A new EU tax directive that will make it more expensive to sell works of art in France is causing concern in the art industry. More than that, it's causing consternation. Why the uproar? The regulation aims to set import VAT on goods, including works of art, at 20 percent for all EU members. It also means that the "margin scheme" often used by French traders, which reduces VAT on works of art, is in danger of being overturned. The impact of this regulation on France's position as the epicenter of the European art market is enormous. Few even fear the death of the country's art scene.
France currently has the lowest import VAT on artworks in the EU at 5.5 percent, which has helped the country experience an art market renaissance in recent years. The country's share of global art sales has risen from 3 percent in 2001 to 7 percent in 2021, or so Art Economics calculates. As a result, leading international galleries such as David Zwirner and Hauser & Wirth have opened offices in Paris, Art Basel - in a sensational move - has put out feelers to Paris, and auction results in France have topped $1 billion for the first time in 2021.
You might say, okay, but the rule applies to all EU countries! What's the problem there? Compared to countries outside the EU, such as the U.S., U.K., Switzerland, and Hong Kong, which continue to have lower import taxes on artworks, the new EU directive would increase competition outside the EU and threaten France's position as the global center of the art market.
Galleries, dealers, and art industry consultants have protested the new rule, calling for a "cultural exception" for artworks or a moratorium on implementing the law in France. This exemption would maintain the reduced 5.5% tax rate on artworks, protecting the art market in France. Such a regime would also help maintain France's position as a hub for the European art market.
The new regulation could also have positive effects if implemented correctly. A French Ministry of Economy spokeswoman has announced that the new regulation "provides an opportunity to apply the current low VAT rate of 5.5 percent more broadly than before - to the entire value chain" of art transactions.
It remains to be seen how the new regulation will affect the art market in France. However, the art industry has made it clear that it will fight to maintain its position in the European art industry and is demanding solutions.