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 EU. The description of the two artworks in the Regulation corresponds to Hall of Whispers by Bill Viola and Six alternating cool white/warm white fluorescent lights vertical and centred (1973) by Dan Flavin.
Both artworks had been the subject matter of a dispute between Haunch of Venison, the contemporary art gallery, and HM Revenue & Customs ('HMRC'). HMRC had sought to classify these installations at the time of their importation into the UK not as artworks but as image projectors and light fittings. This meant that instead of applying the reduced rate of import VAT of 5% on their import value, HMRC applied the standard rate of VAT, then at 17.5%, and charged Customs duty at 3.7%. Extraordinarily, HMRC sought to apply the higher rate of VAT and Customs duty not to the value of the individual components as electrical goods, but on the import value declared by Haunch of Venison, ie the market value of works by Viola or Flavin.
The dispute over Hall of Whispers was eventually superseded by a dispute over six other video installations by Viola which Haunch of Venison had imported into the UK. HMRC sought to classify them in the same manner as Hall of Whispers. The dispute over Viola's six video installations and Flavin's light installation eventually went to trial before the London VAT Tribunal. The trial lasted four days. The Tribunal travelled to the Tate to view similar Viola and Flavin works. Several high profile witnesses gave evidence. In its judgment in December 2008, the Tribunal allowed the appeal by Haunch of Venison and held that Viola's video installations and Flavin's light installation were sculptures and should have been taxed at the reduced rate of VAT and that no Customs duty should apply. HMRC did not appeal the decision.
The matter should have rested there.
A Freedom of Information request has revealed that within weeks of the decision of the London VAT Tribunal, the issue was on the agenda of the EC Customs Code Committee sitting in Brussels. Several Member States reported to the meeting that their tax authorities had considered the issue of video art previously. The meeting was told that in two members states (including the UK), a VAT tribunal had held that video installations should be classified as sculptures. However, some Member States expressed the view that components of video installations should be taxed individually (eg as video projectors). By April 2009, without apparent further consideration or consultation, the committee decided that 'a draft regulation will be prepared for a future meeting – This will overturn the UK [and Dutch] National Court decisions'. Between June 2009 and January 2010, HMRC supplied technical information to the European Commission on Hall of Whispers and Six alternating cool white/warm white fluorescent lights, the two installations which had been selected as the subject matter of the Regulation. A proposal of Commission Regulation was put forward before the Customs Code Committee in June 2010, specifically describing the two installations and classifying their components individually as DVD players, projectors, light fittings, etc. The proposal was adopted at the meeting and supported by the UK, and this became EU Regulation 731/2010, published on 14 August 2010.
The European Commission rejected the classification of Hall of Whispers as sculpture on the grounds that a. 'the components have been slightly modified by the artist but these modifications do not alter their preliminary functions of [video players and loudspeakers]' and b. 'it is the content recorded on the DVD which, together with the components of the installation, provides for the modern art'. Turning to Flavin's Six alternating cool white/warm white fluorescent lights, they 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'.
The implications of Commission Regulation 731/2010 are that from 3 September 2010 (the date of its entry into force), the importation into the EU of the goods described in the Regulation will be subject to import VAT at the standard rate of 20% and Customs duty at an expected rate of 3% to 4%.
Does the Regulation apply solely to the goods described in the Regulation, namely Hall of Whispers and Six alternating cool white/warm white fluorescent lights, or does it apply to video and light installations generally? The general principle is that a regulation interpreting the Customs Tariff applies to goods that are identical to the goods described in the regulation. The national tax authorities often 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'. The assertion that the approach adopted by a classification regulation for a particular product can be automatically adopted in the case of similar products has been expressly rejected. Each case must be decided on its merits, based on an examination of the actual characteristics of each product.
Is the value on which the higher rate of tax will be calculated the value of a second-hand projector or DVD player, or will it be the market value of the work of art? If the collector or gallery imports the installation as an artwork, the declared value will be the value of the artwork and HMRC have suggested that this is the value they would use. The difficulty for the importer is that he may not be able to declare the import value of the installation as being simply the value of the equipment without violating Customs regulations, particularly where the importer acquired the installation (and paid for it) as a work of art. The basis of taxation was not considered by the London VAT tribunal, and the Commission Regulation is silent on the subject. Whilst it makes no sense to tax second-hand projectors or light fittings on the market value of an artwork by Viola or Flavin, HMRC may well seek to do so.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
