EU dealers lobby to slash VAT rates on art sales

Sellers throughout the European Union are lobbying their governments to grab the window of alternative provided by an EU regulation to cut back value-added tax charges for artwork.

The brand new directive, handed on 5 April 2022, goals to contribute to a single EU-wide VAT system that also provides member states the proper to set their very own charges internally. Decreased VAT charges—no decrease than 5% of the total value of an merchandise—may be utilized to specified items and providers deemed to “pursue targets of basic curiosity”. Nations are required to align nationwide legal guidelines with the brand new directive by the tip of 2024.

Beneath the earlier value-added tax directive handed in 2006, artwork was excluded from the checklist of services eligible for lowered VAT charges. However the brand new directive consists of “provide of artworks, collectors’ objects and antiques” in an annex itemizing 29 product teams that additionally comprise kids’s clothes and footwear, reside crops, admission to cultural occasions, books, newspapers and low-emission heating merchandise.

Crippled market

In Italy (as reported in The Artwork Newspaper final month), the federal government is poised to cut back the speed of import VAT for artwork arriving from nations exterior the frequent market to five.5%, the identical because the French charge. In Germany, sellers see a possibility to cut back VAT for home galleries to 7% from the present 19%, which they are saying is crippling the market and has lengthy been a bone of competition.

For France, motion is crucial as a result of its present system, beneath which sellers apply VAT solely to their revenue margins, is now not admissible beneath the brand new directive. The so-called margin scheme has enabled galleries in France to use an efficient VAT charge decrease than 6%, says Gaëlle de Saint Pierre, a tax skilled at France’s Comité Professionnel des Galeries d’Artwork. The prospect of the margin scheme’s disappearance has dismayed sellers and propelled the affiliation into intensive discussions with the finance ministry.

Birgit Maria Sturm, managing director, BVDG

“The closest answer to the present system is a 5.5% VAT charge for all artwork gross sales,” De Saint Pierre says. “The lowered charge would apply to everybody. The federal government will in all probability decide this yr. They don’t need galleries to go away France and go to London.”

France’s beneficial VAT charges for artwork have helped the home market to flourish. The low charge of import VAT has positioned the nation because the EU’s gateway for artwork from exterior the bloc, whereas the margin scheme has benefited home sellers. With complete gross sales near $5bn, France’s share of the worldwide artwork market rose to 7% in 2022 from 3% in 2001—making it the fourth largest market globally—and it accounted for greater than half of the EU market, in keeping with Artwork Basel and UBS’s The Artwork Market 2023 report.

In distinction, Germany, Europe’s largest financial system, accounted for simply 2% of the world market in 2022. For round a decade, sellers’ affiliation the Bundesverband Deutscher Galerien und Kunsthändler (BVDG) has been pushing for a re-introduction of the lowered 7% charge for artwork that utilized beneath German regulation till 2014. Germany was pressured to scrap that charge by the European Fee and impose the overall VAT charge of 19% on sellers as a result of artwork was excluded from the checklist of products and providers eligible for lowered charges beneath the 2006 directive. Solely artists can benefit from the decrease 7% charge.

Unprecedented alternative

“The unequal tax therapy of artists and their sellers had penalties: dozens of galleries closed down, newcomers stayed away and development on the artwork market stagnated,” says Birgit Maria Sturm, the BVDG’s managing director. “German galleries weren’t solely subjected to unequal therapy vis à vis artists, but additionally to a distortion of competitors inside the EU.”

German sellers competed not solely with France’s margin scheme, but additionally with sellers in Belgium and Luxembourg who managed to avoid the total VAT charge. In Belgium and Luxembourg, many sellers have redefined themselves as brokers representing artists; by asking artists to ship invoices on to collectors, they will cost a lowered charge.

Sturm sees an unprecedented alternative to revive the lowered charge for German galleries and has corresponded with the tradition ministry, which she says is sympathetic to the plight of sellers. The ministry is, in flip, in touch with the finance ministry. She expects a lowered VAT charge for artwork to determine in discussions concerning the federal price range this autumn.

“The door is extensive open,” she says. “The federal government has an opportunity to show that it’s severe about its dedication to strengthen cultural industries.”

Smaller nations might also seize their probability. In Austria, an emergency short-term discount in VAT on artwork to five% was utilized in the course of the pandemic, says Ernst Hilger, a vendor and board member of the Federation of European Artwork Galleries Affiliation.

“It was immensely useful, far more so than money handouts,” Hilger says. Austrian galleries are lobbying the federal government for a completely decrease charge of VAT, he says: “We very a lot hope that the speed might be lowered.”