OPINION OF ADVOCATE GENERAL
SZPUNAR
delivered on 23 March 2023 (1)
Case C‑180/22
Finanzamt Hamm
v
Harry Mensing
(Request for a preliminary ruling from the Bundesfinanzhof (Federal Finance Court, Germany))
(Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 311 et seq. – Specific procedures for works of art – Margin scheme – Taxable dealers – Supply of works of art by creators or their successors in title – Intra-Community transactions – Taxable amount – Tax paid on intra-Community acquisitions)
Background
1.        In the judgment of 29 November 2018, Mensing (C‑264/17, EU:C:2018:968; ‘the judgment in Mensing’), the Court of Justice held, inter alia, that Article 316(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (2) (‘VAT’ or ‘the tax’) should be interpreted as meaning that a taxable dealer may opt to invoke the margin scheme with works of art supplied to the dealer by the creator or his or her successors in title as an exempt intra-Community supply. (3) That judgment calls into question the compatibility of Directive 2006/112 with German legislation, which precludes this possibility.
2.        In my Opinion in the case which resulted in that judgment, in response to one of the arguments put forward by the German Government in defence of the national legislation, I stated that there is indeed a gap in the provisions of the directive, resulting in partial double taxation of works of art supplied to taxable dealers in the context of exempt intra-Community supplies. (4) In that regard, I expressed the view that a judicial interpretation of the provisions relating to VAT would be unable to fill that gap and that this would require the intervention of the EU legislature. (5)
3.        Now, in the context of an appeal against the decision issued by the national court following the judgment in Mensing, the Bundesfinanzhof (Federal Finance Court, Germany) seeks to ascertain that finding by asking whether that legislative gap can be closed through an interpretation either of the provisions of Directive 2006/112 or the relevant national legislation.
Legal context
European Union law
4.        According to Article 73 of Directive 2006/112:
‘In respect of the supply of goods or services …, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.’
5.        Points (a) and (b) of the first paragraph of Article 78 of the directive state:
‘The taxable amount shall include the following factors:
(a)      taxes, duties, levies and charges, excluding the VAT itself;
(b)      incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.
…’
6.        Article 83 of the directive states:
‘In respect of the intra-Community acquisition of goods, the taxable amount shall be established on the basis of the same factors as are used in accordance with Chapter 2 to determine the taxable amount for the supply of the same goods within the territory of the Member State concerned. …’
7.        Chapter 4 of Title XII of Directive 2006/112 lays down the special arrangements for second-hand goods, works of art, collectors’ items and antiques. Subsection 1 of Section 2 of that chapter governs the margin scheme for taxable dealers. Those provisions provide, inter alia:
‘Article 312
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.
Article 313
1.      In respect of the supply of second-hand goods, works of art, collectors’ items or antiques carried out by taxable dealers, Member States shall apply a special scheme for taxing the profit margin made by the taxable dealer, in accordance with the provisions of this Subsection.
…
Article 315
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.
Article 316
1.      Member States shall grant taxable dealers the right to opt for application of the margin scheme to the following transactions:
…
(b)      the supply of works of art supplied to the taxable dealer by their creators or their successors in title;
…
Article 317
If a taxable dealer exercises the option under Article 316, the taxable amount shall be determined in accordance with Article 315.
…
Article 319
The taxable dealer may apply the normal VAT arrangements to any supply covered by the margin scheme.
Article 320
1.      …
Where the taxable dealer applies the normal VAT arrangements to the supply of a work of art supplied to him by its creator, or the creator’s successors in title, or by a taxable person other than a taxable dealer, he shall be entitled to deduct from the VAT for which he is liable the VAT due or paid in respect of the work of art supplied to him.
…
Article 322
In so far as goods are used for the purpose of supplies carried out by him and subject to the margin scheme, the taxable dealer may not deduct the following from the VAT for which he is liable:
…
(b)      the VAT due or paid in respect of works of art which have been, or are to be, supplied to him by their creator or by the creator’s successors in title;
…’
German law
8.        The provisions relating to the margin scheme were transposed into German law by Paragraph 25a of the Umsatzsteuergesetz (Law on turnover tax), in the version published on 21 February 2005 (6) (‘the UStG’). Subparagraph 3 of that paragraph is worded as follows:
‘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 includes the supplier’s turnover tax.’
9.        Paragraph 25a(7)(1)(a) of the UStG precludes the application of the margin scheme to supplies of goods acquired by taxable dealers through an exempt intra-Community supply. According to the judgment in Mensing, that provision, in relation to works of art supplied to taxable dealers by the creator or his or her successors in title, is incompatible with Article 316(1)(b) of Directive 2006/112.
Facts, procedure and the questions referred for a preliminary ruling
10.      Mr. Harry Mensing is a taxable dealer within the meaning of Article 311(1)(5) of Directive 2006/112 and Paragraph 25a(1)(1) of the UStG. He runs a business trading in works of art in various cities in Germany. In the course of the 2014 tax year he acquired, inter alia, works of art from creators in other Member States. Those supplies were exempt from VAT in the Member States of origin, and Mr Mensing paid the tax due in respect of intra-Community acquisitions in relation to them. He did not exercise his right to deduct that tax.
11.      At the beginning of 2014, Mr Mensing declared to the Finanzamt Hamm (Hamm Tax Office, Germany) that he was applying the margin scheme to works of art acquired from their creators. However, the tax authorities refused him the right to apply those arrangements to works of art acquired from artists established in other Member States, citing Paragraph 25a(7)(1)(a) of the UStG, and increasing the amount of VAT due.
12.      After an unsuccessful appeal, Mr Mensing brought an action before the Finanzgericht Münster (Finance Court, Münster, Germany) against the decision of the Hamm Tax Office. It was in response to the questions referred for a preliminary ruling by that court that the Court of Justice delivered the judgment in Mensing.
13.      In that judgment, the Court held that the margin scheme may apply to works of art acquired by taxable dealers from creators or their successors in title as an intra-Community supply and that, in such a situation, those taxable persons are not entitled to deduct the VAT which they have paid in respect of the intra-Community acquisition of those works of art. (7)
14.      Following that judgment, the Finanzgericht Münster (Finance Court, Münster), upheld Mr Mensing’s action in its judgment of 7 November 2019. This court held that, for the purposes of calculating the profit margin, the purchase price of a work of art should be increased by the VAT paid by the taxable dealer in respect of the intra-Community acquisition, thereby reducing the taxable amount for the margin scheme.
15.      The tax authority rejected that interpretation on the ground that neither Directive 2006/112 nor the national legislation provided for increasing the purchase price by the VAT paid on the intra-Community acquisition. It then brought an appeal on a point of law (Revision) against the judgment of the Finanzgericht Münster (Finance Court, Münster), before the referring court in the present case. The latter agreed that the national provisions can be interpreted in a manner consistent with the judgment under appeal, but asked whether such an interpretation is permitted by Directive 2006/112.
16.      As a result, the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and 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 in Mensing], 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 [or her] 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: is 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) within the Community, 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?’
17.      The request for a preliminary ruling was received by the Court on 9 March 2022. Written observations were submitted by H. Mensing, the German Government and the European Commission. The Court decided to dispense with a hearing.
Analysis
18.      The referring court refers two questions to the Court for a preliminary ruling. These are whether the national legislation (first question) or the provisions of Directive 2006/112 (second question) can be interpreted as meaning that, where the margin scheme is applied to the supply by a taxable dealer of works of art which he or she has acquired as an intra-Community supply, the tax paid by the dealer on the intra-Community acquisition should not be included in the taxable amount.
19.      The first question is based on the premiss that the interpretation of the national legislation proposed by the referring court is admissible under Directive 2006/112. Whether this premiss is correct, however, depends on the answer to the second question. I therefore propose to examine the second question first.
The second question
20.      In its second question, the referring court asks, in essence, whether Articles 312 and 315 and the first paragraph of Article 317 of Directive 2006/112 should be interpreted as meaning that the VAT paid by a taxable dealer on the intra-Community acquisition of a work of art which the dealer subsequently sells under the margin scheme under Article 316(1)(b) of the directive should not be included in the taxable amount of that subsequent supply. For the purposes of proper analysis, the problem should first be briefly outlined.
Problem of double taxation where the margin scheme is applied to the supply of works of art acquired by a taxable dealer as an intra-Community supply
21.      VAT is a sales tax with a cascading effect, that is to say, it is charged at each marketing stage, the charge being passed on in the price of goods and services at each stage and ultimately borne by consumers. However, unlike standard multi-stage taxes, VAT cannot be aggregated at the various marketing stages. Its absolute amount increases each time in proportion to the value added downstream and ultimately affects only the final price of the good or service. This happens thanks to the deduction mechanism – at each stage of marketing, the tax burden is reduced by the input tax paid.
22.      However, articles such as second-hand goods, works of art, antiques and collectors’ items do not behave in the same way as those which, as ‘new’, are supplied for the first time to consumers. These goods are often already in the possession of consumers who, at the time of their purchase, bore the burden of VAT (8) and who, when selling those goods, do not have the status of taxable persons for VAT purposes, and the sale is therefore not taxed. If these goods are then sold on by taxable dealers, their normal taxation on the basis of the total sale price would result in the goods on which tax has already been paid being taxed again.
23.      This was why the EU legislature established the margin scheme, which allows only the ‘added value’, that is to say, the profit margin made by the dealer as the difference between the purchase cost and the sales price, to be taxed when the goods are sold by the dealer. VAT is therefore calculated not on the sale price of the goods as a whole, but only on that part of the price which constitutes the margin.
24.      The logical outcome is that the taxable dealer is not entitled to deduct the tax paid on the acquisition of goods when their sale is subsequently taxed under the margin scheme. In the event that the supply of goods to the taxable dealer is not taxed, the question of deduction is irrelevant, since there is no tax that can be deducted. However, the EU legislature has also allowed the margin scheme to be applied to goods whose supply to the taxable dealer is taxed. This is the case, for example, where the taxable dealer acquires a work of art from a taxable artist. In this situation, in the absence of a deduction mechanism, the method of determining the profit as the difference between the price paid by the taxable dealer and the selling price helps to avoid double taxation, with the purchase price including everything the taxable dealer has paid, including the VAT due. That tax is therefore not included in the margin and therefore does not constitute a component of the taxable amount and does not amount to double taxation.
25.      However, the situation is complicated in the case of transactions where the taxable event is not the supply but the acquisition of the goods by the taxable person. One example of such an event is the importation of goods from outside the customs territory of the European Union. Another example is intra-Community transactions (that is to say, between different Member States).
26.      In the case of intra-Community transactions, the supply of the goods is exempt, whereas their acquisition is taxed. (9) The aim is to transfer the tax jurisdiction from the Member State in which the sale takes place to the Member State of purchase, in accordance with the principle of taxation at the point of consumption. The consequence as regards the margin scheme is that the tax on the intra-Community acquisition, in so far as it does not constitute an element of the purchase price paid by the taxable dealer to the supplier, is automatically added to the profit margin, that is to say, to the taxable amount for the supply by the taxable dealer at the next stage of the transaction. This results in partial double taxation by aggregation – the tax paid by the taxable dealer in respect of the intra-Community acquisition is then taxed as part of the profit margin.
27.      In an analogous case of importation from outside the customs territory of the European Union, the EU legislature introduced, in the second paragraph of Article 317 of Directive 2006/112, a corresponding provision requiring the inclusion of import tax in the purchase price of the goods; however, this has not been done with regard to intra-Community supplies. It is precisely that omission which the referring court seeks to resolve through the present reference for a preliminary ruling.
Interpretation of Directive 2006/112
28.      In accordance with Article 315 of Directive 2006/112, the taxable amount for the margin scheme is the profit margin less the VAT relating to the margin itself. However, the profit margin should be understood as the difference between the selling price of the goods in the context of a supply transaction subject to the margin scheme and the price paid for the goods by the taxable dealer.
29.      The selling price and the purchase price are defined in Article 312 of the directive. According to that definition, the ‘selling price’ is to be understood to mean all elements of the consideration obtained or to be obtained by the taxable dealer from the customer or from a third party, including any taxes or similar charges and any incidental expenses charged by the taxable dealer to the customer. The ‘purchase price’, on the other hand, means the same elements of consideration obtained or to be obtained from the taxable dealer by his or her supplier.
30.      Both Mr Mensing and the Commission submit, in their observations in the present case, that, in the case of a taxable intra-Community acquisition of a work of art by a taxable dealer, the VAT paid in respect of that acquisition should be added to the purchase price. In their view, that tax falls within the scope of ‘taxes, duties, levies and charges’ in the definition of ‘selling price’, which is referred to in the definition of ‘purchase price’.
31.      That view is, however, based on a fragmented reading of the definitions in Article 312 of Directive 2006/112. It totally ignores the fact that the definition of both the selling price and the purchase price includes only the cost elements which the taxable dealer received in return for a supply transaction subject to the margin scheme and the cost elements he or she paid to the supplier by purchasing goods to be supplied under that scheme.
32.      This wording of the two definitions is not accidental and cannot be passed over to reach the position suggested by Mr Mensing and the Commission. In formulating the two definitions, the EU legislature very explicitly took account only of the exchange of financial benefits in the context of individual transactions and not of all the costs and benefits that may be associated with the acquisition or supply of goods. The definition of the purchase price in Article 312 of Directive 2006/112 therefore covers only those incidental expenses which the taxable dealer incurs vis-à-vis the supplier, just as the definition of the selling price refers only to those expenses recouped by the taxable dealer in the price of the goods.
33.      By contrast, any incidental costs which the taxable dealer may incur in acquiring the goods, such as packaging, transport or insurance costs, but which he or she bears vis-à-vis third parties do not constitute elements of the purchase price and are included in the profit margin within the meaning of the second paragraph of Article 315 of Directive 2006/112.
34.      Illogical though it may seem, in view of the clear and unconditional wording of Article 312 of the directive, the same rules must apply to the VAT on the transaction through which the taxable dealer acquires the goods. If the supply of goods to a taxable dealer is taxed and takes place on the territory of a Member State, VAT is payable, in accordance with the general principles of Directive 2006/112, by the supplier, who, in turn, passes it on to the taxable dealer in the price of the goods. The VAT is, therefore, an element of the purchase price and is thus excluded from the profit margin. If, however, as is the case with an intra-Community supply, the VAT is payable to the Treasury by the taxable dealer, the tax is not part of the purchase price and thus increases the profit margin. (10) If the EU legislature had intended to include the tax paid directly by the taxable dealer to the Treasury in the purchase price within the meaning of Article 312(2) of Directive 2006/112, it would have used a formulation similar to the second subparagraph of Article 320(1) of Directive 2006/112, according to which, where a taxable dealer carries out his or her transactions under the normal arrangements, he or she is entitled to deduct from the input tax the amount of VAT ‘due or paid in respect of the work of art supplied to him[ or her]’, without indicating to whom the tax is due or was paid.
35.      One of the elements of the selling price, as defined in Article 312(1) of Directive 2006/112, is the input VAT paid in accordance with the margin scheme, which the taxable dealer receives from the purchaser as part of the selling price and which he or she passes on to the Treasury. This tax is deducted from the taxable amount in accordance with the first paragraph of Article 315 of the directive. However, that provision expressly provides that the taxable amount is to be reduced by the VAT ‘relating to the profit margin’.
36.      Contrary to what Mr Mensing states in his observations, the rules for determining the taxable amount under the margin scheme are the same as those applicable to transactions taxed under the general rules set out in Articles 73 and 78 of Directive 2006/112. In accordance with those provisions, the taxable amount of a supply of goods (11) is everything the supplier receives as consideration for that supply, including taxes and similar charges and incidental expenses, excluding only the VAT relating to the taxable amount of the transaction in question.
37.      There is therefore no discretion for allowing, as the referring court postulates in its order for reference, the taxable amount paid by the taxable dealer directly to the Treasury to be additionally reduced by the VAT paid directly to the Treasury in respect of an input transaction. While the first paragraph of Article 315 refers to the amount of VAT ‘relating to the profit margin’, this clearly does not include the tax paid on the purchase of the goods by the taxable dealer, which ‘relates’ to the purchase price of those goods, and therefore to an amount that is not included in the profit margin.
38.      Paragraph 46 of the judgment in Mensing does nothing to change that conclusion. In that paragraph, the Court merely noted that, under the margin scheme, unlike the normal scheme, the cost paid by the taxable dealer to acquire the object of the subsequent supply made by him or her is not a component of the taxable amount of that transaction, with the result that there are no grounds for granting that taxable person the right to deduct the VAT paid on the acquisition of those goods from the tax charged on his or her own transaction. It does not follow, however, that the Court believes that the VAT paid by the taxable dealer in respect of the intra-Community acquisition of the object to be subsequently sold under the margin scheme should be excluded from the taxable amount of that transaction, in contradiction of the clear wording of Article 315 of Directive 2006/112. The Court has not made any ruling on that point, as that was not the subject of the questions referred for a preliminary ruling in the case resulting in the judgment in Mensing.
39.      I therefore believe that the wording of the relevant provisions of Directive 2006/112 makes it unequivocally clear that the VAT paid by a taxable dealer in respect of the intra-Community acquisition of a work of art which is the subject of a subsequent supply transaction under the margin scheme is not a component of the purchase price of those goods within the meaning of those provisions, and that the amount of that tax should not be excluded from the taxable amount of that subsequent supply.
40.      On the other hand, contrary to what the Commission seems to suggest, I did not consider, in my Opinion in Mensing, that this is a desirable state of affairs.
41.      In my view, the EU legislature made an error by not excluding the VAT paid directly by the taxable dealer to the Treasury for the purchase of the object of the transaction from the taxable amount of a supply transaction under the margin scheme. The goods acquired by a taxable dealer for subsequent supply under the margin scheme are the only element in the cost of this activity which does not give the taxable dealer the right to deduct the tax paid where the supply to him or her was taxable. (12) Including the tax paid in respect of the acquisition of those goods in the taxable amount under the margin scheme therefore leads, as I have already mentioned, to partial double taxation of those goods, (13) which is counter to the principles of fiscal neutrality and non-aggregation of VAT.
42.      The problem that remains to be resolved is how to remedy this contradiction.
Possibility of remedying the contradiction through judicial interpretation
43.      According to the Commission, a teleological and systematic interpretation of Article 312 of Directive 2006/112 would make it possible to achieve the result that the VAT paid by a taxable dealer in respect of an intra-Community acquisition of works of art which are then supplied under the margin scheme forms part of the purchase price within the meaning of paragraph 2 of that article.
44.      However, as I stated in the previous section of this Opinion, the definition of the purchase price in that paragraph is clearly and intentionally limited to the amounts obtained or to be obtained by the supplier from the taxable dealer. Any interpretation which takes account of the amounts which the taxable dealer has paid to a person other than the seller, including the taxes which he or she has paid directly to the Treasury, would clearly go against the wording of that provision.
45.      By suggesting that the Court should make such an interpretation, which, in my view, would be contra legem, the Commission seeks, in essence, to have the Court take the EU legislature’s place in resolving the contradiction between the wording of the provisions of Article 315 in conjunction with Article 312 of Directive 2006/112 and the principle that VAT is to be taxed at each marketing stage, where the taxable dealer is liable to pay the tax on the purchase of works of art which he or she then supplies under the margin scheme.
46.      That expectation raises the question of the limits of the Court’s legislative activity.
47.      It is true that the jurisdiction conferred on the Court by Article 267 TFEU grants it very broad jurisdiction to interpret EU law. It is also true that the Court has often made use of that power to fill gaps or inconsistencies in those legislative acts on the basis of the objectives pursued by those provisions and the context in which they appear in the legislative instrument. (14)
48.      This is also true of the common system of VAT currently governed by Directive 2006/112. In justified cases, the Court even went beyond the wording of the provisions of that directive by basing its decision on the fundamental principles of law or on the overall logic of the functioning of VAT. For example, the Court introduced the concept of abuse of rights into EU VAT law (15) and refused the right to deduct input tax paid to a taxable person who, knowingly or negligently, had been involved in tax evasion. (16)
49.      The Court’s interference in the normative content of laws in force is justified where those laws are vague, incomplete or contradictory or where a literal interpretation of those rules leads to results which run counter not only to the objective of that legislation but also to the fundamental principles of the legal system as a whole, as in the cases which gave rise to the judgments referred to in the preceding paragraph. However, I doubt that a teleological or contextual interpretation can justify departing from the clear wording of provisions where their literal application, inconsistent as they may be with the logic of the legislation of which they form part, does not call into question the overall effectiveness of that legislation and does not undermine the fundamental principles of the legal system.
50.      But that is the approach being proposed by the Commission with its reference to the judgment in Mensing. However, in Mensing, the Court did not depart from a literal interpretation of the relevant provisions of Directive 2006/112, instead basing the solution contained in that judgment primarily on the wording of Article 316(1)(b) of that directive, (17) while the contextual and teleological criteria for interpretation were only adduced in support of the conclusions drawn from the wording of that provision. (18)
51.      As regards the inclusion in the taxable amount under the margin scheme of the amount of VAT paid by the taxable dealer in respect of the acquisition of a work of art which will be supplied under that scheme, as I stated at the outset in the present considerations, (19) this leads to partial double taxation, in breach of the principle of fiscal neutrality, which is understood as prohibiting different treatment of similar transactions and of the principle of non-aggregation of VAT.
52.      Furthermore, it should be noted that, in situations where both the intra-Community acquisition of a work of art by a taxable dealer and its subsequent supply by that taxable dealer are taxed at the standard rate of VAT, the tax charge on the supply of the work of art is higher under the margin scheme than under the normal scheme, which deprives the choice provided in Article 316(1)(b) of Directive 2006/112 of any economic meaning. However, it should be borne in mind that, in the event of both the supply of a work of art to the taxable dealer and the subsequent supply of that work of art by the taxable dealer being taxed at the same (normal) rate, the option of applying the margin scheme offers no particular economic advantage, since, even if VAT is included in the purchase price, the tax burden under the margin scheme is the same as with taxation under the normal scheme. (20)
53.      The rules contained in Article 316 of Directive 2006/112 only have a real effect when the transaction by which the taxable dealer acquires a work of art is taxed at the reduced rate. Article 103 of that directive allows Member States to apply a reduced rate of VAT to the importation of works of art and, in certain cases, to their supply, including by the work’s creator or his or her successors in title. In such a situation, only the profit margin on the work of art supplied by the taxable dealer is subject to the standard rate, while the rest is subject to the reduced rate. That reduces the overall tax burden in comparison with the standard arrangements, since, in the latter case, the taxable dealer would have to pay VAT on the sale price at the standard rate, but would, by contrast, only have the right to deduct input tax at a reduced rate. (21)
54.      However, I do not agree with Mr Mensing’s assertion that the inclusion in the profit margin of the tax paid by the taxable dealer on the intra-Community acquisition and the resulting partial double taxation frustrate the objective pursued by Article 316(1)(b) of Directive 2006/112, namely to support the sale of works of art by taxable dealers by fully providing for a reduced tax rate at the previous marketing stage.
55.      First, Article 316(1)(b) of that directive does not make the application of the margin scheme to works of art which the taxable dealer has acquired from the creator or his or her successors in title conditional on the supply of those works of art to the taxable dealer at the reduced rate of tax. This condition appears only in Article 316(1)(c) of Directive 2006/112, which, however, covers works of art acquired by a taxable dealer from other (non-intermediate) taxable persons. (22) However, Article 316(1)(b) applies irrespective of the rate at which the supply of the work of art to the taxable dealer was taxed.
56.      Second, the increased tax burden arising from the inclusion of the tax on the intra-Community acquisition in the profit margin is relatively small when the supply to the taxable dealer is taxed at the reduced rate and does not level out the effect of the application of the reduced rate. (23) The overall tax burden remains lower than with normal taxation. The legislative objective mentioned by Mr Mensing is therefore achieved, if to a slightly lesser extent. That argument does not therefore support an interpretation of Article 312 of Directive 2006/112 that differs from its actual wording.
57.      As regards the principle of fiscal neutrality, the Court has already had occasion to note that this principle, as a general principle of the common system of VAT established at secondary legislation level, does not have the character of a principle of primary law, which may be made conditional on the validity of the provisions of the directive establishing that system. Nor does it justify an interpretation of those provisions with no basis in their wording. (24) Therefore, although the combined application of Articles 312 and 315, Article 316(1)(b) and the first paragraph of Article 317 of Directive 2006/112 to works of art which the taxable dealer purchases as an intra-Community supply may result in the infringement of the principle of fiscal neutrality because of the different treatment of those works of art in comparison with works of art acquired by the taxable person within the territory of the country, that infringement does not justify an interpretation of those provisions that is contrary to their unambiguous wording.
58.      It should be borne in mind in this regard that works of art are a very specific good. By their nature, they are unique and not directly interchangeable and relatively minor price differences do not, as a general rule, influence the decisions of their buyers. Any distortions of competition resulting from an increase in the tax burden are therefore limited and significantly lower than for standard, mass-produced goods.
59.      The same conclusion must be drawn as regards infringement of the principle of non-aggregation of VAT laid down in Article 1(2) of Directive 2006/112. This is an internal principle of the common system of VAT. While failure to observe this principle does to some extent disrupt the functioning of that system, it does not justify either the annulment of the provisions of that directive that could potentially give rise to a disruption, or their interpretation contrary to their express wording.
60.      The foregoing considerations lead me to conclude that the Court should not interpret Article 312 of Directive 2006/112 or the other provisions of that directive relating to the margin scheme in a manner that runs counter to their unambiguous wording for the purpose of remedying its incompatibility with the principles of fiscal neutrality and non-aggregation of VAT entailed in the wording of those provisions in so far as they apply to the intra-Community supply of works of art to taxable dealers by the creator or his or her successors in title.
61.      However, contrary to what the German Government maintains, I do not find the current legislative situation to be satisfactory, nor do I believe that the optional nature of the provisions of Article 316 of Directive 2006/112 for the taxable dealer would address the problem of partial double taxation which that legal situation entails. Action by the EU legislature is, in my view, necessary in order to correct the method of calculating the taxable amount of the margin scheme where it is applied to the intra-Community acquisition of works of art by taxable dealers.
62.      Such legislative intervention would not appear to entail any significant difficulties. By virtue of Article 93 EC (now Article 113 TFEU), Directive 2006/112 was adopted under a special legislative procedure following consultation with the European Parliament, and can be amended under the same procedure. That said, it is one of the most frequently amended acts of EU law, so much so that the amendments have become routine. Indeed, since the judgment in Mensing was delivered, (25) that is to say, when the Court upheld the application of the margin scheme to the intra-Community acquisition of works of art by taxable dealers and when the problem of partial double taxation became evident, Directive 2006/112 has been amended 10 times. (26) There has therefore been plenty of opportunity to amend the provisions in question.
63.      Legislative amendment could also be applied to the issue, raised by the Commission in its observations, of double taxation in the case of a reverse charge procedure for a supply to a taxable dealer of goods for onward supply under the margin scheme. (27) The issue will not be resolved by the Court’s judgment in the present case, as the scope of the questions referred for a preliminary ruling will, in any event, have to be limited to the question of the tax paid by a taxable dealer on the intra-Community acquisition of a work of art.
Answer to the question
64.      As is apparent from the foregoing considerations, I see neither the possibility nor the need for an interpretation of the provisions of Directive 2006/112 in order to avoid partial double taxation situations of the kind at issue in the main proceedings. Any relevant amendment of those provisions must be made by the EU legislature.
65.      Consequently, I propose that the answer to the second question referred for a preliminary ruling should be that Articles 312 and 315 and the first paragraph of Article 317 of Directive 2006/112 should be interpreted as meaning that the VAT paid by the taxable dealer on the intra-Community acquisition of a work of art for subsequent supply under the margin scheme under Article 316(1)(b) of the directive should be included in the taxable amount of that subsequent supply.
The first question referred
66.      With its first question, the referring court is essentially asking whether, where a taxable dealer requests that the margin scheme under Article 316(1)(b) of Directive 2006/112 be applied to works of art which he or she has acquired as an intra-Community supply, even though national law, unlike that provision, does not allow such application, national courts are entitled to interpret provisions of national law such as the third sentence of Paragraph 25a(3) of the UStG in compliance with that directive, in such a way that the VAT paid by the taxable dealer in respect of the intra-Community acquisition of that work of art is not included in the taxable amount of the margin scheme.
67.      It is clear that an interpretation of national provisions is the remit of the national authorities and does not fall within the jurisdiction of the Court. However, as is apparent from my proposed answer to the second question, the provisions of Directive 2006/112 cannot be interpreted as meaning that the tax paid by a taxable dealer on the intra-Community acquisition of a work of art is not included in the taxable amount of the margin scheme. There is no provision in that directive that would allow national law to be interpreted in that way. The first question referred is therefore, in my view, redundant and does not need answering. I shall therefore confine myself to the following brief comments for the eventuality that the Court considers it necessary to rule on the first question referred.
68.      The referring court explains its doubts expressed in the first question referred for a preliminary ruling by the Court’s statement in paragraph 49 of the judgment in Mensing, according to which, in the main proceedings in the case resulting in that judgment, the taxable dealer may invoke the option of applying the margin scheme directly on the basis of Directive 2006/112. With regard to that statement by the Court, the referring court in the present case asks whether it may apply the provisions of its national law governing other aspects of the taxation of transactions carried out by taxable dealers or whether it is bound exclusively by the provisions of the directive.
69.      It is my view that paragraph 49 of the judgment in Mensing must be understood somewhat differently. In that paragraph, the Court stated that, where a taxable dealer invokes the right of option laid down in Directive 2006/112, which diverges from provisions of national law which do not comply with that directive, he [or she] must do so in accordance with the overall regulations from which the option arises. In the present case, it means that exercising the right to apply the margin scheme entails no right to deduct input VAT, in accordance with Article 322(b) of Directive 2006/112. However, that does not mean, in my view, that all provisions of national law governing the legal relationship at issue should be precluded if they are not contrary to EU law.
70.      In the case which gave rise to the judgment in Mensing, the questions referred for a preliminary ruling by the national court were based on the provisions of Paragraph 25a(7)(1)(a) of the UStG, which does not allow the margin scheme to be applied to goods supplied to the taxable dealer as an exempt intra-Community supply. In the light of the judgment in Mensing, the national court should consider that provision to be incompatible with EU law in respect of works of art supplied to taxable dealers by the creator or his or her successors in title and not apply it in resolving the dispute. (28) However, there is no reason for that court, and in cassation the referring court in the present case, not to apply the remaining national legal provisions governing Mr Mensing’s legal situation, in so far as the application of those provisions is compatible with EU law, including with the interpretation of the provisions of Directive 2006/112 adopted by the Court in Mensing.
71.      The same applies to Paragraph 25a(3) of the UStG. On the other hand, it does not seem to me that the effect sought by the referring court from that provision can be derived in compliance with Directive 2006/112. The third sentence of Paragraph 25a(3) of the UStG transposes the second paragraph of Article 315 of Directive 2006/112, according to which VAT on the profit margin is not to be included in the taxable amount of the margin scheme. For its part, the last sentence of Paragraph 25a(3) of the UStG deals with the VAT paid in respect of the supply of goods to the taxable dealer. However, that provision expressly refers to the VAT of the ‘supplier’, that is to say, paid by the supplier of the goods and passed on to the taxable dealer in the price of the goods. This is consistent with the definition of ‘purchase price’ in Article 312(2) of Directive 2006/112. Given the clear wording of the relevant provisions of the directive, it is difficult to interpret those national provisions differently.
72.      Be that as it may, even if, as in the present case, there is a gap in the provisions of the directive and their literal wording leads to results which are partly incompatible with the scheme and the objectives of the legislation as a whole, the authorities of the Member States cannot ‘make good’ that situation by interpreting their national law in a manner which runs contrary to the provisions of the directive. Such an action at national level, the outcome of which would depend on the actual wording of the national provisions and on the way in which they are interpreted by the national authorities and courts, would hinder attainment of the main objective of each directive, which is to harmonise the laws of the Member States. On the other hand, it is primarily for the EU legislature, and, in the context of an acceptable interpretation, for the Court of Justice, to remedy possible inconsistencies in the provisions of EU law.
73.      However, as I stated in the introduction to this part, in view of my proposed answer to the second question referred for a preliminary ruling, there is no need to answer the first question.
Conclusions
74.      In the light of all the foregoing considerations, I propose that the questions referred for a preliminary ruling by the Bundesfinanzhof (Federal Finance Court, Germany) be answered as follows:
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
should 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 whose subsequent supply by the taxable dealer is subject to the margin scheme in accordance with Article 316(1)(b) of the directive should be included in the taxable amount of that subsequent supply.
1      Original language: Polish.
2      OJ 2006 L 347, p. 1, corrigendum OJ 2007 L 335, p. 60.
3      Point 1 of the operative part of the judgment.
4      See my Opinion in Mensing (C‑264/17, EU:C:2018:722, point 53).
5      See my Opinion in Mensing (C‑264/17, EU:C:2018:722, point 54).
6      BGBl. I, p. 386.
7      Judgment in Mensing, operative part.
8      In any event, this is the situation for goods that have been sold in the time that VAT has been in existence.
9      There are exceptions to that rule. One is the intra-Community acquisition of goods by taxable dealers (Article 4(a) of Directive 2006/112). However, this is not the case in the present case.
10      In its comments, the Commission notes that a similar problem arises where the supply within a national territory is a ‘reverse charge’ supply, in other words, where the VAT is payable by the purchaser. It should be noted, however, that Member States may only introduce the reverse charge in certain categories of transactions listed, inter alia, in Articles 199, 199a and 199b of Directive 2006/112 (and not, as the Commission states, in Article 205, which deals with a completely different issue), only some of which may concern situations covered by the margin scheme. This, however, is outside the scope of the present case.
11      The same applies to the supply of services, but I shall limit myself to the supply of goods which is at issue in the present case.
12      Articles 322 and 323 of Directive 2006/112 only allow a taxable dealer to deduct the VAT which he or she has paid on the acquisition of goods which he or she subsequently supplies under the margin scheme. However, he or she still has the right to deduct the tax paid in respect of all the other goods and services used for the purposes of his or her business, even if that business activity is subject to the margin scheme.
13      See point 26 of this Opinion.
14      In accordance with the principle, enshrined in the case-law of the Court, that those two elements must be taken into account when interpreting provisions of EU law (see, inter alia, judgment in Mensing, paragraph 24).
15      Judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121).
16      Judgment of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446).
17      Judgment in Mensing, paragraphs 25 and 26.
18      Judgment in Mensing, paragraphs 27 to 37.
19      See points 21 to 27 of this Opinion.
20      This is illustrated by the examples given in the Commission’s observations.
21      This is illustrated by the example given in Mr Mensing’s observations.
22      Incidentally, it would be necessary to clarify de lege ferenda whether Article 316(1)(c) of Directive 2006/112 may apply to works of art acquired by taxable dealers as an intra-Community supply. That provision covers supplies subject to a reduced rate of tax whereas, in the case of an intra-Community transaction, at most the intra-Community acquisition may be subject to the reduced rate, since the supply itself is exempt.
23      For example, if the supply of the work of art to a taxable dealer is taxed at the reduced rate of 5% and the supply made by the taxable dealer at the standard rate of 20%, the tax on the work of art itself (excluding the taxable dealer’s profit margin) would increase from 5% to 6%.
24      See, to that effect, judgment of 15 November 2012, Zimmermann (C‑174/11, EU:C:2012:716, paragraph 50).
25      29 November 2018.
26      Council Directive (EU): 2018/1910 of 4 December 2018 (OJ 2018 L 311, p. 3); 2018/2057 of 20 December 2018 (OJ 2018 L 329, p. 3); 2019/475 of 18 February 2019 (OJ 2019 L 83, p. 42); 2019/1995 of 21 November 2019 (OJ 2019 L 310, p. 1); 2019/2235 of 16 December 2019 (OJ 2019 L 336, p. 10); 2020/1756 of 20 November 2020 (OJ 2020 L 396, p. 1); 2020/2020 of 7 December 2020 (OJ 2020 L 419, p. 1); 2021/1159 of 13 July 2021 (OJ 2021 L 250, p. 1); 2022/542 of 5 April 2022 (OJ 2022 L 107, p. 1); and 2022/890 of 3 June 2022 (OJ 2022 L 155, p. 1).
27      See footnote to point 34 of this Opinion.
28      See, most recently, judgment of 18 January 2022, Thelen Technopark Berlin (C‑261/20, EU:C:2022:33, paragraph 30).