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   On   Monday  14 February  the  Ecofin Council  unanimously  adopted   the
   definitive text of the Seventh VAT Directive, which establishes a  common
   system  of  taxation  for  sales of  second-hand  goods,  works  of  art,
   collectors'  items and antiques and for imports of works of art into  the
   Community.  This agreement is the culmination of more than 15 years' work
   at Community level and will enter into force on 1 January 1995.

   According to Mrs Christiane Scrivener, the Member of the Commission  with
   special  responsibility for taxation, customs and consumer policy,  "this
   Directive  is  essential  for the satisfactory operation  of  the  single
   market.  It  sets in place the definitive frontier-free VAT  arrangements
   for  these sectors.  It also safeguards the interests of  consumers,  who
   will no longer run the risk of being taxed twice (if not more!) when they
   buy  an  antique or a second-hand car.  On top of the fluidity  of  trade
   that  professional dealers need, it ensures the security of  transactions
   for consumers".

   Principle of taxation

   1. The  Seventh VAT Directive confirms that sales of the goods  concerned
      between  individuals  are  not  subject to VAT  or  to  any  formality
      throughout  the  Community (freedom to purchase  in  any  Member State
      under  the definitive arrangements:  tax is paid once and for  all  at
      the place of purchase).

   2. For  professional dealers, VAT is to be levied on the vendor's  profit

      Most  second-hand  goods  as well as works of art  and  antiques  have
      already  borne VAT when they were originally sold as new or were  sold
      at a previous stage.  To tax them once more on their total value  when
      they are brought back into the commercial circuit, as is currently the
      practice in most Member States,1 means that they are taxed twice.

   1  Belgium, Denmark, Germany, Greece, Ireland, Italy, Luxembourg and  the

      This  overtaxation may become even heavier in the case  of  successive
      resales  between  professional dealers and private  individuals,  such
      transactions being be frequent where works of art are concerned.

      In  order  to  remedy  this  situation and  to  reduce  the  risks  of
      distortion  of competition to which the different systems of  taxation
      in  Member States  give rise in this area,  the  Seventh VAT Directive
      provides that throughout the Community sales of second-hand goods  and
      works  of art will be taxed, in the country of the vendor and  at  the
      standard rate of VAT, on the basis of the vendor's profit margin  (the
      difference  between the price at which he purchased the good  and  the
      price at which he resells it), and not on the basis of the full value.

      The  Directive  thus introduces from 1 January 1995 the  principle  of
      taxation   in  the  country  of  origin  (the  fundamental   principle
      underlying  the  definitive frontier-free VAT arrangements), and  this
      will  enable goods to move freely without any formality.  To  take  an
      example, a Danish antique dealer will be able to buy a picture from an
      Italian dealer who has applied VAT to his profit margin at the rate in
      force  in  Italy  (currently  19%, instead  of  25%  in  Denmark).  In
      practical terms, this means that dealers will be able to buy  anywhere
      in the Community under the same conditions as private individuals.

      A  special feature of the system is that the rates of VAT  applied  to
      the  resale margin will be the target rates,2  although  Member States
      may  apply their reduced rate (not less than 5%) to sales made  direct
      by artists or their families or heirs.

      Special  arrangements  have also been laid down for  sales  by  public
      auction which allow application of the principle of taxing the margin,
      while confirming at Community level the legal and professional  status
      of  auctioneers.  VAT will be charged on the auctioneer's fee and  not
      on the full value of the object sold.

      Germany has been granted a temporary derogation from the provisions of
      the  Seventh Directive:  for purely domestic transactions in works  of
      art,  that country will, during the period in which  the  transitional
      VAT arrangements are in force but not later than 30 June 1999, be able
      to apply the normal arrangements for taxation of the full value at the
      reduced rate applicable there (7%).

   3. Rules on imports of works of art, antiques, etc.

      The Directive also lays down common rules for taxing imports of  works
      of  art, collectors' items and antiques into the Community.  This  was
      one of the areas in which it proved most difficult to secure agreement
      on  the  Directive.  For such imports, Member States will be  able  to
      apply  a  reduced rate of at least 5% or a taxable amount  reduced  in
      such  a  way  that the tax is equal to at least  5%,  instead  of  the
      standard  rate  of VAT.  Exports from the Community will  be  exempted
      from VAT.

   2  Most of the goods concerned are taxed at the standard rate of VAT, but
      second-hand  or  antique  books may, like new ones, be  taxed  at  the
      reduced rate.

      In  order to take account of the special situation which  has  existed
      until  now in the United Kingdom, namely the exemption of  imports  of
      works  of  art  dating from before 1973, the  Directive  enables  that
      country  to  apply  an effective extra-low VAT rate of  2.5%  to  such
      imports  during the period in which the transitional VAT  arrangements
      are  in  force  and  until  a  date  which  may  not  be  later   than
      30 June 1999.

      Lastly, the customs procedure for the temporary admission of works  of
      art intended for re-export has been extended.  Such works of art  will
      be  able  to  circulate throughout the Community  without  payment  of
      customs duties or charges for two years, instead of for six months  as
      at  present.  The existing period is too short and impedes trade,  and
      its extension will stimulate the art market.

      The  Seventh VAT Directive  does not affect the arrangements  for  the
      exemption from VAT of works of art imported by museums.

   4. Definition of second-hand cars

      In  order  to  determine in common the scope of  this  Directive,  the
      Twelve  have also agreed on a new definition of new vehicles  covering
      vehicles  which  are less than six months old or have  travelled  less
      than 6 000 kilometres (instead of the previous limits of three  months
      and 3 000 kilometres).

                                   * * * * *

      Standard rates of VAT applied at 1 January 1994 in the Member States

      Member State                                     Standard rate

      Belgium                                               20.5%
      Denmark                                               25%
      Germany                                               15%
      Greece                                                18%
      Spain                                                 15%
      France                                                18.6%
      Ireland                                               21%
      Italy                                                 19%
      Luxembourg                                            15%
      Netherlands                                           17.5%
      Portugal                                              16%
      United Kingdom                                        17.5%

                                     * * *

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