Withers Worldwide

In our newsletter last summer, we commented on the first draft of the proposed regulations implementing the European Directive on Droit de Suite in the UK.  Following a consultation, the Patent Office revised its proposal.  The final text of the regulations was laid before Parliament on 15 December 2005 and the Artist's Resale Right Regulations 2006 came into force on 14 February 2006. 

Who pays?             

The seller and one of the following three categories of persons are jointly and severally liable to pay the resale royalty.  The categories are:

• professional agents acting for the seller; or
• where there is no professional agent acting for the seller, professional agents acting for the buyer; or
• where there are no professional agents, the buyer.

Who receives?

The artist or his/her heirs. 

The UK has negotiated a grace period until 1 January 2010.  During that period, the resale right will only be levied in the UK on the sale of works of art by living artists.  That period may be extended to 1 January 2012.  After the end of the grace period, the resale right will be levied in the UK on the sale of works by living artists and artists who died less than 70 years prior to the sale. 

In other EU countries, the resale right is normally due on the sale of works of art by artists who died less than 70 years ago.  This includes artists who created works of art in the 19th century. 

When is it due?

When a work of art is sold at auction or by private treaty sale by a professional seller, to a professional buyer or through a professional agent.

What works of art are caught?         

Works of graphic or plastic art.

The Regulations give the following examples: 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.  The list is not exhaustive.

The Regulations provide that a copy is not subject to the resale right unless "the copy is one of a limited number which have been made by the author or under his authority". There is no limit to the number of copies.  The phrase "under his authority" is not defined.

Are any transactions exempt?

There are four exemptions:

1. The first transfer (sale, gift or transfer on death) by the artist.
2. Sales of works of art for a price equal to or less than €10,000 within three years of their acquisition directly from the artist.
3. Sales between a private seller and a private buyer, or a private seller and a museum, without the participation of an art market professional. 
4. Where the sale price of the work of art is less than €1,000.

What is the basis of calculation of the resale right?

The sale price, i.e. "the price obtained for the sale, net of the tax payable on the sale".  The Regulations do not say whether the basis of calculation (the "sale price") includes the auctioneer's seller commission and/or buyer's premium, or the dealer's commission on the sale. 

The Patent Office has suggested that if the sale is by auction, the "sale price" is the hammer price and if the sale is through a dealer, it is the "ticket price".  That interpretation of the meaning of "sale price" is not binding.  In the event of a dispute on the meaning of "sale price", the Courts will decide.

At what rate?

4%            for the portion of the sale price up to            €50,000

3%            for the portion of the sale price from             €50,000.01 to €200,000

1%            for the portion of the sale price from             €200,000.01  to €350,000

0.5%         for the portion of the sale price from             €350,000.01 to €500,000

0.25%       for the portion of the sale price exceeding   €500,000.

The total amount of the royalty may not exceed €12,500.

For example, on a painting sold for €225,000, the royalty will be €2,000 + €4,500 + €250 = €6,750.  On a painting sold for €1,000,000, the royalty will be €2,000 + €4,500 + €1,500 + €750 + €1,250 = €10,000.  On a painting sold for €2,500,000, the royalty would be €13,750, reduced to the maximum of €12,500. 

Who will collect?

The UK has opted for collective management.  This means that the resale right will be collected through a collecting society. Artists cannot collect themselves.

A collecting society manages intellectual property rights on behalf of artists.  DACS is currently the principal collecting society in the UK and it will collect the royalty on behalf of artists it represents in the UK.     

Does the professional intermediary (auctioneer or dealer) have an obligation to pay Droit de Suite on behalf of the seller?       

The professional intermediary is jointly and severally liable with the seller to pay the resale royalty.   

The intermediary has the obligation to provide information on the sale to the collecting agency for a period of three years after the sale.  The information must be such as is "necessary in order to secure payment of the resale royalty".  This suggests that the professional may be required to disclose the identity of the seller and his personal details to collecting societies.   The collecting society is required to keep the information confidential.  

Can the artist waive the right?

No

Will artists from other countries be entitled to the resale right when their works are sold in the UK?

The Regulations provide that artists who are nationals of the following countries are entitled to the resale right:

• 25 EU countries
• Norway, Liechtenstein and Iceland (EEA countries)
• 27 countries applying Droit de Suite listed in Schedule 2 of the Regulations. These are countries which impose the resale right on works by nationals of EU/EEA countries (principle of reciprocity). The four key countries are Brazil, Chile, Turkey and Russia. The USA and Switzerland are not on the list.

The list is likely to change over time, depending on which countries adopt (or abolish) the resale right. 

 

The European directive on Droit de Suite does not address the territorial scope of each Member State's resale right.  Member States must decide when a sale is subject to their own national resale right, and how it will address issues of ‘double taxation' where a sale is subject to the resale right in more than one        EU country.

In its consultation on the resale right, the Patent Office had suggested that the royalty should be levied in the UK in two cases:

1. Where the sale took place on UK territory.  This was the ‘place of sale' test.  According to that test, UK resale right would apply where the contract was made in the UK; or
2. Where the seller was an art-market professional with a base in the UK, and the sale was part of a business conducted from that base. UK resale right would also apply where the art-market professional was acting as the agent of the seller, and in so doing was conducting business from a base in the UK.  This was the ‘place of business' test.

In its response to the consultation, the Patent Office acknowledged that the UK resale right should not extend beyond the territory of the United Kingdom.  But it would not commit itself to a definition of transactions to which UK resale right applies and left it to the Courts to decide the application of the resale right in cross-border situations.  These tests were removed from the Regulations that came into force on 14 February 2006.  The Regulations are now silent on the issue of cross-border sales.