da Marco Vergani | Set 3, 2020 | Art and taxation, IVA, Taxation in Italy
Original figurative sculptures realized with three-dimensional FDM printers (fused deposition modeling), are not considered “artworks” and therefore the italian 22% VAT rate (instead of 10%) should be applied. This was established by Agenzia delle Entrate in the official answer n. 303 to an artist who, as a sculptor, created objects that he considered works of art; the three-dimensional realization means that the object obtained, with plastic material, has a real shape and can be seen from all sides. Subsequently, the artist painted the work obtained by the printer (some examples can be admired in the science museum of Trento).
The taxpayer requested the application of 10% VAT based on item 127 septiesdecies of table A, part three “art objects sold by the authors and their heirs”.
Agenzia delle Entrate responds negatively, stating that the sale of the goods is subjected to the 22% VAT rate as the reduced rate is applicable for the original works of statutory art or sculptural art, of any material as long as they are carried out entirely by the artist; if they are reproduced, it must be a limited edition of eight copies, controlled by the artist.
So, according to the Agency, the procedure adopted does not correspond to the legislative provisions, taking into account the quantity of objects produced. Furthermore, in this case the works are not made entirely by the artist himself, but are made in whole or in part through the use of mechanical procedures such as the 3D printer – FDM, modeling software, while the artist’s manual intervention is marginal; lacking this contribution, the good obtained is not an “artwork”.
da Marco Vergani | Feb 11, 2019 | Art and taxation
The most well-known free ports are in Geneva, Luxembourg, Singapore, Beijing, Monaco and Delaware and these jurisdictions consider them as advantages in their offshore financial centers. However, – according to the report “Money laundering and tax evasion risks in free ports” – free ports make up only a small part of the high-end storage market. Because the number of customs warehouses is much larger offering the same security, indirect tax benefits and privacy, even if with different administrative procedures as often managed by private companies. In most free ports or customs warehouses (Luxembourg is an exception) almost anyone can introduce goods without revealing the last beneficial owner (Ubo, ultimate beneficial owner), ensuring confidentiality by tax authorities or creditors. Then in most cases the recorded value of goods depends only on self-declaration, which leaves ample margins of over- or under-valuation. The demand for these services is fueled by the new association between finance and art, considered an attractive commodity in times of crisis – masterpieces increase their value over time (especially if for ten years closed in a storage) – it is in a bull phase market, fueled by the expansion of private collections, new museums and new billionaires from China, the Middle East and Russia. But the fifth anti-money laundering directive (Amld5 Fifth Anti-Money Laundering Directive) raises the bar: from 10 January 2020 it will explicitly ask the operators of free ports and art market actors, who will become “non-financial obliged entities”, to comply with the same obligations of adequate verification of the clients of real estate agents or notaries. The guardians of the Anti-money laundering (AML) will act as they will have to report suspicious transactions to the Financial Intelligence Units. The analysis of the EPRS also raises a problem on the application to customs warehouses, where the identity remains unknown, of the fifth directive in harmony with the Union Customs Code (Ucc). Then the fifth EU directive on administrative cooperation (DAC5) provides that the tax authorities have access to the Ubo information and other information collected by entities obliged under the framework of the AMLD, starting from 1 January 2018. As free port operators will become obligatory entities by 10 January 2020 under Amld5, the DAC5 will become relevant only then. Only in Luxembourg the Direct Tax Office already has “access on request” to Ubo data held by licensed free port operators such as Le Freeport Luxembourg. But the art market will still have filters: in fact, “fishing” in data held by non-financial entities is not allowed; the tax authorities will have to know who and what they are looking for before to request access to Ubo information, otherwise the Ubo registers with non-financial obliged entities will remain “unknown. And one wonders if the Aml directive will have effects on the art market? The EU risks losing its appeal, leaving the way open to the free port of Geneva, located near the airport, with two deposit schemes for customers: free port or Swiss. The solution is around the corner.
da Marco Vergani | Gen 23, 2019 | Art and taxation
CryptoArt is a very recent artistic movement in which the artist produces works of art, typically fixed or animated images and often in close collaboration with the machine – not necessarily a computer but also, for example, a scanner or an old Polaroid – and distributes them using the blockchain technology and the Ipfs peer-to-peer (InterPlanetary File System) network.
But how does the CryptoArt system work? When an artist exhibit his work in a digital gallery a transaction was created in the Ethereum blockchain. The transaction creates and transfers a token that is uniquely associated with the artwork in the cryptographic portfolio of the artist. The transaction is digitally signed by the artist, using asymmetric cryptography, in order to prove the authenticity of the work.
The artwork (in fact its image in Jpeg format) is then input from the gallery in the Ipfs peer-to-peer network and distributed among the various nodes of the network. The Ipfs network baptizes the image with a unique code, which distinguishes its contents. This means that the same image, even if distributed on multiple nodes of the network, will always have the same name and will be conceptually identified as a single resource.
The digital work now begins its life (however immortal) on the blockchain. Anyone can admire it and buy it at the price set by the artist (many sales work by auction). The price is expressed in Ether, the third cryptocurrency by market capitalization after Bitcoin and Ripple. At the time of a possible purchase, a new transaction is entered into Ethereum: the token of the work passes into the portfolio of the buyer collector while the agreed Ether amount pass into the seller’s portfolio. The work, even after being sold, remains on the market and can still be traded. Each change of hands compensates, in percentage, also the original artist (a 10% of the sale price on most digital galleries). All these steps, which in the traditional art market take months or years to occur, thanks to this technology happen in a few moments, in a certified and safe way.
From a regulatory and fiscal point of view, there is still no specific and exhaustive legislation on the crypto currencies (Bitcoin, Ethereum, etc..).
Let’s start by saying that, from the artist point of view, the Ethereum should be considered as foreign currency. So although there is not the specific need to declare the amount owned, he should however declare all the transactions carried out exactly as he do for those that occur in other currencies (Euro, Dollar, or others). And this applies, according to the fiscal laws of the residence country, to any cryptocurrency used.
Therefore, from the fiscal point of view for the seller, using Ethereum is exactly how to use Euro or Dollars: from a fiscal, bureaucratic or administrative point of view it does not change anything.
So even if the artist collects Ethereum and chooses to store them on its own wallet, if he were to sell them in the future and obtain a capital gain, he would have to pay taxes on it.
From the buyer point of view capital gains are taxed, but are paid only when they are recognized. So only when the work were sold, or at the close of the balance sheet, the capital gain could be recorded, and only on this the taxes would be paid.
