system applied by the United Kingdom thus leads overall to more favourable treatment. In other words, one can save tax if one first imports a work of art temporarily and auctions it instead of definitively importing it straight away and then auctioning it. But that is precisely the effect which is supposed to be excluded under Article 16(1) of the Sixth Directive. 87. The position adopted by the Commission ensures that both objectives are achieved. By splitting the basis of assessment into two parts and applying different rates of tax to those two parts, equivalence with supplies within the country after importation is largely guaranteed and double taxation excluded. 88. The method recommended by the Commission is not, however, in harmony with the rules for determining the import value under Article 11(B)(1) of the Sixth Directive. Thus it requires in particular that the single transaction value in customs law is divided into two components for charging value added tax. But there is no other way to be seen of satisfying all the requirements of Article 16(1) of the Sixth Directive otherwise. In the end this atypical method of calculating value added tax is the only possible answer to the atypical situation which derives from the suspension of the duty to pay value added tax during temporary importation. 89. Moreover, this method limits the scope of the special rules for works of art, and thereby takes account of the exceptional character of those rules described above. In particular, the effective reduced rate of tax on importation is not applied to added value given to the work of art by the auctioneer’s supply, admittedly before definitive import but nevertheless already within the territory of the Community. Instead, its application is limited to the value which the goods (were deemed to have) had when crossing the frontier. – Effects on competition 90. The United Kingdom Government furthermore contests the Commission’s complaint that the practice in the United Kingdom creates competitive advantages for local auction houses. It says that it is open to the other Member States to apply equivalent rules. If the taxation of transactions concerning works of art temporarily imported and auctioned is compared with the corresponding auction transactions within the country, the latter are even in a better position. Value added tax is chargeable only on the margin, while the value of the goods as a rule does not have to be taxed. With imported works of art, on the other hand, the value itself must also be taxed, albeit at a lower (effective) rate. 91. Special provisions under Article 16 of the Sixth Directive can indeed be introduced by any Member State. But the same conditions apply in such a case to all Member States, in particular the principle of the fiscal neutrality of the exemption in favour of works of art imported temporarily. If a Member State gives preference to auction transactions concerning such works of art in breach of Article 16, that comprises an unlawful competitive advantage for auction houses established in that Member State. Other Member States cannot grant that advantage without likewise infringing Community law. 92. The fact that, under Article 26a(C), in the United Kingdom only the margin is subject to value added tax in the case of auctions of works of art within the country does not justify the United Kingdom taxation practice in relation to the auction of temporarily imported works of art. The aim of Article 16(1) is not to guarantee the same tax burden for works of art imported from non-member countries and works of art situated within the country. The United Kingdom Government is comparing two situations which are not comparable. 93. The purpose of Article 16 is rather that when the temporary importation procedure is applied no different tax burden occurs than when the goods are imported directly, without the temporary system being interposed. That aim is largely achieved by the Commission with its method. 94. Slight differences in taxation in those two cases may appear, however. If an auction house definitively imports a work of art before it is auctioned, not afterwards, then it is not possible, for ascertaining the tax basis for value added tax on importation, to fall back on the transaction value (less the auctioneer’s margin). That value is not known until after the auction. Instead, the import value must be ascertained by using the deductive method provided for in Article 31 of the Customs Code. There is no guarantee that in each of those cases precisely the same basis of assessment will be taken. However, these possible differences in taxation cannot be avoided. – Lack of predictability of the value added tax payable 95. At the hearing the representative of the United Kingdom, finally, also pointed out that, using the Commission’s method of calculation, the buyer is not able to predict the tax burden when he makes his bid. 96. The amount of the seller’s commission is indeed often treated confidentially. With some auction houses it seems to depend in particular on how large the principal’s total transactions are. The buyer does not therefore know exactly how large a proportion of the auction price the commission is and what amount is thus subject to the higher standard rate of tax. 97. The same problem exists quite generally, however, with the application of margin taxation. Even if no value added tax on importation is due, without knowing the amount of the seller’s commission the buyer is not to know how much value added tax will be payable. That objection cannot thus call into question the taxation of the margin at the standard rate, as required by the Commission. 98. The Commission has thus shown that the taxation practice in the United Kingdom in relation to the auctioning in the auctioneer’s own name of works of art imported temporarily infringes Article 16(1) of the Sixth Directive. Since that provision requires the auctioneer’s margin to be treated as a supply of services within the country, there is also an infringement of Articles 2(1) and 5(4)(c) of the Sixth Directive. 99. Article 12(3) of the Sixth Directive is not infringed, on the other hand, since in the United Kingdom a reduced rate of tax is – at least formally – not applied to the transactions at issue, and the reduction is instead achieved by an adjustment of the taxable amount under Article 11(B)(6) of the Sixth Directive. The rejection of that part of the claim is of purely subordinate importance, however, as the application of the incorrect rate of tax, or the incorrect determination of the taxable amount, is ultimately a consequence of the incorrect application of Article 16(1) of the Sixth Directive. VI – Costs 100. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has applied for costs and the United Kingdom has to a very great extent been unsuccessful, it must be ordered to pay the costs. VII – Conclusion In conclusion, I propose that the Court should rule as follows: 1. The United Kingdom, by applying a reduced rate of value added tax to the commission paid to auctioneers on the sale by auction in the auctioneer’s own name of works of art, antiques and collectors’ items which have been imported under temporary importation arrangements, has failed to fulfil its obligations under Articles 2(1), 5(4)(c) and 16(1) 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. 2. The remainder of the action is dismissed. 3. The United Kingdom is to pay the costs. 1 – Original language: German. 2 – According to a Commission report of 1999, nearly 50% of intra-Community transactions are carried out there. If one considers only transactions at auctions of works of art, the United Kingdom share is as much as 60% approximately (see Report from the Commission to the Council on the examination of the impact of the relevant provisions of Council Directive 94/5/EC on the competitiveness of the Community art market compared to third countries’ art markets, 28 April 1999, COM (1999) 185 fin., p. 6 et seq.). 3 – OJ 1977 L 145, p. 1. 4 – Article 28c was inserted by Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax – scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18). 5 – Inserted by Council Directive 94/5/EC of 14 February 1994 supplementing the common system of value added tax and amending Directive 77/388/EEC – Special arrangements applicable to second-hand goods, works of art, collectors’ items and antiques (OJ 1994 L 60, p. 16). 6 – Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code (OJ 1992 L 302, p. 1). 7 – Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ 1993 L 253, p. 1), in the version of Commission Regulation (EC) No 993/2001 of 4 May 2001 (OJ 2001 L 141, p. 1). 8 – See also the explanations in HM Customs and Excise, Notice 718, Margin schemes for second-hand goods, works of art, antiques and collectors’ items (May 2003) (www.hmce.gov.uk). 9 – See Chitty on Contract, Volume II (ed. Beale and others), 99th edition, London 2004, 31-014; Beatson, Anson’s Law of Contract, 28th edition, Oxford 2002, p. 672. 10 – This term is somewhat misleading in the present context. There is normally a sale for export to the Community where goods are sold in a non-member country in order to be exported from there to the Community. The United Kingdom also uses the expression here, because the goods are not yet definitively imported at the time of sale. However, they are also no longer in a non-member country from which they could still be exported. 11 – Case C‑96/95 Commission v Germany [1997] ECR I‑1653, paragraph 23; Case C‑152/98 Commission v Netherlands [2001] ECR I‑3463, paragraph 23; and Case C‑350/02 Commission v Netherlands [2004] ECR I‑0000, paragraph 20. 12 – See the references in note 11. 13 – The Commission’s position on the extent to which the auctioneer’s margin should be included in the customs value is admittedly not entirely clear. See, for instance, point 41 of the application: ‘That is true notwithstanding the general rules of customs valuation laid down in Articles 29 and 144 of the Customs Code and the general rule laid down in Article 11(B)(1) of the Sixth Directive. Article 16(1) of the Sixth Directive imposes the overriding requirement that the tax due on importation must correspond to the amount of tax which would have been due had the sale at auction been taxed within Community territory.’ 14 – See the Commission’s observations in its proposal for Directive 94/5, COM (88) 846 fin, p. 3. This problem had already been addressed by the Court in Case 16/84 Commission v Netherlands [1985] ECR 2355, paragraph 14 et seq. 15 – In its original version Article 16(1) read: ‘Without prejudice to other Community provisions, Member States may, subject to the consultations provided for in Article 29, take special measures designed to relieve from value added tax all or some of the following transactions, provided that they are not aimed at final use and/or consumption and that the amount of value added tax charged at entry for home use corresponds to the amount of the tax which should have been charged had each of these transactions been taxed on import or within the territory of the country’. 16 – Cited in note 4. 17 – On this point, see point 23 above.