VAT margin scheme for artworks supplied via legal entities

Background

The case involves Galerie Karsten Greve (GKG), an art gallery operating in France. In 2014, GKG made intra-Community acquisitions of paintings by artist Gideon Rubin from Studio Rubin Gideon (SRG), a UK-established company in which Rubin is a partner. GKG subsequently applied the VAT margin scheme to the sales of these paintings to its customers.

Following an audit, French tax authorities challenged GKG's application of the margin scheme and issued additional VAT assessments. The authorities argued that the margin scheme was not applicable because the paintings were not supplied directly by their creator.

Lower courts upheld the tax authorities' position, ruling that only the individual artist, not a legal entity like SRG, could be considered the 'creator' under the relevant VAT laws. GKG appealed these decisions to the Conseil d'État, France's highest administrative court.

The Conseil d'État has referred questions to the Court of Justice of the European Union (CJEU) for clarification on whether the EU VAT Directive allows a legal person, such as a company, to be considered the 'creator' of a work of art for the purposes of applying the margin scheme. Additionally, if such an interpretation is possible, the court seeks guidance on the criteria to be considered in determining when a legal person can be regarded as the 'creator' within the meaning of these provisions.

CJEU judgment

The court clarified that the VAT margin scheme can indeed apply to such supplies under specific conditions. The court established a set of criteria to determine whether the margin scheme can be applied to purchases of artwork from their creator or successor via a legal person. The criteria are as follows:

1.    Legal Entities on behalf of Creators: The CJEU ruled that works of art supplied by its creator or their successors through legal persons can qualify for the VAT margin scheme. This interpretation ensures fiscal neutrality and prevents distortions in the art market.

2.    Attribution to the Creators: For the VAT margin scheme to apply, the supply by the legal person must be attributable to the author or their successors. This is typically the case if the legal entity was established for the purpose of marketing the artist's works.

3.    First Introduction into the EU Market: The scheme is only applicable if the supply constitutes the first introduction of the artwork into the EU market, with no previous VAT-taxed supply of the artwork.

The CJEU also considered whether criteria such as the analysis of management roles or profit distribution within the legal entity could be used to determine the attribution to the creator. The court found this too cumbersome from an administrative point of view, and the aforementioned simplified criteria were deemed sufficient.