german vat - the mummy returns

D-day for German VAT on art?

A very German debate over taxes is being observed in the rest of Europe with some anxiety.

The federal assembly is to decide whether to impose a rise on VAT on sales of art.

The European Commission has excerted some pressure on Germany for some time now. In short it would prefer to see the German federal Government raise German VAT tax on original works of art from 7% to 19%. The motivation is to bring it in line with higher VAT rates in the rest of Eurozone, though the latter is everything but harmonised.

The attempt to meddle with the internal German affairs is meeting concern and opposition from German minister of culture, Bernd Neumann.

Bundesverband Deutscher Galerien und Kunsthändler—BDGV, the German federal association of galleries and dealers have also voiced their discontent wih a sudden 12% hike on top of taxes already levied.

The proposed rise to 19% will neither affect the primary market on new art in the primary market; nor will it affect sale of imported art.

The private collector and the art dealer are losing out

It is in the secondary market at that the increase will be felt. That is, when galleries and auction houses are selling to the collectors.

Many collectors buy art privately as opposed to buying it through companies that can deduct the VAT from the equation. The realised sales prices and sales volumes in the local art market is likely to decrease.

German VAT on art

If passed as a law, it is expected to be the death knell to some of the new and minor galleries in Germany. These art venues are suffering due to the general financial crisis and the infamous burst of the art bubble. Some consolidation may be justified in any case, but a sudden change in the business environment can have dire consequences for otherwise sound art dealers.

Photography credits: (c) Deutscher Bundestag / Marc-Steffen Unger