In spite of protests by British ministers - Labour as well as Tory - and the European Parliament, the Commission is pushing ahead with plans to impose an artists' levy of up to 4 per cent on the resale of any work of art from next January.
It is expected that the proposal could drive force sales of more than pounds 370m out of London - driving art owners off to auctioneers and dealers into levy-free havens like New York or Switzerland.
The levy would apply to the work any artist who is an EU national, or the national of member state who has been dead for less than 70 years. It therefore covers work by artists ranging from Picasso, Matisse and Chagal through to Lucian Freud.
But a report from the Commons European Legislation Committee warned yesterday: "The Government appears to be short of allies amongst the other member states in its opposition to this proposal."
Marking their disapproval of the legislative process, the all-party committee put down a protest marker, blocking British ministerial agreement. Ian McCartney, the industry minister, indicated, however, that there was no risk of the move getting his vote.
"The amended proposal makes no concession to UK concerns that the proposal would damage the competitiveness of London's international art market in relation to its main competitor - New York - and other third-country markets," he told the MPs. It has been estimated that the levy would slash the earnings of London auctioneers and dealers by up to pounds 68m a year, with the potential loss of about 5,000 jobs, and only pounds 2m going to British artists or their heirs.
"Moreover," Mr McCartney added, "experience abroad shows that the majority of artists would get little, if anything. Royalties would go mainly to well-known artists or, more likely, to their heirs. The costs of the proposal in terms of damaging Community art markets would considerably outweigh the benefits to individual artists."
The European Parliament attempted to soften the blow by suggesting new price bands, lower royalty rates, and royalties that would apply only to profits, rather than the entire selling price - but all those changes were rejected by the Commission. Anthony Browne, chairman of the British Art Market Federation, told The Independent last night: "What we are saddled with is an internal market measure which is seeking to create a level playing field within Europe, while ignoring the global market in which we have to compete."
The move was completely illogical, he said. If it was argued that the Germans were at a disadvantage compared with London because they had the levy, the same disadvantage would apply to London compared with New York, when the levy was applied to London.
Mr Browne said: "The market will move and that is a shame because it is something we are very good at in this country." If Brussels wanted a level playing field, he added, it would be much simpler to abolish the levy in other EU countries.