EGC VAT Case T-231/26 (Agenzia delle Entrate Direzione Provinciale Genoval) – Questions – VAT deductibility of general expenses for auctioneers under margin scheme

The ECJ has issued the Request for a preliminary ruling in the case T-231/26 (Agenzia delle Entrate Direzione Provinciale Genova),

The following Articles of the EU VAT Directive 2006/112/EC are discussed in the provided text:

Articles 333 to 341: These articles generally govern the special margin scheme for auctions.
Article 333: Specifically mentioned as providing that the margin scheme is an optional scheme applicable for determining VAT on supplies of second-hand goods, works of art, antiques, or collectors’ items made by an organizer of sales by public auction “acting in his own name and on behalf of the persons referred to in Article 334, pursuant to a contract under which commission is payable on the sale of those goods by public auction.”
Article 334: Mentioned in conjunction with Article 333, referring to the persons on whose behalf the auction organizer acts.
Article 336: States that the taxable amount for each supply of goods under this section is the total amount invoiced to the purchaser (in accordance with Article 339), less the net amount paid or to be paid by the organizer to his principal (as determined in accordance with Article 337), and the amount of VAT payable by the organizer for his supply.
Article 337: Referenced as determining the net amount paid or to be paid by the organizer to his principal.
Article 339: Defined as the total amount invoiced to the purchaser, consisting of the auction price, taxes, duties, levies, charges, and “incidental expenses such as commission, packing, transport and insurance costs, charged by the organiser to the purchaser of the goods.”
Article 167 et seq.: Referenced as the “rules governing the right to deduct” VAT, which the referring court believes the national interpretation might infringe.
Article 342: Also referenced by the referring court as potentially being infringed by the national interpretation. (It should be noted that Article 342 of Directive 2006/112/EC specifically addresses the details to be shown on invoices issued under the margin scheme, particularly that the VAT amount must not be separately stated).

Facts & Background

Appellant’s Business and VAT Audit: Appellant_1 Srl operates as a retail auction house for art. Tax audits for 2016 and 2017 by the Agenzia delle Entrate (Italian Revenue Agency) inspected their VAT returns, specifically questioning the deduction of VAT on services related to goods for sale due to the non-application of Article 40 bis of Decree-Law No 41/1995.
Disputed VAT Deductions on “Incidental Expenses”: The Revenue Agency identified supplier invoices for services like transport, valuations, and commissions, considering them “incidental expenses” necessarily attributable to individual goods sold at auction. They argued that VAT on these incidental expenses is never deductible under Article 40 bis(2) of Decree-Law No 41/1995, regardless of whether these costs were passed on to the buyer.
Company’s Argument and Initial Appeals: The company contended that these were general expenses, not specifically attributable to individual lots, and even if they were, the costs were not passed on to the successful bidder and thus didn’t affect the margin calculation. The company lodged appeals against the resulting tax assessment notices, but the Tax Court of First Instance in Genoa dismissed them, upholding the Revenue Agency’s interpretation.
Interpretation of “Incidental Expenses” and Margin Scheme: The core of the dispute lies in the interpretation of “incidental expenses relating to the sale” within the special VAT margin scheme for auction sales. The Revenue Agency and the first instance court broadly interpreted this to include all expenses incurred in organizing an auction, requiring their allocation to each item, even if not passed on to the customer, thus precluding VAT deduction.
Referring Court’s Concerns and Preliminary Ruling Request: The referring court (Corte di Giustizia Tributaria di secondo grado della Liguria) expressed concerns that this broad interpretation of national law (Article 40 bis(2) of Decree-Law No 41/1995) might conflict with EU law, specifically Articles 342 and 167 et seq. of Directive 2006/112/EC, the principle of VAT neutrality, and the freedom to conduct a business. Therefore, it referred the matter to the Court of Justice of the European Union for a preliminary ruling.

Questions

The questions raised in this appeal should be referred to the Court of Justice of the European Union for a preliminary ruling to determine:

whether Articles 342 and 167 et seq. of Directive 2006/112/EC, as well as the principle of VAT neutrality, must be interpreted as precluding an internal practice of the tax authorities which interprets a national provision – under which, for operators of auction houses, the tax on incidental expenses relating to the sale is not deductible – as extending the non-deductibility to expenses which cannot be regarded as incidental to the sale by auction of the individual item or which are not charged by the organiser of the auction to the successful bidder;
[…] [standard provisions]
whether [Articles] 16, 26, 101 and 107 TFEU must be interpreted as precluding that practice of the tax authorities where it interprets the national provision to mean that operators of auction houses are not entitled to refrain from passing on the business’ general operating expenses to the purchaser, thereby restricting the freedom to conduct a business and free economic initiative in a manner that does not in any way prejudice tax considerations.

Source

Curia

Reference to other ECJ Cases

Case C-41/04, Levob Verzekeringen and OV Bank, EU:C:2005:649 (Page 8): This case is cited by the appellant company to support its argument regarding the ancillary nature of expenses. The document mentions that “the essential feature for defining a transaction as ancillary lies in the fact that it constitutes a single economic unit with the other transactions relevant for VAT purposes and that it is linked to the principal supply by a relationship of functional dependency.”
Case C-276/09, Everything Everywhere Ltd, formerly T-Mobile (UK) Ltd v Commissioners for Her Majesty’s Revenue and Customs, EU:C:2010:730 (Page 9): This case is cited by the court of first instance to support its interpretation of Article 40 bis(2) of Decree-Law No 41/1995. The document notes the case states “a transaction must be regarded as ancillary ‘if it does not constitute for customers an aim in itself, but a means of better enjoying the principal service supplied'”.