Artists Resale Right (Droit de Suite) – New rules coming into force from 1st January 2012 ! lapada.org

Artist’s Resale Right (Droit de Suite)

Responsibilities of Art Dealers

The UK’s legislation implementing the EU Directive on artist’s resale right (ARR) on the work of living artists first came into force in the UK on 14 February 2006. From 1 January 2012, following the ending of the UK’s derogation, this will be extended to the heirs of artists who have died within 70 years of the date of sale, provided that the artist was of qualifying nationality at the date of their death. Dealers (and other art market professionals such as auction houses) are responsible, along with sellers, for paying ARR on all qualifying sales.

Which sales are affected?

Until now (Jan 2012), in the UK, ARR has only been payable on all secondary sales of works by living artists who are EEA

1 nationals (or nationals of other states which qualify2 because they give EEA artists and their heirs resale right protection), which are sold for €1,000 or more in the UK. From 1 January 2012, ARR will also be payable on all secondary sales in the UK of artists who have died within 70 years of the date of sale provided that the artist was an EEA or other qualifying national at the date of their death and the sales price is €1,000 or more.

The only exception is that works of art sold for

€10,000 or less, which have been bought direct from the artist within the last 3 years before the sale, are not liable. Primary sales, i.e. sales direct from the artist, or their estate are not liable, nor are sales of work by non-EEA artists, (apart from artists from other qualifying countries).

ARR is only payable when an art market professional, i.e. dealer or auction house, is involved, whether as buyer or seller or acting as agent in the sale. Sales between private individuals (where an art market professional is not involved as buyer, seller or agent) do not attract ARR. The UK legislation concerning ARR is silent as to where the right applies but it is assumed (unless the courts decide otherwise in the future) that UK ARR only applies if the sale takes place in the UK. If the sale takes place in another EEA country, that country’s legislation concerning ARR will apply. If the sale takes place outside the EEA, ARR will not apply (unless the country where the sale takes place requires this as a matter of its own national law).

 1 The EEA (European Economic Area) is the EU + Iceland, Liechtenstein and Norway

2 Previously dealers could refer to a list of countries outside the EEA whose ARR law benefited EEA nationals, which list was set out in the legislation – this now no longer is the case. However we wait to see which countries outside the EEA are agreed to be relevant.

Definition of Work of Art

‘Work of Art’ is defined as any work of graphic or plastic art such as a picture, a collage, a painting, a drawing, an engraving, a print, a lithograph, a sculpture, a tapestry, a ceramic, an item of glassware or a photograph. However, a copy of a work is not to be regarded as a work unless the copy is one of a limited number which have been made by the artist or under his authority.

Scale

ARR is payable in accordance with the following scale:

The first

€50,000 4%

€50,000.01 – €200,000 3%

€200,000.01 – €350,000 1%

€350,000.01 – €500,000 0.5%

Over €500,000 0.25%

These rates are cumulative, e.g. the ARR on a work of art selling for

€700,000 would be: 50,000 at 4% = €2,000

+€150,000 at 3% = €4,500

+€150,000 at 1% = €1,500

+€150,000 at 0.5% = €750

+€200,000 at 0.25% = €500

Total

€9,250

€700,000 would be:

There is a cap on ARR of

 12,500, i.e. a work of art selling for €2,000,000 is liable to pay €12,500 ARR and so is a work of art selling for any sum in excess of this.

NB If the sale price (net of tax) of the work of art is less than

 1,000, no droit de suite is payable, but once it equals or exceeds €1,000, the bottom band 4% rate applies to all of the first €50,000 of value including the first €1,000.

ARR is payable on the sale price, i.e. the invoiced price net of VAT (which we understand permits deduction of both standard & margin scheme VAT), (not the ticket price as suggested in the government’s guide to business), and, in the case of auction sales, on the hammer price.

How is the money collected and paid?

UK legislation provides for compulsory collective management of ARR. This means that the royalties collected on sales have to be paid to the artist through a collecting society. There are two main collecting societies in the UK, the Design and Artists Copyright Society (DACS) and the Artists’ Collecting Society (ACS). Both operate by circulating quarterly returns to dealers on which they ask them to list details of any qualifying sales they have made, including the name of the artist, the work sold and the price (net of VAT). On receipt of the completed returns the collecting societies calculate the amount of ARR due and send an invoice to the dealer for this sum, which the dealer then pays. The collecting societies deduct their commission from this sum, (at present 15%) and pay the remainder to the artist. In practice, we suggest that rather than leaving the calculation of ARR to the collecting societies, most dealers will themselves wish to calculate how much is payable at the time of sale, so that they are aware of the extent of their eventual liabilities.

Whether they adjust their prices to allow for ARR, is of course a matter for the dealer, as is whether or not they mention ARR as a separate figure on the sales invoice.

Artists and heirs may mandate a collecting society to collect ARR for them. But they are not obliged to mandate and retain the right to receive ARR whether or not they have done so. ACS publishes a list of artists and heirs for whom they hold mandates and DACS have assured us that they intend to start doing so shortly.

Dealers are liable to pay ARR on any qualifying sales and could be asked questions, which they would be required to answer, at any time up to three years after the relevant transaction. Our advice therefore is that dealers who have made qualifying sales should first check whether the artists/heirs concerned have mandated a collecting society. If they have, the dealer should report such sales to the collecting society concerned. Government legal advisers have expressed the view that, where there is no mandate, the issue of which collecting society is entitled to collect ARR payments remains unresolved until the artist is deemed to have mandated one of them. In our view applying the Government legal advice it follows that dealers have the option to report sales by non – mandated artists to whichever collecting society they choose. (N.B. This is contrary to the view hitherto maintained by DACS, that under the legislation they are the default society with the right to collect in respect of all un-mandated artists)

3 In any event the law clearly stipulates that dealers are not obliged actually to pay ARR until evidence of entitlement has been produced. We suggest that evidence of entitlement will be particularly important in the case of heirs. Who has the right to claim ARR following the artist’s death will not necessarily be an easy question for the collecting societies to answer (e.g. for artists who died leaving no express provision for ARR in their will).

3 The matter is not free from doubt. We view the Government legal advice as helpful in clarifying the position although a court ruling may be required to decide the issue.

Heirs

Although artists, whether living or deceased, only qualify to benefit from ARR if they are of the correct nationality as of the date of their death, new British Government legislation introduced on 2 December 2011 provides for heirs of qualifying deceased artists to be able to exercise the right irrespective of their nationality.

Liability for payment

The liability for payment of ARR rests not only with the seller but also, if there is one, with the agent of the seller, or where there is no such agent, with the agent of the buyer, or where there are no such agents, with the buyer on a “joint and several” basis (but the agent or the buyer are only liable if they are acting in the course of a business dealing in works of art). For example, if you are a dealer and you buy a work of art directly from the seller (other than from the artist) you will end up with a “joint and several” liability along with the seller to pay ARR. “Joint and several liability” means that each person liable can be called on to pay the whole amount (although once the amount owing has been paid in full there is of course no further liability on any of the persons jointly and severally liable). Since liability for paying ARR can be shared, it is important to make clear in all transactions who is to be responsible for accounting for and paying ARR and preferably to state this on the invoice.

VAT & exchange rate

• VAT

ARR is not liable to VAT and is calculated on the price of a work of art net of any VAT.

• Exchange rate

Rates should be calculated at the European Central Bank (ECB) reference exchange rate on the day of the sale. This can be accessed through the ECB website at:

http://www.ecb.int/stats/exchange/eurofxref/ html/index.en.html

Dealers acting as agents

Our understanding is that where a dealer is clearly operating as agent or joint agent on behalf of a third party in buying or selling a work, this should be considered as only one sale transaction for ARR purposes. If for example, a dealer takes a work either direct from an artist or from the artist’s agent, and sells it on immediately as agent on the artist’s behalf to a third party buyer, this constitutes in effect a primary sale, not liable to ARR, provided that the dealer can demonstrate that he is acting as an agent, or joint agent, for the artist. Where a dealer buys at auction, or from another seller, in both cases acting as agent on behalf of a third party buyer, ARR would only be payable once. If the work was bought at auction, ARR would normally be levied by the auction house and would not have to be levied again when the work is passed to the third party buyer by the dealer acting as agent for that buyer. But the above only applies in the case of genuine agency transactions. If a dealer buys at auction, or from another seller, on his own account and sells later to a third party, this would count as two separate transactions both of which would be liable to ARR.

Artists’ rights

Collecting societies acting on behalf of artists, have the right to question dealers about sales which they believe may qualify for ARR to enable them to ascertain the amount of royalty due and (where the dealer does not pay the royalty) the name and address of any other person (eg. the seller) liable to pay it. A request for such information may be made at any time within three years of the date of sale, and the recipient of the request must do everything in their power to supply the information within 90 days of the receipt of the request. If the information is not forthcoming, it can be pursued by a court order.

Invoicing

As a dealer you can choose whether to charge ARR on top of your sales price or to include it within that price. In the former case you should make your policy known to the buyer when discussing a sale and, although there is no official guidance on invoicing, greater clarity will be achieved if this “added on” ARR is itemised on the face of the sales invoice.

If you include ARR within the sales price you are not under an obligation to itemise the amount of ARR on the face of the invoice, although there is nothing to prevent you from doing so.

(NB: If you operate the VAT margin scheme, and are deducting VAT from your sales price when computing ARR, then disclosure of the amount of ARR to the buyer means that they may be able to work out your profit margin.)

Definition of ‘Resale’ and how to apply it in the case of estates

Resale is defined in the UK Statutory Instrument as being a sale “subsequent to the first transfer of ownership by the author.” This first transfer could be a sale, but it could also be a gift or the artist could have left the work to an heir through a will or the heir could have inherited the work through the rules of intestacy. A sale following any of these transfers counts as a resale and thus is potentially liable to ARR. However, if an artist’s estate includes previously unsold works of art created by him, and these works are sold by the executors/personal representatives (which may include one or more of the heirs) for the purposes of the administration of the estate, these sales will be considered as primary sales, not liable to ARR.

www.gazette-drouot.com

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