C-169/00 Commission v Finland

JUDGMENT OF THE COURT (Fifth Chamber)

7 March 2002 *

In Case C-169/00,

Commission of the European Communities, represented by E. Paasivirta and E. Traversa, acting as Agents, with an address for service in Luxembourg,

applicant,

v

Republic of Finland, represented by E. Bygglin, acting as Agent, with an address for service in Luxembourg,

defendant,

* Language of the case: Finnish APPLICATION for a declaration that, by maintaining in force legislation under which supplies of works of art by artists or their agents and imports of works of art bought directly from artists are exempted from value added tax, the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1),

THE COURT (Fifth Chamber),

composed of: P. Jann, President of the Chamber, S. von Bahr (Rapporteur) and A. La Pergola, Judges,

Advocate General: L.A. Geelhoed, Registrar: R. Grass,

having regard to the report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 20 September 2001, gives the following

Judgment

Legal context and the dispute

1By application lodged at the Court Registry on 8 May 2000, the Commission of the European Communities brought an action under Article 226 EC for a declaration that, by maintaining in force legislation under which supplies of works of art by artists or their agents and imports of works of art bought directly from artists are exempted from value added tax ('VAT'), the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

The Community legislation

2Article 2 of the Sixth Directive provides:

'The following shall be subject to value added tax:

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

2. the importation of goods'.

3According to Article 5(1) of the Sixth Directive, '"supply of goods" shall mean the transfer of the right to dispose of tangible property as owner'.

4According to Article 6(1) of the Sixth Directive, '"supply of services" shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5'.

5Article 12(3)(c) of the Sixth Directive provides:

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

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

— effected by their creator or his successors in title,

...'

—

6Article 13A(1) of the Sixth Directive, entitled 'Exemptions for certain activities in the public interest' provides:

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

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

7Article 28(3)(b) of the Sixth Directive provides that, during the transitional period referred to in paragraph 4, the Member States may 'continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned'.

8Annex F to the Sixth Directive, which lists the transactions which may be exempt in line with that article, refers, under point 2, to 'Services supplied by authors, artists, performers, lawyers and other members of the liberal professions'.

9The first paragraph and first indent of Title IX(2)(n) of Annex XV to the Act concerning the conditions of accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden and on the revision of the Treaties on which the European Union is founded (OJ 1994 C 241, p. 21, and OJ 1995 L 1, p. 1, the 'Act of Accession') provides:

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

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

The Finnish legislation

10In Finland, VAT is regulated by arvonlisäverolaki (Law on Value Added Tax) (Law No 1501 of 30 December 1993 'the VAT Law'), which came into force on 1 June 1994.

11Article 46 of the VAT Law provides that:

'The sale of a work of art within the meaning of Article 79c by the artist or the sale of a work of art through an agent which is the property of the artist is not subject to tax'.

12Article 79c of the VAT Law defines the goods which are to be considered works of art.

13The second paragraph of Article 94(1) of the VAT law also exempts from VAT the importation of a work of art within the meaning of Article 79c by the owner-artist.

Facts and pre-litigation procedure

14Taking the view that, by maintaining in force in its national law measures under which supplies of works of art by artists or their agents and imports of works of art bought directly from artists were exempted from VAT, the Republic of Finland was contravening the terms of the Sixth Directive, and in particular Article 2 thereof, the Commission brought the present proceedings.

15Having given the Republic of Finland formal notice to submit its observations, on 4 November 1998 the Commission sent a reasoned opinion requesting that Member State to take the measures necessary to comply therewith within two months of the date of notification. The Finnish authorities replied that the exemption complained of complied with Title IX(2)(n) of Annex XV to the Act of Accession and denied that there was any infringement, whereupon the Commission decided to bring the present proceedings.

The proceedings

The arguments of the parties

16The Commission claims that the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Directive by maintaining in force legislation under which supplies of works of art by artists or their agents and imports of works of art bought directly from artists are exempted from VAT.

17The Commission points out that Article 2 of the Sixth Directive lays down the principle that supplies and imports of goods are to be subject to VAT. It maintains that the Sixth Directive does not provide for the possibility of exempting from VAT the supply or importation of works of art, even where that supply is effected by the artist or his agent. Thus, Annex F to the Sixth Directive, which sets out the transactions which may be exempt, refers in point 2 only to services supplied by authors, artists or performers, so that the sale and importation of works of art are not within the scope of the exception. The Commission adds that Article 12(3)(c) of the Sixth Directive allows a reduced rate of tax to be applied to the supply and importation of works of art.

18According to the Commission, the interpretation of the exception laid down in point 2 of Annex F to the Sixth Directive must be based on the wording of that provision. In addition, as it is an exception to the primary rule, the provision must be interpreted strictly.

19The Finnish Government contends that, when it acceded to the European Union, the Republic of Finland negotiated an exception allowing it to maintain in force the exemption laid down in its national law for works of visual art which are the property of the artist.

20It takes the view that the interpretation of point 2 of Annex F to the Sixth Directive as regards the first sale of a work of art by the artist himself and importation by the owner-artist cannot be based on the wording of that provision alone. Such an interpretation would reduce the scope of application of that provision to the point of rendering it practically non-existent, leaving it to cover almost exclusively the painting of frescos, in respect of which the work created is integrated directly into immovable property of which the purchaser is the owner.

21According to the Finnish Government, for the interpretation of point 2 of Annex F to the Sixth Directive, account should be taken of the aim of the provision and of the legal context, that is to say the other provisions of the Sixth Directive relating to cultural activities, as well as to the principle of tax neutrality. Account must also be taken of the special nature of the first sale of an object of art, which is essentially the creative inspiration of the artist.

22First, the aim of point 2 of Annex F to the Sixth Directive is to give to Member States the option of continuing to apply their national rules exempting the activity of authors, artists and performers of works of art.

23Next, Article 13A(1)(n) of the Sixth Directive, which provides for the exemption of certain cultural services supplied, shows the special status of cultural activities under the Sixth Directive.

24Finally, an interpretation in line with the strict wording of point 2 of Annex F to the Sixth Directive would undermine the principle of tax neutrality. It would mean that a distinction would be drawn between art forms, for tax purposes, according to whether or not the transfer of the work was effected through the sale of movable property.

25As regards dealings in works of art of which the owner is the artist, the Finnish Government accepts, however, that the proceedings are founded.

Grounds

Findings of the Court

26The present proceedings concern whether the Republic of Finland may exempt from VAT the sale of a work of art by the artist himself or through an agent and the importation of a work of art by the owner-artist, as is laid down by the Finnish VAT law.

27In order to assess the compatibility of the Finnish legislation in question with the provisions of the Sixth Directive and the Act of Accession, it is appropriate first to review the characteristics of the common system of VAT relevant to the present case.

28According to Article 2 of the Sixth Directive, the supply of goods or services effected for consideration within the territory of a country by a taxable person acting as such and the importation of goods are to be subject to value added tax.

29Goods and services are defined in Articles 5 and 6 respectively of the Sixth Directive. According to Article 5(1), 'supply of goods' is to mean the transfer of the right to dispose of tangible property as owner. Under Article 6(1), 'supply of services' is to mean any transaction which does not constitute a supply of goods within the meaning of Article 5.

30It is clear from the Act of Accession that, during the transitional period referred to in Article 28 of the Sixth Directive, the Republic of Finland may continue to exempt from VAT services supplied by authors, artists and performers referred to in point 2 of Annex F to the Sixth Directive, so long as the same exemption is applied by any of the States which were already Members.

31An interpretation of the concept of services supplied by artists is therefore needed in order to determine whether that concept also covers the first transfer of works of art by the artist himself, as the Republic of Finland claims, or whether such a transfer is a non-exempt supply of goods, as the Commission argues.

32It is common ground that the exemption referred to in point 2 of Annex F to the Sixth Directive is an exception to the harmonisation of the VAT systems as set up by that Directive.

33It is settled case-law that the terms used to specify the exemptions which constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person must be interpreted strictly (see, inter alia, to that effect Case 348/87 Stichting Uitvoering Financiële Acties [1989] ECR 1737, paragraph 13; Case C- 453/93 Bulthuis-Griffioen [1995] ECR I-2341, paragraph 19; Case C-216/97 Gregg [1999] ECR I-4947, paragraph 12; and Case C-150/99 Stockholm Lindöpark [2001] ECR I-493, paragraph 25).

34A strict interpretation is even more appropriate in this case as point 2 of Annex F to the Sixth Directive is not a harmonised exemption that is an integral part of the VAT regime, but an exemption authorised only for a transitional period.

35It is clear from the strict wording of the exemption in question that the concept of services supplied by artists does not cover the supply of works of art, even in the case where the supply is effected by the artist or his agent. Such a transfer constitutes a non-exempt supply of goods.

36Contrary to the arguments of the Republic of Finland, it cannot be deduced from the objective pursued by the exemption for the supply of services by artists or from the legal context of the exemption, that is to say from the other provisions of the Sixth Directive applicable to cultural activities, that it could also extend to the first supply of works of art.

37In view of the above, the first transfer of a work of art by the artist himself must be considered to be a supply of goods and therefore not exempt.

38In those circumstances, it must be held that, by maintaining in force legislation exempting from VAT the sale of a work of art by the artist, either directly or through an agent, and the importation of a work of art by the owner-artist, the Republic of Finland has failed to fulfil its obligations under Article 2 of the Sixth Directive.

Costs

39Under 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 Republic of Finland has been unsuccessful, the latter must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT (Fifth Chamber),

hereby:

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

2. Orders the Republic of Finland to pay the costs. Jann von Bahr La Pergola Delivered in open court in Luxembourg on 7 March 2002. R. Grass

Registrar P. Jann

President of the Fifth Chamber

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 20 September 2001 1

I — Introduction

1In this case the Commission, pursuant to Article 226 EC, requests the Court to declare that the Republic of Finland, by maintaining provisions exempting both the sale of works of art by the artist himself or by intermediaries and the importation of works of art purchased directly from the artist, has failed to fulfil its obligations under Article 2 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (hereinafter: 'the Directive'). More specifically, the Commission is of the opinion that the Directive offers room for the exemption from VAT of services performed by artists during a transitional period, but that it does not make possible an exemption for goods supplied by them, for which the Finnish legislation provides.

II — Legal framework

2Article 2 of the Directive creates the basis for the levying of VAT by providing as follows:

'The following shall be subject to value added tax:

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

2. the importation of goods.'

3Article 12 of the Directive creates a basis for the application of the reduced VAT rate. Paragraph 3(c) of the Directive states:

'[The] Member States may provide that the reduced rate, or one of the reduced rates, which they apply in accordance with the third paragraph of (a) shall also apply to imports of works of art, collectors' items and antiques as referred to in Article 26a(A)(a), (b) and (c).

Where they avail themselves of this option, Member States may also apply the reduced rate to supplies of works of art, within the meaning of Article 26a(A)(a):

— effected by their creator or his successors in title;

— effected on an occasional basis by a taxable person other than a taxable dealer, where these works of art have been imported by the taxable person himself or where they have been supplied to him by their creator or his successors in title or where they have entitled him to full deduction of value-added tax.'

4Article 13 of the Directive creates a basis for exemption from the levying of VAT. This article, under A(l)(n), provides for exemptions for 'certain cultural services and goods closely linked thereto supplied by bodies governed by public law or by other cultural bodies recognised by the Member State concerned'.

5Article 28(3) of the Directive, opening sentence and under (b), states:

'During the transitional period referred to in paragraph 4, Member States may:

(b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned.'

6Annex F to the Directive gives a list of activities, which may be exempted pursuant to Article 28(3)(b) of the Directive. Item 2 of the Annex mentions: 'Services supplied by authors, artists, performers, lawyers and other members of the liberal professions, other than the medical and paramedical professions...'.

7Annex XV, Title IX, to the Act concerning the conditions of accession of the Kingdom of Norway, the Republic of Austria, the Republic of Finland and the Kingdom of Sweden and the adjustments to the Treaties on which the European Union is founded (hereinafter: 'the Act of Accession'), 4 deals with taxation. Paragraph 2(n) of this Title provides:

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

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

...'.

8Finnish tax legislation exempts from VAT the sale of a work of art of which the maker is the owner. This exception applies to both the sale of the work by the artist himself and its sale by an intermediary. The same exception applies to the importation of a work of art purchased directly from the artist.

III — Facts and procedure

9On 16 February 1998 the Commission sent the Republic of Finland a letter of formal notice for having maintained provisions in breach of the Directive which in certain cases exempt the sale and importation of works of art from the levying of VAT.

10The Finnish Government replied by means of a letter dated 6 April 1998. In its reply it stated that the provisions of the Act of Accession and Article 28(3) of and Annex F to the Directive, taking into consideration their objectives, permit the Republic of Finland to maintain the exception.

11On 4 November 1998 the Commission issued a reasoned opinion. In reply the Finnish Government repeated the view which it had stated earlier. In response to this the Commission lodged the present application on 8 May 2000.

IV — Arguments of the parties

12In its application the Commission first points to Article 2 of the Directive, which expresses the principle that the supply and importation of goods are subject to VAT. The Commission then states that the Directive does not provide an exception for the supply and importation of works of art. The Commission refers to Article 12(3)(c) of the Directive, which merely permits the Member States to apply a reduced rate. Finally, the Commission indicates that although Annex F to the Directive, which lists the activities which the Member States are permitted to exempt from VAT pursuant to Article 28(3) of the Directive, concerns the services of authors, artists and performers of works of art, it does not concern the sale and importation of works of art, as this involves goods rather than services. In short, in the opinion of the Commission the Republic of Finland has failed to fulfil the obligation arising from Article 2 of the Directive.

13The Finnish Government states that upon accession to the European Union an exception was created permitting it to maintain the exemption for works of art of which the maker is also the owner. It points to the reference to Article 28(3)(b) of, in conjunction with Annex F to, the Directive in the Act of Accession.

14The Finnish Government does not agree with the Commission's point of view regarding the first sale and the importation of a work of art. Even if a strict distinction is to be made between the concepts of 'goods' and 'services' in the Directive and if works of art as such are in general to be considered goods, the interpretation of the exception for artists should, according to the Finnish Government, still not be merely based on the wording of the provisions. A strictly literal interpretation would reduce the scope of the exception to virtually nil. For if, as the Commission would have it, the exception only concerns visual art in so far as this does not take the shape of a movable object, the exception only applies to the special situation where the work of art is directly applied by the artist to an immovable object, the purchaser of which is the owner. 5 According to the Commission's interpretation the transfer of a work of art made on commission, such as a portrait, would, according to the Finnish Government, also be included in the concept of 'good', and thus be excluded from the exemption.

15This is connected with the fact that the concept of 'artist' in Annex F, item 2, to the Directive should, according to the Finnish Government, be interpreted as meaning visual artist, given that for other artists the concepts of 'performers of works of art' and 'authors' have been included. I understand this view to mean this: that, for example, in the art of music the performing artist is a performer of works of art and the composer is an author.

16The Finnish Government is of the opinion that the object of the provision, the other provisions of the Directive concerning cultural activities and the principle of tax neutrality should be taken into account.

17Further, the special nature of the first sale of a work of art should be taken into consideration. This activity should not be considered as equivalent to the production and sale of consumer goods. The Finnish Government also points to three — less recent — Commission Proposals in which an exemption from VAT is proposed for transfers of works of art by the artist himself. 6

18The Finnish Government also mentions a Commission report of 2 July 1992, which would reveal some uncertainty as to the classification of the transfer of a work of art as a good or as a service. In its application, however, the Commission disputes that this report has any relevance to the present case.

19A too narrow interpretation of the Directive would, according to the Finnish Government, moreover lead to the unequal treatment of the various artistic professions and thereby to the violation of the principle of tax neutrality. This principle is an important objective of the VAT system. The Finnish Government in this context refers to Ufficio distrettuale delle imposte dirette di Fiorenzuola d'Arda and Others and to Gregg. 9

20The Finnish Government finally also refers to Article 13(A)(1)(n) of the Directive, which contains a permanent exemption for certain cultural services.

21On the basis of the above, the Finnish Government concludes that the Act of Accession, as well as Article 28 of and Annex F to the Directive, imply that the first transfer of a work of art by the maker may be exempted from VAT. The Finnish Government deduces from Article 14(1) of the Directive that this is also true for the importation of works of art. Finally, I would like to point out that the Finnish Government recognises the validity of the application in so far as it concerns the commission payable on works of art of which the maker is the owner.

22In response to the arguments put forward by the Finnish Government the Commission recognises that the Republic of Finland is entitled to maintain exceptions on the basis of the Act of Accession. It disputes, however, that the Finnish Government comes within the scope of Annex F, item 2, to the Directive, to which the Act of Accession refers.

23Annex F to the Directive provides a case-by-case list of exceptions, involving a merely temporary competence for the Member States to maintain exceptions. These must be interpreted strictly and literally. Here, the Commission refers to Bulthuis-Griffioen and to Skripalle. The same approach applies to the Act of Accession of Austria, Finland and Sweden. The Commission finds that this approach is even more applicable in the present case, as the deviation may only be used for existing practices in the Member State. The Finnish Government's interpretation is contrary to the wording of the Annex and would, according to the Commission, even cause a book to be exempted from the levying of VAT, which is in violation of Annex H, item 6, to the Directive.

24The Commission does not agree with the argument that its interpretation would reduce the scope of application of the exceptions of Annex F, item 2, to the Directive to virtually nil. The exception does not merely concern artists and performers of works of art (such as circus artists, singers and actors) but also concerns lawyers and other practitioners of the professions.

25The Commission puts forward an economic consideration. Where the performance of a service is completed after the performance itself, a good may be sold repeatedly. In the case of the delivery of a work of art to, for example, a gallery, the exemption from levying VAT would as a consequence also make it impossible for the artist himself to deduct the VAT which he paid on the raw materials, like the paint and the canvas needed for a painting. The levying of VAT is transferred to the taxable person who buys the work of art, for example, the gallery. This effect goes against the objective of relieving taxes on art. This economic consideration was, the Commission states, an argument against the adoption of the proposals for the amendment of the Directive to which the Finnish Government refers.

26The Commission contests that its view gives rise to artificial distinctions as regards the supply of works of art. On the contrary, the difference in treatment arises from the type of contract which the artist has concluded. One may speak of the supply of a good, such as the sale of a painting or a sculpture, when the artist sells a work made by him. One may speak of the performance of a service when the commissioning party is the owner of a work of art as from the moment of its creation, for example, when a portrait is commissioned.

27The Commission points out that every distinction in the treatment of different activities is subjective in character. The principle of tax neutrality cannot here be invoked as an argument against the strict interpretation of the legislation.

28The Commission further discusses Article 13(A)(1)(n) of the Directive. This provision contains a derogation from the principle of levying VAT and must consequently be interpreted strictly, says the Commission. Furthermore, the provision is directed at services. The derogation can only benefit the supply of goods when such supply is closely connected with, and thereby to a certain degree subordinate to, the performance of a service.

29In rejoinder the Finnish Government emphasises once more that the view of the Commission renders the exception of Annex F, item 2, to the Directive virtually insignificant for artists. This does not alter the fact that this Annex is also applicable to professional groups other than artists. Secondly, the Finnish Government does not share the Commission's view that the distinction between works of art and consumer goods is subjective. The Directive after all provides a precise definition of a work of art. In the third place, the Finnish Government considers the Commission's proposition that a good can be transferred more than once, whereas a service cannot, untenable. As an example the Finnish Government points to the transfer of a melodic work by the performer. In the fourth place, the Finnish Government points out that the seller, when reselling a work of art, need only pay VAT on his own commercial margin, even when he obtained the work of art tax-free. Thus, no double taxation is involved, contrary to what the Commission seems to imply. Furthermore, artists often sell directly to consumers.

V — Assessment

30The dispute in essence centred on the interpretation of the provisions of Article 28 of, in conjunction with item 2 of Annex F to, the Directive. Can the concept of 'services supplied by... artists' be understood to also include the first supply of a work of art by the maker? The Commission answers this question in the negative. It starts from the viewpoint that the provision involved must be read strictly and literally by reason of the fact that it contains a derogation. The Finnish Government answers this question in the affirmative, whereby it takes the context and purpose of the provision into consideration.

31I share the Commission's point of view. It has already been established that the provision is of a derogating nature and adversely affects the harmonisation of VAT systems as regulated by the Directive. The provision offers Member States the opportunity to deviate — temporarily — from the principle according to which VAT is owed. Such a provision has consequences for the weight of the tax burden. According to the Court's case-law, deviations like these are only allowed in cases expressly provided for by the Directive. Furthermore, according to the Court's case-law, provisions constituting a deviation from a principle should be interpreted strictly. Advocate General Fennelly, in his Opinion in the Victoria Film case, has already noted that 'there is no reason why the principle of strict construction of exemptions should not apply in respect of Annex F' to the Directive. 6

32Thus, for me, the primary point is the strict and literal interpretation of the derogating provision contained in the Act of Accession in conjunction with Article 28(3), opening sentence and under (b), of, and Annex F, item 2, to, the Directive. In so interpreting, I attach importance to the distinction between goods and services as made in Article 2(1) of the Directive. This distinction follows directly from the EC Treaty itself. The Directive obliges the Member States to levy VAT both on goods and for services. However, the exception referred to in Annex F, item 2, to the Directive concerns services only. The supply of goods, therefore, is subject to the levying of VAT.

33I thereby point out that the legislature must have made a conscious choice to exclude the supply of goods from the exemption. In other parts of Annex F to the Directive goods are, after all, expressly mentioned, sometimes alongside the performance of services. In this context, I would especially wish to mention the formula used in item 5 of Annex F to the Directive, which reads 'services and supplies of goods incidental thereto' supplied by public postal services in the field of telecommunications. Article 13 of the Directive, using similar wording, exempts 'certain cultural services and the supply of goods closely linked thereto'.

34The Finnish Government's line of argumentation is broadly to the effect that the distinction between services and goods in the activities of artists cannot be properly made or, at least, that it results in an undesirable outcome.

35It escapes me how the Finnish Government could have arrived at the reasoning that a distinction between goods and services in the activities of visual artists cannot be properly made. Where this is concerned, the visual artist is no different from any other professional. I would mention writers. The activity of writing itself may be considered a service, while the book, which is the result of the writing, can be considered a good. The Finnish Government in this context also seems to contend that a work of art cannot be compared with a random consumer good. Undoubtedly many art lovers will share the Finnish Government's point of view, but legally speaking it evidently fails to be convincing.

36Next, I point to the Finnish contention that a strict distinction between services and goods would cause the exemption to lose any practical significance — at least for artists. In my opinion this result could indeed occur. However, such a result, which may well be considered undesirable by a Member State from a policy perspective, cannot induce the Court to give a broad interpretation to an exemption in the Directive, which would conflict with the wording of the Directive. Only the Community legislature could, by amending the Directive, alter this result.

37Still, however, it becomes clear from the way the Commission interprets the exemption that it is accorded some practical significance. The Commission states that commissioned works of art can profit from the exemption. Commissioned art would seem to me to be rather more ubiquitous than the example given by the Finnish Government: the mural in the artist's home or business premises.

38Neither can I deduce from the object of the exemption provision, nor, for that matter, from other provisions of the Directive that concern cultural activities, that the Act of Accession in conjunction with Article 28(3), opening sentence and under (b), of, and Annex F, item 2, to, the Directive could also pertain to the supply of goods. It was obviously not the intention of the Community legislature to exclude all activities of artists from the levying of VAT. In the first place, I would point out that the exception, which the Finnish Government is relying on, is of an optional character. Moreover, the exception only applies during a transitional period. Further, the Directive itself contains an instrument which should enable the Member States to limit the burden of taxes on art: pursuant to Article 12(3) of the Directive they can apply a reduced rate. Article 13(A)(1)(n) of the Directive carries this still further for certain services and supplies. This provision provides an exemption from VAT when these services and supplies have been performed by bodies governed by public law or by other cultural bodies recognised by the Member State concerned.

39It is my opinion that the Community legislature has thus opted for a balanced system for levying VAT on art. The tem-p o r a ry e x e m p t i on p u r s u a nt to Article 28(3), opening sentence and under (b), of, and Annex F, item 2, to, the Directive is only of secondary importance. It is therefore out of the question that a strict interpretation of this exemption would conflict with the object of the Directive, if a different interpretation would be possible at all.

40In this dispute the effect of the principle of tax neutrality was also put forward. This principle underlies the common VAT system of which the Directive forms a part. It precludes entrepreneurs who carry out the same activities from being treated differently when it comes to the levying of VAT. In this context, the Court has, more particularly, recently reconfirmed that double taxation goes against the principle of tax neutrality.

41In my view it cannot follow from this principle that the supply of works of art by the artist should be liable to fall under the exemption. The supply of a work of art and the performance of a service by the artist, such as, for example, painting a portrait on commission, cannot, after all, be considered to be the same activities. As the Commission rightly puts it, these are different activities whereby the determining factor is the type of contract the artist has concluded.

42I would also point out that in various places the Directive distinguishes quite precisely activities which always come under the ordinary VAT rate, activities which come under the reduced VAT rate and activities which may even be exempted entirely. In a system of such detail activities with a somewhat comparable, though not identical, content will automatically be treated differently in some cases.

43The Directive has thus created many borderline cases, which stem from the fact that the boundaries maintained are not always created naturally, but are determined by the way in which the Community legislature uses its margin of discretion. The boundary which is the most obviously natural is that between goods and services. I therefore fail to understand why upholding this boundary could be made impossible by invoking the principle of tax neutrality.

44The dispute further also involves the question whether the exemption from taxation on works of art can lead to double taxation. As it already follows from the above that such an exemption does not fit in with the Directive's system, I will decline to discuss the risk of double taxation any further.

45For what it may be worth, I would add the following. From the defence it can be deduced that during the negotiations con judging the present case. What the wishes cerning accession the Finnish Government of one of the parties to the negotiations also aimed to exempt the first supply of were is not the point; what is decisive is the works of art from the levying of VAT. This outcome of the negotiations as laid down in aim cannot be taken into consideration in the text of the Act of Accession.

VI — Conclusion

46In the light of the facts and circumstances set out above, I propose that the Court should:

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

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

Notes

(1) Original language: Dutch.

(2) OJ 1977 L 145, p. 1.

(3) As this provision now reads after amendment 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).

(4) OJ 1994 C 241, p. 335.

(5) One could think of a mural.

(6) In its reply the Finnish Government further specifies that it was thereby not intended to also extend the material scope of the exception.

(7) SEC (92) 1006 def.

(8) Joined Cases 231/87 and 129/88 Ufficio distrettuale delle imposte dirette di Fiorenzuola d'Arda and Others v Comune di Carpaneto Piacentino and Others [1989] ECR 3233, paragraph 22.

(9) Case C-216/97 Gregg v Commissioners of Customs and Excise [1999] ECR I-4947, paragraph 20.

(10) Case C-453/93 Bulthuis-Griffioen v inspecteur der Omzetbelasting [1995] ECR I-2341, paragraph 19.

(11) Case C-63/96 Finanzamt Bergisch Gladbach v Skripalle [19971 ECR I-2847, paragraph 24.

(12) The Commission refers to Case C-233/97 KappAhl [19981 ECR I-8069, paragraph 23.

(13) See paragraph 17 of my Opinion.

(14) See, inter alia, Joined Cases C-177/99 and C-181/99 Ampafrance and Sanofi (20001 ECR I-7013, paragraph

(34) , concerning the right to deduct VAT.

(15) See, inter alia, Case C-83/99 Commission v Spain [2001] ECR I-445, paragraph 19, concerning Article 12(3) of the Directive.

(16) Opinion in Case C-134/97 Victoria Film [1998) ECR I-7023. This case, like the present case, also concerned the interpretation of the Act of Accession in conjunction with Article 28(3), opening sentence and under (b), of, and Annex F, item 2, to, the Sixth Directive. The Court did not get round to interpretation.

(17) See, inter alia, Gregg, above, footnote 9.

(18) Joined Cases C-322/99 and C-323/99 Fischer and Brandenstein [2001] ECR I-4049, paragraph 76.