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Brexit between advantages and uncertainties

by Giuseppe Calabi
Partner – CBM&Partners

The United Kingdom leaving the European Union has generated a lively debate, still ongoing today, on the consequences that the English and international art market may suffer.
At the moment, it is difficult to predict them exactly: much will depend on the outcome of the negotiations of the transition phase, which will outline the new contents of the rules and regulations governing the art system.
A sure starting point is the fact that in 2019, after two years of strong growth, the UK’s share on the global market in terms of value fell by 9% to $12.7 billion, or 20% of the world total (The Art Basel and UBS Global Art Market Report 2020), thus ranking second after the United States and before China.
This is undoubtedly due to the turmoil in the country in view of the effective exit from the European Union, the result of long and uncertain negotiations.
It is easy to see how Brexit has so far created uncertainty for buyers and sellers of works of art on the British market.
If, on the one hand, the actual exit of the United Kingdom from the European Union, which took place on January 31, 2020, has in some way alleviated the tensions regarding an exit without agreement, there remain major questions about the outcome of the current transition phase, which will continue until at least January 2021.
In the meantime, not much has changed for the art market and we can only speculate on the future opportunities and challenges that the post-Brexit scenario may pose, given the importance and solidity of the British marketplace. The first and most immediate consequence will be the drastic reduction in the size of the EU art market: without the UK, the EU market in 2019 would have accounted for only 12% of global sales in value terms, compared to the actual 32% recorded.
On the basis of these figures, lawyers can predict many possible scenarios of a change in the UK legislation, which will be completely unrelated to EU regulations and directives. In particular, there will be consequences in terms of imports, exports, and taxation of works of art.
Imports in the UK
To date, the import of works of art from Italy into the UK by an author who is no longer living and over 70 years of age is subject to the issue of a certificate of free circulation. Such certificate must be issued by the competent Export Offices and is valid for the intra-Community circulation of artistic goods for a maximum of five years.
After the effective implementation of Brexit, the United Kingdom will become a third State. Therefore, the import of works of authors no longer living, over 50 years of age and worth more than 150,000 euros from an EU country into the United Kingdom will be subject to the issuance, by the competent authorities of the Member States, of a non-EU export licence, valid for a maximum of one year, pursuant to EC Regulation no. 116/2009. In Italy, the EU export licence will have to be accompanied by a certificate of free circulation, for works of authors no longer living, over 70 years of age, and by a self-certification for works between 50 and 70 years of age.
In addition, British law will be exempt from the application of the recent Regulation (EU) 2019/880 on the introduction and import of cultural goods, approved with the aim of combating illicit trafficking in art and antiquities. This provides for the establishment of a centralised electronic system at European level by June 2025, while requiring Member States to have an effective system of sanctions against smuggling of works.
Imports of works of art into the UK could also be affected by new tax rules. Imports of goods from one EU Member State to another are not subject to taxation in accordance with the principle of the free movement of goods.
VAT on imports into the UK from third countries currently amounts to 5%. This taxation – particularly advantageous if you think that in Italy VAT corresponds to 10% of the value of the imported work – has helped the British market become the reference point for the shipment of works of art destined for the European marketplace. Here, once they arrive, they are free to transit without any further tax burden.
As a result of Brexit, the UK would no longer be bound by EU tax directives and would be able to decide to further reduce or even cancel (as was the case before 1995) taxation on imported works, thus competing with its main rivals, the US market (where imported art is not subject to VAT) and the Chinese market, where VAT on art imports is 3%.
On the one hand, it is true that the relaxation of rules and taxes on the import of works of art could be extremely beneficial in consolidating London as a competitive location for the global art market. In any case, it should also be stressed that much will depend on any countermeasures that Member States might take to make the Community market more attractive.
France, for example, has adopted a reduced 5.5% VAT system for the import of works of art, which has encouraged major art dealers to open branches of their galleries across the Channel. For example, German gallerist David Zwirner, owner of the London gallery of the same name, opened a new space in Paris, declaring to Art Newspaper that “Brexit has changed the game”, which is why a hub within the European Union has been created.
Exports from the UK
At the end of the transition period, the United Kingdom will leave the customs union and the European single market. Consequently, in addition to the current export licensing system currently in place in the United Kingdom, under the aegis of the Arts Council England, it will be necessary to submit all further documentation required under each Member State’s import regulations, i.e. to obtain pre-authorisation where required, and to pay the relevant import duties.
Currently, for intra-EU export, an Open General Export Licence (OGEL) is issued for paintings over 50 years of age and worth less than £180,000, except in the case of oil or tempera paintings depicting British historical figures, in which case the value threshold is set at £10,000. The OGEL allows definitive export to any destination without the need to make a specific request.
Above these thresholds, an Individual Export Licence, issued at the discretion of the Arts Council itself, is required.
There is no doubt that the UK export regulations are much more flexible. They are based on the “permitted unless prohibited” principle, the exact opposite of the approach of the Italian legislation, which has adopted strict regulations on cultural goods aimed at preserving as many works as possible within national borders.
It is therefore possible that, in a post-Brexit scenario, it may prove more complicated to transit works of art between the United Kingdom and the European Union than between the United Kingdom and the rest of the world. This shouldn’t come as a surprise if one considers that, for the United Kingdom, art trade with third countries represents between 80 and 85 per cent of the total in terms of value.
Resale right
It should also be noted that the United Kingdom is subject to the Community rules on resale rights (the so-called “artist’s resale right” or ARR), applied in all Member States in implementation of Directive (EC) 2001/84 and in force in the United Kingdom since 2006.
This is a royalty due – with a few exceptions – to the artist (or their heirs) on any sale after the first sale of one of his works, until the 70th year after his death.
Bearing in mind that the leading countries in the world art market, including the United States, China and Switzerland, do not recognise the resale right either to the artist or to their heirs, in a post-Brexit scenario the United Kingdom could take the unpopular decision to remove it, to the detriment of artists but aiming at intensifying commercial traffic on national territory. However, to date, the UK government has stated that artists and their heirs will continue to receive royalties from resale right payments even after the country leaves the European Union.
Tax advantages
Finally, in a post-Brexit scenario, the UK could aim to incentivise existing tax advantages linked to art. For example, the Arts Council’s Cultural Gifts Scheme allows some UK taxpayers, as a result of a selection process, to donate works for public enjoyment in return for a tax relief proportionate to the value of the donation.
The uncertainty surrounding Brexit’s outcome is still strong, which is why making accurate predictions about how the UK art market will perform in the following years is impossible.
Everything will depend on the national legislation that the United Kingdom will implement and the trade agreements relating to the European Economic Area. In other words, the impact of this phenomenon will be largely determined by the opportunities that the UK legislation system will be able to seize to turn its country into an attractive reality for art sellers and buyers, taking advantage of the possibility of departing, in whole or in part, from the common standards imposed by EU legislation.
It remains clear that the European Union, which has been engaged for years in the fight against illicit trafficking in antiquities and works of art, will be determined, first and foremost, to ensure that the United Kingdom maintains a form of compliance with Community policies, including through forms of collaboration between administrative authorities.
In any case, Brexit could also be an opportunity for Italy to review its rules on the import and export of works of art. In concrete terms, it would allow the evolution of an Italian market aware of the needs of the national heritage but in need of more dynamism and openness to the whole world.