On income taxation of sales of artworks for Italian tax purposes
Inge Bisinella & Emanuele Artuso
by Inge Bisinella & Emanuele Artuso
Considering Italy’s artistic heritage, it is important to ask whether and how tax leverage can affect the relevant sector, specifically by investigating whether or not, for the purposes of direct taxation, taxable income is generated from the sale of an artwork.
While faced with such an apparently simple question, the answer, however, is not unequivocal.
An analysis of ministerial and jurisprudential guidelines in recent years has led to a “triptych” of subjects in relation to the seller of an artwork:
the collector (with no taxable income for direct tax purposes);
the occasional seller (with taxable income for direct tax purposes, as other income);
the art dealer (with taxable income for direct tax purposes, as business income).
It is difficult to distinguish an art collector from an art dealer, as the discrimen is exquisitely factual. However, drawing on the most authoritative approaches in doctrine and jurisprudence, the following can be stated schematically:
On one hand, there is the professional art dealer who carries out intermediary activity in the circulation of artworks, purchasing art for the purpose of resale on the market and making a profit. From the moment of purchase, the artwork is intended for an external destination.
On the other hand, there is the art collector who does not engage professionally in intermediary activity in the circulation of artworks, and whose transactions are primarily aimed at satisfying an exquisitely personal desire. The purchase is not preordained for subsequent resale on the market and therefore assumes a purely private destination to the extent that the artwork can be considered a part of the collector's personal assets.
From a tax point of view, art. 55 TUIR on business income is applicable to the art dealer. Regarding the collector, it is worth noting that the non-taxability of a sum that, from an economic point of view, undoubtedly constitutes an increase in assets does not seem to be inconsistent. It should be noted that the Italian legislator has preferred to “carve out” taxable cases in a casuistic manner (particularly for other income), and has declined to identify a unique rationale to the effect, already taking into account possible loopholes understood as forms of enrichment that escape taxation.
It should be pointed out that in an intermediate position between collector and art dealer is the occasional seller, whose sales generate other income.
Over the course of time, concrete cases dealt with by case law have highlighted a number of heterogeneous “indicators of commerciality” (badges of trade) such that the activity of selling artworks falls (or not) within the domain of the art dealer or the collector. These indicators include:
The contingent purpose of the sale (e.g. asset disposal for liquidity needs);
The time span between the purchase and resale of the same goods (e.g. in the same tax period);
The completion of a preordained purchase “upstream" (vs. inheritance);
The number of buyers;
The number of transactions;
The complexity of the activity (multiplicity of stages);
Previous experience in the sector;
The amount of the investment;
The carrying out promotional or advertising activity, etc.; and
The existence of an organisation in the strict sense of the word (employees, means of transport, website, etc.).
In some recent cases, the tax authorities have attempted to overcome the simplistic dichotomy between the art collector and the art dealer, ascribing the profit realised by the collector with the sale of an artwork no longer to business income but to different income, derived from “commercial activities not habitually carried out” (Article 67, paragraph 1, letter i), TUIR). In this, the Italian Tax Authority emphasises the existence of a series of activities aimed at purchase and resale, thus finding a “preordination” between the previously mentioned phases as operations characterised by their functional combination; moreover stressing the concept – far from being obvious – of “valorisation”. In this respect, the sale of the artwork could give rise to an income taxable for income tax purposes for the art collector who would be raised to the status of “occasional speculator”.
According to such a reconstruction, however, capital gains obtained from the sale of artworks received free of charge (i.e. by inheritance or donation) should not be taxed. In such situations, the subject (heir or donation recipient) does not carry out a particular, pre-arranged purchase operation “upstream”, so that in reselling they would not carry out any commercial activity (albeit of an occasional nature), but rather perform an act of simple asset disposal.
* In a country like Italy, rich in artworks that the whole world envies, we hope that the upcoming tax reform will address this confused regulatory framework and introduce clear provisions that provide greater certainty to art collectors, and make the Italian taxation system competitive with that of other European states.
Studio Bogoni is made up of professionals, providing specialised consultancy and support in connection with tax, corporate and insolvency issues, on behalf of enterprises, bodies and individuals, operating both in Italy an overseas.
Inge Bisinella practises in Padova as partner in Studio Bogoni, specialising in consultancy services for businesses including M&A transactions, direct and indirect taxation at both a national and international level, and assistance in the management of inheritance issues and asset protection. Contact Inge.
Emanuele Artuso has worked for Studio Bogoni since 2009, and has also practised at a number of important legal and tax firms based in Milan and Padova. He deals mainly with corporate tax liability, providing consultancy and advisory services connected with direct taxation, and also represents his clients in proceedings before the competent tax commissions and in out-of-court procedures before the tax authorities. Contact Emanuele.
XLNC member firm Studio BogoniPadua, ItalyT: +39 049 8754643Accounting, Tax, Corporate Finance, Strategy, Management Consulting, Fiduciary
