The company as artist

The reduced rate for works of art and the optional margin scheme both require the work to be supplied by its creator. Can a company be the creator for VAT purposes? That question is before the Court of Justice of the EU in Galerie Karsten Greve.

Art supplied by its creator

In the Netherlands the reduced VAT rate of 9% applies, among other things, to supplies of works of art such as paintings, provided they are supplied by the creator. Where a sole trader supplies a painting they made themselves, supplier and creator are plainly the same person. Where the painter sells their work through a company, the painter is the creator and the company the supplier.

In the Netherlands it is then permitted to look through the company, which may apply the reduced rate. Policy attaches a condition to that look-through approach: the work must in fact have been made entirely by the artist concerned and be recognisable as such. Whether this also applies to a partnership is not stated in the policy, but given the neutrality of VAT as to legal form it seems to us the obvious conclusion.

A reseller of a work of art supplied to them by its creator may apply the margin scheme. That optional scheme was restricted with effect from 1 January 2025. Where only 9% VAT is borne on the purchase of a work supplied by its creator, the resale is taxed at 21% under the normal rules. The margin scheme can still apply to the resale of a work that the creator supplied VAT-exempt under the small business scheme. The decree on the margin scheme does not explain who counts as the creator where the work is supplied through a company, but the same view as for the rate seems the obvious one.

Galerie Karsten Greve

The reference in Galerie Karsten Greve shows that not every member state takes it for granted that a company can be the creator. The French tax authorities refused a gallery the margin scheme on the resale of paintings that the painter Gideon Rubin had supplied to the gallery through the company Studio Rubin Gideon. The result was an assessment. The gallery contested it all the way to the French court of cassation, which asked the Court of Justice of the EU for clarification.

In his opinion, Advocate General Szpunar rightly points to fiscal neutrality. It would be contrary to that principle for the VAT treatment to differ depending on whether the painter supplies their work as a sole trader or through a company. Looking through the company, as Dutch policy does, ensures that comparable situations are treated alike. Because the Court holds fiscal neutrality in high regard, we expect the French authorities' strict reading of "creator" not to survive.

Criteria for identifying company with artist

When can a company be identified with the creator? The Advocate General touches on this only briefly. First, the creator must have sufficient decision-making power to have the casting vote on the sale. Second, the income from the sale, or at least a substantial part of it, must accrue directly or indirectly to the creator's assets. Situations in which a creator has a hierarchical superior are excluded.

Dutch policy adopts a broader, less formal approach, and in our view that factual approach is the more neutral one. According to the opinion, Studio Rubin Gideon has two partners: the painter and his wife. Suppose his wife is responsible for sales and has decision-making power over them. Under Dutch policy the company can still be identified with the creator, because the painting was in fact made by Rubin and is recognisable as a Rubin. On the Advocate General's view no such identification would be possible, whereas it would be if Rubin had the final say on the sale.

Nor do we regard the condition that the proceeds must accrue wholly or substantially (the Advocate General does not quantify this) to the creator as neutral. What should be decisive is not decision-making power over the sale and the use of the proceeds, but the nature of the transaction: the sale of the work created. For the average buyer it makes no difference who actually decides on the sale or how much of the price ends up in the artist's pocket.

We hope the Court takes a more factual and more neutral line on this point than the Advocate General. If it does not, the Netherlands will have to amend its policy.