Fiscal aspects of Intellectual Property: the Italian tax compliance of art collecting (Part I)

Part I: the taxation of art capital gains

Stefano Loconte and Irene Barbieri- Loconte & Partners Studio Legale e Tributario


The topic

Currently, intellectual property also represents the new frontier of the finance world. As a matter of fact, the latest economic crisis has led many investors to forget the usual proposal offered by traditional private banking and look for different ways to make and/or save money. In this context, the art market has provided them with new and interesting investment opportunities. As a result, art turnover has grown increasingly, along with all the related legal matters, such as the right qualification of the art collector from a fiscal point of view.

In fact, although art collecting is usually boosted by an aesthetic sense, it can be an expression of tax liability too, since starting and developing an art collection require a number of purchases, transfers and reinvestments. In order to identify the possible tax compliance reserved to art collecting under Italian Law, it is necessary to establish how to consider the art work transfers by the art collector: are they only stockpiling or, on the contrary, real speculative operations?

The solution

To find the right answer, first of all you need to distinguish two main figures: on one side, there is the private art collector who is simply an art connoisseur and lover and acts according to the wish to develop his own collection. On the other side, there is the art dealer, who works professionally in the market to profit on art work sales.

As far as the Italian Legislator is concerned, private art collecting by a genuine collector for the love of art and not for profit, is generally not able to produce taxable income. At the same time, the private art collector cannot be considered as a VAT tax subject. Therefore, he need not to charge VAT with tax recovery to his buyer.

Quite the opposite for art dealers. Not only must the professional art merchant pay VAT tax on his sales- which is why he is supposed to register a VAT number and charge VAT with tax recovery to his clients- but he has to pay taxes on capital gains originating from the art trade, according to his legal status. In particular, his earnings- resulting from the art operations- could be included in the earned income or business income ex art. 55 of Presidential Decree n. 917/86 so called T.U.I.R., with a different taxation.

Nontheless, it is possible to identify a third figure between the private art collector and the professional art dealer that we could refer to as a «collector-dealer» who, even if he is not a professional and regular merchant, sometimes performes speculative transactions, to reinvest the related income for the improvement of his collection. In this case, the collector-dealer’s earnings could be qualified as «different income», originating from an occasional business activity and as such is taxed ex art. 67, par. 1, lett. i, of T.U.I.R. Nevertheless, since the business activity is occasional, he cannot be subjected to VAT. In order to exclude that the art work sale is connected to an ongoing business activity, it is necessary to check certain significant indicators, such as the time passed between the purchase and the subsequent resale, the economic relevance and the continuance of the transaction, as well as the evident experience of the taxpayer in the art market.

The conclusion

Given the chaotic context, to sum up it’s fundamental to ask for assistance from a tax expert who will be able to suggest the best way to manage the art collection and related intellectual property rights from a financial perspective.