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- Paul Le Moyne (1784-1873)
Hope, 1826
Marble - 157 x 73 cm
Paris, Musée du Louvre
Photo : Marie-Lan Nguyen (CC BY 3.0) - See the image in its page
The French Ministry of Finance and the French Ministry of Culture held a press briefing today on the issue of VAT on works of art which, for some days now, following the article published by Les Echos, has caused great concern among market players (see our article). This has made it possible to clarify the directive and to leave some hope that it will lead to an acceptable solution, which, it must be admitted, had eluded us at first.
The Ministry of Finance explained that the directive concerns all VAT rates and is not limited to the rates applicable to works of art. It recalled the current system, which is as follows
– the first sale, either by the artist to a dealer, or the purchase from the dealer outside the European Union, is currently taxed at the reduced rate of 5.5% on the full price of the work. This tax is not recoverable;
– subsequent sales are taxed on the margins, at the usual rate of 20%, but this VAT is recoverable by the professionals.
The Directive does not abolish the reduced rate, but requires that only one rate be taken into account: either 5.5% for all transactions, or 20%.
Two options are therefore possible for France, an alternative that can be summarised as follows
– either the reduced rate of 5.5% is retained for all purchase transactions. This means that for imports (or for the first sale of an artist), as for subsequent sales, this rate will be retained, but it will apply to the entire sale price, and no longer to the margin. It should also be noted that the import tax would become deductible for professionals;
– or the VAT system on the margin is maintained for sales following the first acquisition, but this assumes that the 20% rate is retained, and it would then also apply to the first and subsequent sales.
Of these two hypotheses, it goes without saying that the second, which would introduce a 20% tax on the import of works from outside the EU (for example, the United States, the United Kingdom or Switzerland), would be devastating for the french art market (and by repercussion for heritage and museums). The first, on the other hand, would provide a real advantage for the importation of works of art since the rate, which would remain at 5.5% for all, would also become deductible for professionals.
On the other hand, this measure would have an effect on subsequent sales, since today the 20% rate applies to the margin, and tomorrow a 5.5% rate would apply to the entire sale price.
Let’s imagine that a work of art is acquired for €100,000 by a professional and resold for €120,000 to a private individual. Today, the VAT on this transaction is 20,000 x 20%, i.e. €4,000. Tomorrow, it would be 120,000 x 5.5%, i.e. €6,600. If the dealer resells the work for 200,000, he would have paid €20,000 today, and €11,000 tomorrow. The higher the price difference between purchase and resale, the lower the VAT will be, compared to what it was before. In some cases the state will be the winner, in others it will lose out.
Although the ministries, including Bercy, have stated that they want to do everything possible to ensure that nothing jeopardises the art market in France, they have nevertheless said that they must examine the cost to the State of the second hypothesis. It is unfortunate that this calculation was not made before the French representatives in Brussels voted for this development.
The government now wants to move forward quickly and, after consultation, make a decision between the first and second hypothesis for the 2024 finance bill, i.e. by this summer.
Gabriel Attal, Minister Delegate in charge of Public Accounts, said he wanted to hear from representatives of the art world and announced that a working group would be set up to "reach a transposition solution accepted by all" and that this "will in no way jeopardise the operations of the art market or France’s assets in this sector".
Knowing that, as confirmed during the press briefing, only these two hypotheses are conceivable, it must be repeated that it is indeed the first that must be retained, even if it had a cost for the budget. For halting the development of the art market in France would have catastrophic effects on this sector which includes, in addition to dealers and auctions, a multitude of trades - restorers, framers, transporters, etc. - which depend on it and which bring in a lot of money. - It would also, as we have already said, have a negative impact on the industry. This would also be, as we have already had occasion to point out on several occasions, a disaster for museums and French heritage.