European definition of art is absurd
The fact that the European Commission can, without any public consultation or publicity, overrule the decision of two national tribunals, makes a mockery of the judicial process
By Pierre Valentin. Comment, Issue 220, January 2011
Published online: 13 January 2011
On 11 August 2010, the European Commission decided that a video installation should be classified as “DVD players and projectors”, and a light installation as “light fittings” when imported into the European Union [a decision which came to public attention last month, see The Art Newspaper, December 2010, p59, and which could have widespread implications for the art trade, see p58].
The two works, Hall of Whispers, 1995, by Bill Viola and Six Alternating Cool White/Warm White Fluorescent Lights Vertical and Centred, 1973, by Dan Flavin, had been the subject of a dispute between Haunch of Venison, the contemporary art gallery, and the UK’s HM Revenue & Customs (HMRC) in 2006. HMRC had sought to classify these installations not as works of art but as projectors and light fittings. This meant that instead of applying the reduced rate of value added tax of 5%, it applied the then standard rate of 17.5%, and customs duty of 3.7%. Extraordinarily, it sought to apply these taxes not on the value of the components but on the market value of the works.
The dispute over Hall of Whispers was eventually superseded by a dispute over six other works by Viola, which eventually went before a VAT tribunal in London. In its judgment in December 2008 it decided that Viola’s and Flavin’s installations were sculptures and should have been taxed at the reduced rate of VAT and not attracted customs duty. HMRC did not appeal the decision. There the matter should have rested.
But a Freedom of Information request that I submitted has revealed that within weeks of the London decision, the issue was on the agenda of the European Commission’s Customs Code Committee in Brussels. Several member states reported that their tax authorities had considered the issue of video art previously. The meeting was told that in two members states (the UK and the Netherlands), a VAT tribunal had held that video installations should be classified as sculptures. By April 2009, without apparent further consultation, the committee decided that “a draft regulation will be prepared for a future meeting. This will overturn that UK [and Dutch] National Court decisions.” This eventually became EU regulation 731/2010.
The commission’s reasoning is odd, to say the least. First it rejected the classification of Hall of Whispers as sculpture because “the components have been slightly modified by the artist but these modifications do not alter their preliminary functions of [video players and loudspeakers]”. Does this suggest that the owner of a Viola video installation would use it to watch “Gone with the Wind”? It then states that “it is the content recorded on the DVD which, together with the components of the installation, provides for the modern art”. The commission does not explain why the combination of the image and the other components cannot constitute a sculpture.
Turning to the Flavin, it rejected the classification as sculpture because “it is not the installation that constitutes a ‘work of art’ but the result of the operations (the light effect) carried out by it”. Does this mean that if a Flavin is switched on, it is a work of art, but if switched off, it is not?
The regulation came into force on 3 September 2010. Under it, the goods described are now subject to import VAT at the new UK standard rate of 20% and customs duty at an expected rate of 3%-4%. An important question is whether the regulation applies solely to the goods described, namely Hall of Whispers and Six Alternating Cool White/Warm White Fluorescent Lights, or whether it applies to video and light installations generally. The general principle is that a customs regulation applies to identical goods: national tax authorities regularly seek to argue that tariff classification regulations apply to similar products by analogy, and there is little doubt that HMRC will seek to make that argument in this case. However, the European Court of First Instance has held that the application of a tariff classification by analogy to similar products “calls for great care”. Each case must be decided on its merits.
Another important question is the value on which the tax will be calculated. Will it be the value of a second-hand projector, or will it be the market value of the work of art? During the Haunch of Venison case, HMRC suggested that it would apply the rate to the value as a work of art. The basis of taxation was not considered by the VAT tribunal, and the commission regulation is silent on the subject. While it makes no sense to tax second-hand “projectors” or “light fittings” on the market value of an artwork by Viola or Flavin, national tax authorities states may well seek to do so.
Can the regulation be challenged? An action may be brought before the European Court of First Instance in Luxembourg for annulment of the regulation. Before doing this, an applicant must pass an admissibility test by showing that he or she is directly and individually concerned by the regulation, which means it is unlikely that an action by anyone other than possibly Haunch of Venison would be declared admissible in Luxembourg.
The other avenue of challenge is an action in the national courts of any of the EU member states. If HMRC sought to rely on the regulation to tax the importation of a video or light installation at the higher rate, and such an attempt was resisted by the importer, the dispute could once again be brought before a UK VAT tribunal. The tribunal or the appeal court might refer questions of interpretation to the European Court of Justice, which could lead to a decision in the UK to decline to apply the regulation.
The EU regulation is a patently absurd piece of legislation. Adopted behind closed doors, without an apparent understanding of the subject matter, it reverses two national judicial decisions that both ruled that video installations should be classified as art. No judge had decided the issue in any other way. There was no need for the regulation, which is contrary to the jurisprudence of the European Court of Justice. On a more general note, the fact that the European Commission can, without any public consultation or publicity, overrule the decision of two national tribunals, makes a mockery of the judicial process.
The writer heads the Art and Cultural Assets Group of Withers LLP, London
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