C-180/22 Mensing II

JUDGMENT OF THE COURT (First Chamber)

13 July 2023 ( *1 )

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

In Case C‑180/22,

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

Finanzamt Hamm

v

Harry Mensing,

THE COURT (First Chamber),

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

Advocate General: M. Szpunar,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

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

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

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

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

gives the following

Judgment

Legal context and the dispute

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

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

Legal context

European Union law

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

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

…

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

…

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

4Article 193 of that directive provides:

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

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

6Article 312 of the VAT Directive reads as follows:

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

“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;

“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.’

7Article 314 of that directive provides:

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

a non-taxable person;

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

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

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

8Article 315 of that directive is worded as follows:

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

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

9Article 316 of the VAT Directive provides:

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

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

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

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

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

10Article 317 of the VAT Directive reads as follows:

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

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

German law

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

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

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

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

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

or

the margin scheme was applied.

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

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

1works of art (number 53 in Annex 2), collectors’ items (number 49 point (f) and number 54 in Annex 2) or antiques (heading 97060000 of the customs tariff) which he or she has imported himself or herself, or

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

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

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

…

(7) The following special provisions shall apply:

1The margin scheme shall not apply

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

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

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

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

…’

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

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

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

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

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

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

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

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

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

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

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

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

Consideration of the questions referred

The second question

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The first question

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

Costs

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

Operative part

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

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

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

Signatures

[Signatures]

( *1 ) Language of the case: German.

OPINION OF ADVOCATE GENERAL

SZPUNAR

delivered on 23 March 2023 ¹

(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

1In 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.

2In 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

3Now, 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

4According 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.’

5Points (a) and (b) of the first paragraph of Article 78 of the directive state:

‘The taxable amount shall include the following factors:

taxes, duties, levies and charges, excluding the VAT itself;

incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.

…’

6Article 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. …’

7Chapter 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:

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

“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;

“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.

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.

…

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.

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

…

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

…

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

…

The taxable dealer may apply the normal VAT arrangements to any supply covered by the margin scheme.

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.

…

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:

…

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

8The 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.’

9Paragraph 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

10Mr. 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.

11At 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.

12After 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.

13In 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

14Following 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.

15The 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.

16As 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:

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?

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?’

17The 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

18The 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.

19The 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

20In 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

21VAT 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.

22However, 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.

23This 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.

24The 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.

25However, 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).

26In 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.

27In 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

28In 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.

29The 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.

30Both 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’.

31That 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.

32This 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.

33By 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.

34Illogical 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.

35One 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’.

36Contrary 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.

37There 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.

38Paragraph 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.

39I 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.

40On 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.

41In 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.

42The problem that remains to be resolved is how to remedy this contradiction.

Possibility of remedying the contradiction through judicial interpretation

43According 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.

44However, 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.

45By 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.

46That expectation raises the question of the limits of the Court’s legislative activity.

47It 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

48This 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

49The 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.

50But 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

51As 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.

52Furthermore, 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

53The 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

54However, 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.

55First, 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.

56Second, 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.

57As 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.

58It 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.

59The 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.

60The 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.

61However, 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.

62Such 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.

63Legislative 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

64As 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.

65Consequently, 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

66With 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.

67It 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.

68The 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.

69It 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.

70In 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.

71The 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.

72Be 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.

73However, 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

74In 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).