Committee Reports::Report No. 22 - Application of VAT to Works of Art Collectors' Items, Antiques and Used Goods::08 November, 1978::Report




1. The Joint Committee has examined the proposal for a Seventh Council Directive on the harmonisation of the laws of the Member States relating to turnover taxes—common system of value-added tax to be applied to works of art, collectors’ items, antiques and used goods [R/75/78 (Fin 24)].

2. The Sixth Directive [77/388/EEC] which is being implemented in Ireland by the Value-Added Tax (Amendment) Bill, 1977 introduced a uniform basis of assessment for VAT. It does not, however, cover used goods, works of art and collectors’ items but authorises Member States to continue any special national tax schemes applicable to those goods pending the adoption of a Community system in relation to them. The proposal now under consideration seeks to introduce such a Community system. The Sixth Directive envisaged such a system being adopted before the end of 1977 but in the event the present proposal did not emerge from the Commission until January, 1978. The Joint Committee understands that the draft Directive will not come before the Council before the end of this year.

VAT and Used Goods

3. Under the normal VAT system tax is charged on goods sold by taxable persons at all stages in the chain of distribution. Each seller in the chain may deduct from the tax for which he is liable the tax payable in respect of the transaction by virtue of which he acquired the goods from another taxable person.

4. For tax purposes used goods are taken to mean goods which having reached the final consumer are sold by him to a taxable person who resells them in the course of his business. If on such resale the normal system of tax were applied an element of double taxation would clearly be involved. To avoid this different arrangements apply in respect of such goods in the various Member States. In Ireland used goods are taxed at a lower rate. Moreover, a credit is allowed for traded-in goods accepted as part payment for the sale of goods of the same kind. Thus, for example, if a new car is sold by a trader who accepts a second-hand car as part payment, the tax is charged on the cash portion of the transaction only. The traded-in vehicle becomes liable to tax again when it is resold by the trader.

Commission’s Proposals

5. The Commission’s main proposals are that:

(a) for antiques, works of art, collectors’ items and used goods generally but excluding cars, trailers, motor-cycles, aircraft and pleasure vessels, VAT would be chargeable on 30 per cent of the dealer’s selling price. The Commission suggests that 30 per cent would seem to be the figure closest to the average profit margin added by dealers. Except in the case of works of art, antiques and collectors’ items imported or sold for export no deductions would be allowed in respect of any tax paid at the time of purchase (even if purchased from another taxable person who charges tax on the sale) or for tax paid on the purchase of goods and services used incidentally for the purposes of these activities.

(b) for motor cars, trailers, motor-cycles, aircraft and pleasure vessels VAT would be chargeable on the full selling price but dealers would be able to deduct even if the purchase was made from a non-taxable person, an amount of “input” tax based on the actual price at which they had bought the article, subject to a limit of four-fifths of the output tax due.

(c) works of art sold or imported by the artist himself would be exempted from VAT. The Commission justifies this limited exemption by saying, inter alia, that works produced by artists are of significant cultural importance and therefore a reason why public authorities should adopt a benevolent attitude in the matter.

6. The draft Directive also provides that taxable persons who derive no benefit from the EEC schemes may opt for the application of the normal scheme for value-added tax.

7. The draft Directive would oblige Member States to apply VAT to supplies “where they are effected by taxable persons, who acquire such items with a view to their resale and to transfers of such items where they are carried out by persons exercising an intermediate function of whatever kind”. As indicated later in this report the interpretation of this provision gives rise to some difficulty.

Implications for Ireland

8. The implications of the proposed Directive for Ireland are difficult to assess. The Directive is intended to mitigate the double-tax or “cascade” effect in the taxation of used goods. The Irish method of effecting this mitigation at present is to apply a rate of 10 per cent where new goods attract a rate of 20 per cent. If the 10 per cent rate were continued the Community scheme might operate to reduce the present burden on some at least of the relevant goods but this might be seen as a double provision against cascading. The actual rate of course is a matter to be determined by national legislation.

9. The Joint Committee is advised that the present “trade-in” arrangements under which the dealer is liable for VAT on the money consideration only involved in the sale of the new article and later on the price at which he sells the traded-in article would have to be dis-continued. The Commission’s alternative, if adopted, would undoubtedly have an affect on this type of trade in Ireland. The Society of the Irish Motor Industry believes that it would increase the incidence of taxation and it is difficult to avoid the conclusion that it will at least lead to a noticeable change in the pricing policies of dealers.

10. A further effect has also been brought to the Committee’s attention. Under the present scheme the valuation of the traded-in article is not material since the tax applies only to the money consideration. Under the Directive, however, the individual values would require to be controlled. This follows from the fact that the deduction would not be claimable until the time of resale and also from the ceiling of four-fifths. For this reason, more detailed records would be required from the trader.

11. The Committee is advised that because of the variety of circumstances in which the Community scheme would operate, it is not possible to estimate accurately the loss of revenue likely to be involved. On the basis of existing rates, the annual loss should not exceed £300,000, but if the “used-goods” rate is replaced, where appropriate, by the 20 per cent rate, the loss would be reduced below £100,000 per annum.

Views of the Joint Committee

12. In the Joint Committee’s opinion the most important feature of the proposed Directive is the likely effect on trade-in arrangements, particularly in relation to motor cars, as they operate in this country at present. The Committee cannot accept the Commission’s proposals in this regard as satisfactory. The Committee accepts the argument of the trade that the assumption on which the proposals are based, namely, that the mark-up on the price of used cars is 25 per cent, is fallacious. Consequently it recommends that this provision in the Directive should be resisted.

13. Moreover the Committee believes that the motor trade has a case when it claims that whatever input credit is to be allowed in respect of the acquisition price of used cars should be allowed at the time of the acquisition of the used car. It recommends that the position be examined to see if the VAT Directives allow this result to be achieved by national legislation.

14. The Irish Antique Dealer’s Association has also expressed criticism of the proposals. The Association points out that the antique business in Ireland is characterised by a rapid turnover and low profit margins. Accordingly, the charging of VAT on a standard 30 per cent of the dealer’s selling price without a deduction for any “input” tax paid at the time of acquisition would cause difficulties for the trade. The Association apparently would prefer the present system to remain. The Joint Committee believes that where a dealer sells articles acquired from other taxable persons the proposed Directive would permit his opting for the present tax system in respect of this kind of trade.

15. The Joint Committee has had difficulty in interpreting the provision that VAT is to be charged on supplies of goods covered by the Directive where “transfers of such items.... are carried out by persons exercising an intermediate function of whatever kind”. The Irish Auctioneers and Valuers Institute interpret this as meaning that auctioneers would be liable for VAT on sales of all second-hand goods passing through their hands. The Committee’s interpretation, on the other hand, is that, in the case of sales through intermediaries, tax liability would arise only if the seller were a taxable person and it notes that this is also the view of the Economic and Social Committee. Whatever the intention, the Committee considers that sales by private individuals through auctioneers should not be liable to VAT and it recommends that the proposed Directive be amended accordingly. There is provision in the Value-Added Tax (Amendment) Bill, 1978 to make auctioneers liable for VAT on their commission.


16. The Joint Committee wishes to record its sincere thanks for the invaluable assistance it has received from the Irish Antique Dealers’ Association, The Society of the Irish Motor Industry and The Irish Auctioneers and Valuers Institute in its examination of the draft Directive.


Chairman of the Joint Committee.

8th November, 1978.