New study shows art resale tax will damage market: Statistics show that rate cap will not protect top end of market

Droit de Suite, a tax on art resales aimed at benefiting artists and their heirs, is due to come into force on January 1, 2006.

With a sliding scale of charges starting at a four per cent rate on works sold at €3000 to €50,000, the levy is being capped at a maximum of about £8600 for works sold at €500,000 or more.

The fear is that the levy will persuade those selling works to send them abroad to countries, such as the United States and Switzerland, where no such tax will be charged.

Supporters of the levy, who believe it will rightly benefit artists who sell works for a pittance only to see them resell later for a fortune, say the cap will prevent this drain on sales. But this argument ignores cases where vendors are selling more than one work or even collections. And the new study, commissioned by The European Fine Art Foundation and carried out by the acknowledged leader in this field, Kusin & Co, shows that there is a damaging effect.

“At higher price levels, sales were concentrated in locations where Droit de Suite was not levied,” the report concluded.

This was supported by statistics that showed the comparative market share performance of art auctions across the world. While the US remains the largest market, its share declined from 60 per cent to 46 per cent between 2000 and 2003. Over the same period, the UK share rose from 19 to 26 per cent, before levelling back at 24 per cent. For the first six months of 2004, figures show a 31 per cent share for the UK and a seven per cent rise in the US share. However, the countries who levy Droit de Suite have lost more than half their global market share since 2000, dropping from 14 per cent to only six per cent.

Domestic sales are most likely to be hit in the Modern and Contemporary sector – currently the hottest market – especially where vendors are selling off a number of works or even a collection. In these cases the cap on charges for individual works will not prevent vendors looking elsewhere.

Victor Ginsburgh of the European Centre for Advanced Research in Economics and Statistics gives a stark example of this in an essay published as part of the Kusin study: “The £50m French Gaffé collection was sold in New York in 2001 because UNICEF, the beneficiary of the sale, was said to have so decided in order to avoid the additional cost of paying Droit de Suite [in France].”

February 9th’s sale of 26 Picasso drawings from the Berggruen Sketchbook at Sotheby’s in London would have attracted a £42,000 levy if the full directive had been in place, as it will after 2012 – even with the cap. The cost of packing and shipping it to the US where no levy would have been paid? £145.

British Art Market Federation chairman Anthony Browne, who worked closely with Kusin on the study, told ATG: “This report confirms the strong case made by the government against the directive.”

What the latest study shows even more clearly is that the levy largely fails to achieve its aim: to help struggling artists gain from the increasing value of works they have created when they are sold on.

The results showed that if all eligible auction transactions in the European Union for 2003 had yielded the levy, 81 per cent of the proceeds would have gone to the heirs of artists and not the artists themselves. The study also shows that where the levy is significant, it invariably is being paid to artists who are already wealthy, or to heirs made wealthy by their inheritance – in other words not to struggling artists. This is logical as, where an artist’s works are gaining in value, this will also generally apply to new works which they sell themselves, meaning that they are unlikely to be struggling.

Artists and heirs will still qualify for a cut of the resale price even when the vendor makes a loss.

Mr Browne acknowledges that, despite government campaigning against the measure at EU level, it is too late to prevent the introduction of Droit de Suite next January. However, he is keen to keep up the fight as the UK will not have to face the measure in full until 2012. For now, the levy will only apply to works by living artists – after 2012 it will also cover works up to 70 years after the artist’s death, a “catastrophic” prospect for the UK market, says Mr Browne.