A new EU tax directive that will dramatically raise the cost of selling art in France “would be fatal” for the country’s art market”, warns Thaddaeus Ropac, the founder of the eponymous global gallery brand. He is one of a growing legion of dealers, auctioneers and advisers who are up in arms over what the rule, if implemented into national law, could mean for France’s position in the global art market.
The directive seeks to set the import sales tax of goods, including works of art, at 20% for all EU members, and also derail a “Margin Scheme” widely used by French dealers that reduces the amount of VAT paid on works of art. The directive was quietly adopted by the European Commission on 5 April 2022, but only came to the attention of the wider art and antiques industry following a report in the French financial daily Les Echos on Wednesday. It states that the EU’s decision was taken “without an impact study or consulting industry professionals”; a number of leading French dealers and auctioneers say they were unaware of the directive until just this week.
While the rule applies to all 27 EU states, it will be particularly detrimental to France. The country is currently experiencing an art market renaissance: its share of global art sales has risen from 3% in 2001 to 7% in 2021, and it now accounts for half of the EU’s market, according to the research firm Art Economics. Sure signs of this include mega galleries such as David Zwirner and Hauser & Wirth having recently opened outposts in its capital, Art Basel launching its Paris+ fair, and booming auction results, which last year totalled more than $1bn in France for the first time ever.
A key factor of France’s success is that it levies the EU’s lowest import tax on works of art, at 5.5%. This number is considerably lower than other wealthy EU countries with established art industries, such as Germany (19%), Spain (21%) and Italy (22%). Prior to Brexit, the UK’s 5% VAT import tax was the EU’s lowest, but its departure from the union has since positioned France “as the sole entry point for global players into the EU,” says Franck Prazan, the director the Paris gallery Applicat-Prazan.
France currently maintains this 5.5% rate for sales of artworks being imported into the country or being sold by an artist to a gallery. A 20% VAT rate only applies in theory to profits made from secondary sales. According to Prazan, his gallery, which specialises in 20th-century art and is “among France’s most significant in terms of the secondary market” makes great use of the now-imperilled Margin Scheme, whereby 20% VAT is charged to neither the buyer or the seller of the artwork, but calculated according to the margin of profit. “Either the margin collapses, or prices explode. Both ways, the market is dead,” he says.
EU-member states have until 1 January 2025 to implement the directive into their national law, although Prazan thinks that it will likely come into effect in France, unless stopped, by the end of 2023, during the next budget. That decision “would bring France’s art market renaissance to an abrupt end,” Ropac says. The leading French dealer Emmanuel Perrotin took to Instagram yesterday to express his dismay. “Should we really let the French art market be killed in silence?” he asked, demanding a “cultural exception” for his field.
These sentiments are also echoed by Paris+’s director, Clément Delépine, who says that the directive, should it be transcribed into national law, “risks undermining the competitiveness of the French art market, to the detriment not only of galleries but ultimately the artists at the heart of the art ecosystem”. He says that Art Basel is “in active dialogue with its exhibitors, partners and colleagues in the field and supportive of their efforts to counter this directive and ensure the French art scene continues to thrive”.
Indeed, France’s Comité Professionnel des Galeries d’art (CPGA), is now set to lobby the French government for such an exception. In a press release yesterday, the committee said that it is “alerting the Ministry of Culture to obtain an exception for works of art from Bercy [the Ministry of Finance], or for France to negotiate a moratorium at European level”.
The release adds that those that stand to gain most from the directive are France’s main art market competitors: the US, the UK, Switzerland and Hong Kong.
But there may be hope yet. Fresh from a meeting with France’s culture ministry, CPGA’s president Marion Papillon says that “we definitely agreed that to support the French market, low sales taxes rates of 5.5% need to be definitely set. It is the only way to apply the new rules on reduced taxes.”
In fact, if implemented correctly and with the guidance of industry professionals, the new directive could even have some beneficial effects on France’s art market. A spokesperson for France’s economic ministry yesterday told Artnet News that the EU directive, “doesn’t compel us to revisit the reduced sales tax” applicable to artworks, and that the new rule “actually presents an opportunity to apply the current, low sales tax rate of 5.5% more widely than is now the case—to the entire value chain” of artwork transactions.
This outcome, if it can be achieved, is, according to the CPGA’s co-director Gaëlle de Saint-Pierre, one that should be supported. “It could be implemented in such a way that the impact is neutralised,” Prazan adds. “Anything we can do to support the reduced rate all along the chain of value, we would,” he continues. “It is an extremely constructive way forward. Works of art, just like books, are intellectual goods and this rule already prevails for books in France. But that is up to the state to consider within the framework of the directive. We are not yet there, it is just a perspective.”