France - Dispute Over VAT Application for Artworks

On June 18, 2024, the European Court of Justice (ECJ) made publicly available a request for a preliminary ruling on a case initiated by the French Council of State. It involved a dispute between the French Tax Authority and Galerie Karsten Grave, an art gallery. The art gallery, exercising its rights, contested the obligation to pay additional VAT from January 1 to December 31, 2014.

Matters of the Case

After the French Tax Authority audited the art gallery's account, it was instructed to pay additional VAT for 2014, which was disputed before the Administrative Court of Appeal in Paris (Appeal Court). Following the dismissal of its complaint to the Appeal Court, the art gallery brought this case before the Council of State.

In its appeal to the Council of State, the art gallery stated that the Appeal Court did not interpret the French General Tax Law and EU VAT Directive and the facts of the case correctly and, therefore, wrongly refused to apply the margin taxation scheme for sales of paintings that the art gallery acquired from Studio Rubin Gideon, a UK-based taxable dealer.

Since the Council of State found it challenging to settle this dispute, it raised the question to the ECJ.

As stated in the request for a preliminary ruling, the main question, in this case, is whether Studio Rubin Gideon, as a legal entity, can be considered the creator of the paintings, thus allowing the application of the VAT margin scheme. 

In addition, the Council of State raised a question of which criteria are applicable if the ECJ finds that the answer to the main question is negative.

Conclusion

If the ECJ's final ruling confirms the decision made by the French Tax Authority and the French Courts, the art gallery will have to pay the VAT due and face potential penalties and interest. Ten years have passed since the period in question, and these penalties and interest could significantly impact the art gallery. Therefore, all parties will patiently await the ECJ's final decision.

Source: ECJ C-433/24 (Galerie Karsten Greve)