CJEU: Harry Mensing v. Finanzamt Hamm (Case C-264/17)
On 29 November 2018, the Court of Justice of the European Union delivered its judgment in the case Harry Mensing v. Finanzamt Hamm (Case C-264/17), addressing the application of the profit margin scheme when the creators supply the works of art and declared the supply as an intra-Community supply exempt from VAT.
The general rule is that VAT is calculated over the total amount that is charged to the customer (“selling price”). The profit margin scheme allows a different method, under which a VAT taxable reseller of second hand goods, works of art, antiques and collector’s items (“reseller”) may calculate VAT over the profit margin of the supply instead of the selling price. The profit margin is equal to the difference between the selling price charged and the purchase price of the reseller.
Harry Mensing (“Mensing”) is a trader in work of arts in various cities in Germany. In 2014, Mensing received works of art which were supplied by creators residing in another Member State. The creators declared the work of arts as a VAT exempt intra-Community supply. Consequently, Mensing paid German VAT on those supplies in respect of the intra-Community acquisition. Mensing did not deduct the input VAT related to those supplies although, according to the referring court, it was still open for him to do so.
The German tax authorities rejected the request of Mensing to opt for the profit margin scheme on the supply of the works of art based on German legislation which excludes intra-Community supplies from the profit margin scheme. In addition, the question was raised whether the profit margin scheme can be used when the suppliers are not mentioned in art. 314 of the VAT Directive.
The judgment of the CJEU
The CJEU first considered that a reseller may opt for the application of the profit margin scheme when the work of art is supplied by the creator in the context of an exempt intra-Community supply. According to the Court, the profit margin rule regulates the VAT taxation when the goods are sold by the reseller, and not when the reseller acquires the goods. Therefore, the intra-Community supply of the creators is irrelevant.
Secondly, the CJEU considered that a VAT taxable person may opt for the application of the profit margin scheme even though the creators are persons who are not mentioned in art. 314 of the VAT Directive. The CJEU concluded that art. 316 of the VAT Directive provides resellers the right to opt for the profit margin scheme and have to be viewed separately and additionally to art. 314 of the VAT Directive, under which the resellers are obliged to apply the margin scheme.
Thirdly, the CJEU considered that the reseller may not deduct input VAT and, at the same time, opt for the profit margin scheme.