ARTnewsletter Archive

Britain Fears New Art Tax Will Chase Away Sales

In January 2006, Britain will fall into line with the majority of other European Union (EU) member states by charging the levy known as droit de suite (artists’ resale royalty fees) on works of art by living artists. The new tax, set to take effect in Britain early next year, has auction houses and art

LONDON—In January 2006, Britain will fall into line with the majority of other European Union (EU) member states by charging the levy known as droit de suite (artists’ resale royalty fees) on works of art by living artists. The new tax, set to take effect in Britain early next year, has auction houses and art dealers concerned that the increased costs will drive business out of the country. The EU directive was passed by a qualified majority of the European Parliament, voting on Oct. 13, 2001, as part of the “harmonization” of tax laws among EU member states. But far from promoting harmony, the Brussels directive is striking a discordant note among those lobbying to protect London’s status as the preeminent center of the international art trade.

While the directive acknowledges that the resale fee “is an element which must be taken into account by each individual wishing to sell a work of art,” it fails to assess the extent to which that same element might steer buyers toward non-EU trading centers, such as the United States and Switzerland, which seem to have no intention of adopting the levy. Critics of the scheme insist that Brussels was so fixated on eradicating “distortions of competition as well as displacement of sales within the Community,” to quote the directive, that it overlooked the extent to which EU harmonization could be at the expense of EU competitiveness in a global market.

The ruling is currently subject to the British government’s three-month “consultation” period, which ends this year on 17 May.

Precise details of the levy are yet to be confirmed but, thanks to some muscular lobbying from art-market professionals, the British government has won a number of important concessions that may help to sweeten an otherwise bitter pill for the U.K. trade.

Foremost among these concessions is that in the first four to six years, the charge will be levied only on the works of living artists. From 2012 on, however, the U.K. will conform with those countries where droit de suite is already in operation and will levy it on copyright duration (i.e., payable to heirs up to 70 years after an artist’s death). Second, although member states can charge a levy of 5 percent, the British government has indicated that it will charge only 4 percent. The resale royalty is capped at a maximum of €12,500 (about $16,000) per work.

For example, Damien Hirst’s famous formaldehyde-pickled shark (The Physical Impossibility of Death in the Mind of Someone Living, 1991) was sold recently for about £6.5 million ($12 million) by London collector Charles Saatchi, who paid £50,000 for the work in 1991. If the latest transaction had been subject to droit de suite, Hirst would have earned the maximum royalty of €12,500 ($16,100). If the work had been sold for the same price in Germany, where the royalty is uncapped at 5 percent, Hirst would have pocketed about £325,000 ($610,000).

Adopted by France 85 Years Ago

Droit de suite first became law in France in 1920, but one of the earliest instances of its informal use had occurred six years earlier at the famous Peau de l’Ours (Skin of the Bear) auction in Paris in 1914. On that occasion a group of speculators, who had assembled an investment collection of works by Paul Gauguin, Vincent van Gogh, Henri Matisse, Pablo Picasso and other artists during the previous decade, voluntarily opted for dispersal of the collection to pay 20 percent of the sale profits back to the artists.

Today, as a major earner within the upper end of the fine art spectrum, the Picasso estate continues to benefit from droit de suite. But some commentators fear that in the future, collectors wishing to sell works by Picasso will assess the relative costs and consign them to New York instead of London.

Anthony Browne, chairman of the British Art Market Federation, which speaks on behalf of the British trade, has lobbied tirelessly to prevent the imposition of droit de suite. He applauds the British government for winning certain key concessions but is committed to opposing the levy in the longer term. He cites, theoretically, a Japanese collector with six pictures to sell, each worth over €2 million. “That represents €75,000 more tax in London than in New York,” says Browne. “If you add a charge here that is absent among our major competitors, then we’re obviously less attractive. The first impact will be from non-EU sellers.”

Several London dealers approached by ARTnewsletter declined to comment on the issue. However, Sir Thomas Lighton, managing director of Cork Street’s Waddington Galleries, has followed the legislation through its various negotiations and believes it will be detrimental to those it purports to help. “You’d be surprised how many overseas museum curators, collectors and gallery owners come here for auctions and also tour the small London studios of younger, less well-known artists,” Lighton told ARTnewsletter. “There will be less incentive to do so under the levy. That’s the sort of exposure the younger artists will lose.”

Lighton also foresees instances in which an overseas seller wishing to sell a Matisse and, say, an important Chippendale cabinet, might choose to consign the Matisse to New York to evade the levy, and, for convenience sake, would send the cabinet as well—consequently causing London to lose out twofold.

The issue of who will collect the levy is still being considered. It could be handled in the U.K. by an agency such as the Design and Artists Copyright Society (DACS), a nonprofit organization representing more than 50,000 artists, photographers, illustrators, designers and craftspeople. The DACS has

supported introduction of the levy from the outset and continues to argue for “compulsory collective administration” (i.e., that an agency would collect and distribute the levies from the trade and pay them to the artists rather than leave it up to the trade to do so voluntarily). They also argue for a royalty rate of 5 percent, and a minimum threshold value of €1,000.

The lower threshold would mean that “92 percent more artists would benefit,” according to the DACS. Says spokeswoman Tania Spriggens: “Even modest income from this source makes an important contribution to the ability of artists to earn a living so they can continue to make art.”

The DACS maintains that the U.K.’s capping of the levy at €12,500 per work would act as a disincentive to anyone considering exporting works elsewhere to avoid the royalty.

Conservative member of Parliament David Heathcoat-Amory—whose 1998 pamphlet “A Market Under Threat” was among the first broadsides against imposition of the levy—feels the British government should take advantage of its presidency of the EU this year to repeal the law. Says Heathcoat-Amory: “If they try to amend or repeal it later, a lot of damage will already have been done.”

TOM FLYNN

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