Friday, February 25, 2005

We have become more powerful V

"And for all of those that say, if you look at the last thirty years, we have lost power to Brussels, actually it isn't true. In the last, certainly in the last eight years, as we, the Labour government, have been more involved in Europe, so we have become more powerful and more prosperous, better able, literally to implement a patriotic case for the European Union."

Jack Straw
Foreign Secretary

BBC Today Programme, 9 February 2005

In this, the fifth example that we have come across of Britain losing power to the EU since Jack Straw made his ludicrous statement, The Daily Telegraph reports on a further blow from the EU to the art market, to add to it troubles caused by the droit de suite directive.

The proximate cause of this woe is that Juliane Kokott, Advocate General at the ECJ has ruled that a higher rate of Value Added Tax must be paid on works of art imported into the United Kingdom for auction, which have originated from outside the EU.

The case had been brought by the EU commission against British government which, currently, was imposing five percent VAT on both the hammer price and the auctioneer's commission, although this was waived if the work of art was immediately exported outside the EU after the sale.

From yesterday's ruling, which has yet to be confirmed, buyers will still pay five percent VAT on the hammer price but will be liable for 17.5 percent VAT on the auctioneer's commission. The latter can add as much as a fifth to the purchase price.

Although this VAT will still be waived if the work of art goes back outside the EU, most lots sold at Britain's three major auction houses - Sotheby's, Christie's and Bonhams - are bought in Europe because of the weakness of the dollar.

At London's major auctions of Impressionist art two weeks ago 88 percent of the lots at Christie's and 72 per cent at Sotheby's were bought by Europeans and many of the paintings, sculptures and other works of art are sourced from either the United States or other non-EU countries.

The imposition of a higher VAT rate will mean that high value art works are more likely to be sold in New York, which will almost certainly cost jobs in London. "If the court follows this ruling I believe that it will have a major impact on the standing of UK auction houses," said Paddy Behan, a VAT specialist at the accountants Grant Thornton UK LLP.

Anthony Browne, chairman of the British Art Market Federation, said: "If this comes into force it will make the tax situation, which is already complex, even more complicated. Something that this country is good at is being thrown away by half-baked ideas in Europe."

Britain, in fact, never levied VAT on imported works of art until it was forced to do so by the EU in 1995. The government negotiated a temporary rate of 2.5 percent but was told to double that four years later. With this impost anf the droit de suite law coming into force next January, the UK art market will inevitably be considerably damaged.

And all this has been done in the teeth of UK government opposition – yet another example of how the Labour government has become more powerful since it got more involved in Europe.

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