VAT on antiques a thing of the past

Antique sellers may soon have to start imposing 18 per cent VAT on their sales instead of the present reduced rate of five per cent as the European Commission challenges Malta’s interpretation of its rules.

If the goods are not listed, then the member state cannot apply a reduced rate

The Commission has started legal proceedings against Malta claiming the island’s VAT application on antiques, fine arts and collectors’ items is illegal.

The Times has learnt that a letter of formal notice – the first warning in a three-pronged legal procedure adopted by Brussels – has already been sent to the government.

Although the Maltese authorities disagree with the Commission’s interpretation of the EU’s VAT Directive, Brussels is insisting the situation may be distorting competition as other member states impose a full VAT rate on these luxury items.

The Commission’s official spokesman for taxation policy confirmed Brussels had an issue with the island over the matter and said Malta’s present regime was being considered illegal.

The spokesman said Malta’s five per cent on these items was not allowed under the VAT Directive as only goods or services listed in Annex III could be given a reduced rate if member states so chose.

“If the goods are not listed, then the member state cannot apply a reduced rate.

“This is important to ensure consistency and fair competition within the internal market.”

The government, however, argues the Commission is wrongly interpreting the directive and is trying to convince Brussels to reverse its warning.

The Commission’s interpretation could even create an unequal playing field in this sector, the spokesman said.

Although unrelated to this case, VAT laws and particularly the use of reduced rates and exemptions are in the Commission’s focus as many EU officials are seeking new sources of revenue for the EU’s budget and to boost national coffers in a time of growing economic uncertainty.

In a communication published earlier this month, aimed at revamping VAT law after 40 years from its implementation, the Commission said it wanted to reduce to a bare minimum or completely remove the various reduced rates and exemptions applied by different member states.

Apart from having one of the lowest VAT rates in the EU – just 18 per cent compared to the EU average of 21 per cent – Malta, the UK and Ireland are the only member states which do not impose this tax on foodstuffs and medicine.

Malta also imposes a reduced rate of just seven per cent on hotel accommodation.

According to the Commission, these rates do not make any more sense in the EU and the present economic scenario. However, Brussels does not have the power to impose any changes if not with the unanimous agreement of the 27 members.