German Dealers Lambast Tax Hike on Artwork Sales

Representatives of German galleries say a political stalemate over the country's value added tax (VAT) rate on art could be the end of the culture industry.

As art fair season kicks off in Germany, the tax code affecting the country’s art trade remains unclear. Ahead of the opening of Art Karlsruhe, Peter Raue, the legal counsel for the German Association of Galleries and Art Dealers (BVDG), lambasted the ambiguities of the country’s tax code as it applies to art, the dpa reports. The organization also released a statement (available here in German) on the evening of Wednesday, March 12, outlining the value added tax (VAT) issues affecting art dealers and galleries.

Due to a mandate by the EU Commission, Germany’s VAT on the sale of art and other cultural goods was raised to 19 percent. That rate went into effect on January 1st of this year. VAT for visual art, excluding photography, was previously 7 percent, which is below the EU mandatory minimum rate of 15 percent. The BVDG’s statement points to neighboring Switzerland’s VAT of 8 percent as a direct threat to the viability of the art market in Germany.

The statement also makes reference to the loftier role that galleries play in the arena of cultural stewardship, saying that the higher tax represents an inadequate understanding of the particular risks and business intricacies involved in fostering artistic growth. The association claims these risks should be honored with special dispensation and that the lack thereof could “Endanger the future of the entire culture industry.”

The current 19 percent VAT is assessed on the difference between the sale price and the price a dealer has paid for the work. A secondary provision has been left in the agreement that would allow for a flat profit margin of 30 percent to be used for all transactions. Thus, 19 percent VAT would be assessed on 30 percent of the sale price of every artwork in Germany.

This shifts the tax burden away from the primary market. Under the 30 percent proposal, gallerists would end up passing on an effective tax rate of 5.7 percent to their customers. It could mean a marginally higher tax burden for secondary market dealers. However, where the current regulations seemingly require unheard-of transparency in the art market in order to calculate the profit earned on a work on which the 19 percent is assessed, the proposed flat profit margin would allow for business as usual.

So, what’s the problem? The provision remains in political limbo, with representatives from each of Germany’s 16 states needing to confirm the secondary provision to the tax hike. Until then, according to the BVDG, there is no secure basis upon which dealers and gallerists can set their prices. Certainly, the true effect of the increased VAT on the market remains to be seen. However, speaking with the dpa in Karlsruhe, Raue said that further delays to confirm the 30 percent option would “land us in chaos.”

German culture minister Monika Grütters’s office released a statement on Thursday in support of the association’s efforts. At an open hearing of the German Kulturausschuss (culture committee), Grütters said the failure of the states to affirm the provision was, in a word, “Scandalous.”

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