COMMISSION REPORT ON THE IMPLEMENTATION AND EFFECT

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1 RESPONSE BY THE DUTCH ART MARKET TO THE CONSULTATION IN PREPARATION FOR A COMMISSION REPORT ON THE IMPLEMENTATION AND EFFECT OF THE RESALE RIGHT DIRECTIVE (2001/84/EC)

2 Naturally I find it pleasant to receive a percentage, but I think it is more important to have a flourishing art market Philip Akkerman, painter

3 INTRODUCTION This reaction has been compiled by Antoon Ott, bureau Artilaw, at the request of the Federation of Valuing Agents and Auctioneers of Movable Property Federatie van Taxateurs Makelaars Veilinghouders in Roerende Zaken (Federatie TMV), the Dutch Galerie Association Nederlandse Galerie Associatie (NGA), the Dutch Association of Dealers in Antique Art Vereniging van Handelaren in Oude Kunst in Nederland (VHOK), and the Amsterdam branches of the auction houses Christie s and Sotheby s. Together, these organisations and businesses represent the major part of the relevant art market in the Netherlands. Included with this response is an Appendix, which includes supporting data for the Netherlands, prepared by Arts Economics in February

4 SUMMARY CHARACTERISTICS The Dutch art market is characterised by being, for the most part, local in nature. What percentage of the world market and the EU market In the period between 2005 and 2010, practically all works by living artists and by artists who had been dead for less than 70 years realised prices of less than 50,000 (88.9 to 99. 5%) IMPORTANT OBSERVATIONS The introduction of droit de suite on the work of living artists in the Netherlands has not led to any migration of trade either into or out of the country. It would therefore appear that the harmonisation of the distorted art market which was envisaged by the Directive was in fact not necessary in case of the Netherlands; this is probably because, for the most part, the art market in the Netherlands is local in nature. What does affect the market is the so-called cascade effect. Droit de suite must be charged on every transaction. This can very quickly lead to an accumulation of payments by the same professional actor. Droit de suite is applied to each transaction, irrespective of whether an artwork has increased in value. This is in total opposition to the aims of the Directive; namely, that an artist should share in any profits occasioned by a rise in value. The burden of administration has increased significantly. 4

5 From 2012, if droit de suite must then also be applied to the work of deceased artists in the Netherlands, it is to be expected that this administrative burden will be increased fourfold at the very least. Part of the EU art market will migrate to countries where no droit de suite is levied. In the Netherlands, the sale price at which it becomes financially advantageous to sell a work of art abroad is approximately 12,500. The following estimate has been made of the number of artists who profited from droit de suite in This estimate has been made on the basis of auction results in the Netherlands: Dutch artists: 44 Foreign artists: 49 In 2010, the total number of benefiting artists was therefore 93. it is estimated that there are somewhere in the region of 10,000 artists currently working in the Netherlands. Of these, less than half a percent are entitled to receive resale right. Set against the income from droit de suite in 2009, this means that the average yield part artist was approximately 548. The fact that the bulk of this amount is disbursed to only a few artists, meaning that the average income for most artists is much lower, has not been taken into account in this calculation. The operations of the collecting agency are insufficiently transparent. This means that it is not possible to get a clear idea of the financial aspects involved in the collection of droit de suite. 5

6 MAIN RECOMMENDATIONS extension of the derogation An extension of the derogation for an unspecified time, for all EU member states, at least until the United States and Switzerland also implement the charging of droit de suite on the sale of works of art. collection of droit de suite in the same way as VAT It would be an enormous improvement in terms of efficiency and fairness if the collection of droit de suite were to operate in the same way as VAT. This would mean it would be levied only on profits and the cascade effect would also be avoided. transparency Compulsory public accountability on the part of collecting agencies The operations of the collecting agencies must become more transparent. If they were obliged to publish a full accounting of their activities it would at least become clear exactly how much money is being collected and when and to whom it is being disbursed. This would also make it easier to obtain some idea of the costs incurred by collecting agencies in the administering of the droit de suite. database One way to relieve the administrative pressure to some extent would be to set up a database with which artists and their beneficiaries would be obliged to register if they wished to be eligible to receive droit de suite. This would save art dealers and auction houses the burdensome amount of time they are obliged to spend searching for information as regards the nationality, place of residence, place of death etc. of an artist. Such a database would also provide clarification as to who, precisely, is entitled to receive droit de suite, and would make its application much more efficient, particularly with regard to the heirs to the estate of a deceased artist. 6

7 DEVELOPMENTS IN THE ART MARKET IN THE NETHERLANDS OVER THE PERIOD For precise statistics with regard to developments in the Dutch art market, please refer to the appendix. THE ART MARKET IN THE NETHERLANDS main statistics The following statistics are essential to forming a picture of the art market in the Netherlands: galleries: approximately 250 galleries which are members of the NGA. An estimate of the total number of galleries, ranging from members of the Association, which tend to be at the higher end of the market, to smaller galleries serving a more local clientele, is between 600 and 800 antique dealers: approximately 200 dealers in antiques/fine arts, of which 89 are members of the VHOK auction houses: approximately 75 antiquarian book dealers: approximately 50 (for whom the issue of droit de suite is likely to be relevant). The estimated total number of businesses likely to be affected in some way by Droit de Suite [Resale Right Directive] is therefore range and quality of available art A further distinction must be made between these businesses. There is a large and divergent group of auction houses. These range from the major, international auction houses such as Sotheby s and Christie s at the top of the market, on a sliding scale, to small local auction houses dealing mostly in household contents. The larger auction houses regularly hold specialist auctions with themes such as Modern Art or Contemporary Art. 7

8 Most of the smaller local auction houses organise sales several times a year, and offer a much more general and comprehensive catalogue which might include anything from a second-hand refrigerator to an antique painting. On the whole, it is possible to apply this form of gradation to the entire art market, and in doing so it is most important to emphasise that, contrary to common supposition, the 'top end' of the art market is relatively small. As can be seen from the figures in the accompanying Appendix, the art market in the Netherlands is not a particularly large one. It is also characteristic of the Dutch art market that sales primarily consist of art in the lower price bracket. Works by living artists in the price range up to 50,000 represented between 98 and 99% of the total number of works sold from 2005 up to and including The percentage of such works sold in 2010 (88.9 percent) was something of an exception. Indeed, it was a single auction, the auction of the BAT collection by Sotheby s, which was responsible for this unusual statistic. The fact that a single auction can have such a dramatic effect on the annual statistics of the country is a further indication that the art market in the Netherlands is a relatively small one. The art available to the market in the Netherlands consists mainly of a great many artworks by local artists; such work does not find a ready or a lucrative market abroad. This does not, of course, apply to artists such as Appel, who do command a good price in other countries. The work of Jan Schoonhoven is an interesting example. In recent years the price of these works has risen and, as a result, they have acquired such value and status that they have become internationally desirable and are now also to be found for sale in London and New York. artists At this point, it is worth taking some time to examine briefly the scale of the Dutch artistic community. It is estimated that there are approximately 10,000 artists working in the Netherlands. Very few sell sufficient work to make a living from their art, and only a limited number of these are in the position of having their work sold or resold, either at 8

9 auction or by art dealers, to the extent that there is any question of increased prices. No more than a handful of Dutch artists enjoy international recognition. ECONOMIC DEVELOPMENTS general Overall, it is true to say that the health of the art market in the Netherlands mirrors the state of the country's economy as a whole. That means that from 2005 up to and including 2007 the market was buoyant and growing well, reaching a peak in With the arrival of the credit crisis in 2008, the market declined drastically. Many more artworks remained unsold, and those which did sell achieved lower prices. The market recovered somewhat in 2010, which eventually resulted in a year of reasonably average profits. auction houses In recent years, the two largest auction houses in the Netherlands have reduced in terms of their scope and the number of auctions held. More and more the emphasis lies on the Netherlands as a central collecting point from which sales to foreign buyers are conducted. This is particularly true for the more expensive artworks. dealers The last few years have also been extremely difficult ones for art and antique dealers. Amsterdam in particular, the centre of the Dutch art market, has diminished in importance. The Spiegelstraat district, where most of the art and antique dealers in Amsterdam are located, shows more empty premises or by shops which were once occupied by art dealers but which now form part of completely different commercial sectors. This can of course be partly attributed to the general economic situation, and is further aggravated by the fact that both the Rijksmuseum and the Stedelijk Museum, which are situated nearby, have been closed now for several years because of renovations; a situation which has led to a significant reduction in the number of affluent tourists visiting this area of the city. 9

10 commercial art galleries Recent years have witnessed a clear trend: The importance of the galleries as a place of transaction has declined significantly. Their place has increasingly been taken by national and international art fairs. The format of such fairs has proved particularly attractive to the public: they can view and, above all, compare works of art in a pleasant, un-pressured atmosphere in an easily accessible location. living artists As can be seen from the figures in the Appendix, up to and including 2009 there was a decline in the sales of works by living artists. As has already been stated, sales increased significantly in 2010, though this figure is somewhat distorted by the auction of the BAT collection by Sotheby s a major event in terms of the Netherlands. deceased artists On the face of it, developments in the market for works by deceased artists do not differ greatly from trends in the rest of the art market. What is worth noting is that the volume of works by deceased artists has increased out of proportion to the remainder of arts sales. Whereas the number of works by living artists sold in 2010 increased by 20% compared to 2009, the number of works by deceased artists, sold in the same period, rose by some 45%. By comparison; figures for the whole of Europe were as follows: sales of works by living artists increased by 26% sales of works by deceased artists increased by 19%. third countries The figures in the Appendix show incontrovertibly that the position of the Netherlands has undergone few changes, as opposed to that of other countries. This is not surprising, because as has already been outlined above the Dutch art market is largely local in character, meaning that for the most part, local art is being sold to local buyers. 10

11 THE ROLE RESALE RIGHT PLAYED IN THE DEVELOPMENT OF THE ART MARKET IN THE NETHERLANDS implementation No droit de suite existed in the Netherlands prior to the Resale Right Directive (2001/84/EC). Legislation to implement the Directive became effective in 2006, at which time the Netherlands opted for the least stringent variant; that is to say a threshold of 3,000 - and provisionally limited to the work of living artists. In 2010, the Dutch government decided to exercise the option to delay the extension of droit de suite to the works of deceased artists until 1 January Mainly thanks to the initial choice for the least stringent variant, the repercussions of introducing droit de suite have been relatively limited so far. harmonisation? An important goal of the resale right guidelines was the harmonisation of the art market in order to remove market distortions. Now that droit de suite is applicable throughout the EU for the works of living artists, this should mean that, at this precise moment, this trade at least must have been harmonised. As we have seen above, the art market in the Netherlands consists almost entirely of artworks with a value not exceeding 50,000. The trade in these objects has not moved to other countries; neither has the market in the Netherlands grown as a result of imports from other countries. This would seem to indicate that, on this point at least, the art market was already harmonised; otherwise there would have undoubtedly been evidence of some movement. This is an important point given that the Netherlands was one of the countries where no droit de suite existed previously. The introduction of droit de suite has therefore apparently had little effect on the Dutch market for the works of living artists. 11

12 Only one conclusion can be drawn from this: No distortion in the market existed previously with regard to the Netherlands. The art market is international and extremely fluid; if there had been any distortions in the market, the statistics for the period of 2005 to 2010 should have shown signs of movements to correct them. works by deceased artists It is noticeable, as has already been remarked upon, that in 2010 the number of works by deceased artists sold increased significantly. The question is, how can this disproportionate increase be accounted for? The auction of the BAT collection is undoubtedly part of the reason, but does not account for all of the increase. One possible explanation is that works originating in other EU member states were sold in the Netherlands because no charge was levied here for resale rights on the works of deceased artists. The import statistics in the Appendix do not give any clear indication of this. Enquiries of the auction houses and various dealers suggests that the reason for the increase probably lies in the fact that sellers are aware that, come 2012, droit de suite will also be levied on works by deceased artists. Some of these sellers are the dealers and galleries themselves, and they are undoubtedly well aware of the coming changes. Moreover, they draw the attention of their clients to the forthcoming extension of the application of droit de suite. increases in price One of the most direct consequences of the introduction of droit de suite has been that prices for contemporary art have quite simply become higher. For the purchaser of art, who is quite often forgotten in the course of evaluating the effects of droit de suite, this is a discouraging development. It has not been possible to measure exactly how much effect its introduction has had on the behaviour of buyers, but dealers and gallery owners have observed that - particularly when it comes to younger purchasers - it has resulted in a definite reluctance to buy, and that the reason for the increase in prices is frequently not well understood by potential customers. 12

13 old stocks The introduction of droit de suite in the Netherlands has meant that the existing stocks of galleries have been subject to the regime of droit de suite at a stroke. In this respect, the power of the legislation has been retrospective, and galleries have seen their existing stock suddenly become much less attractive to buyers. increasing costs In addition to this, administrative costs have also increased, and this will be covered in more detail below. Attention must be drawn once more to the composition of the art trade in the Netherlands. This consists of many relatively small firms, dealing in comparatively inexpensive works of art. These businesses rely on a fairly high volume of trade in these modestly priced objects, making their profit by selling more works of art. By definition, the burden of the cost of administering the droit de suite will always be higher for these small firms: Administrative costs are, after all, the same for each object irrespective of its value. Because such businesses must sell more objects in order to make a given profit, the administrative burden for such businesses is disproportionately high. protecting a market for artists Art galleries promote and support certain artists. Not only do these galleries buy and resell their works, they also try to keep the artists whom they represent in the market. To do this, art galleries sometimes buy back the work of such artists at auction in order to maintain the price for the works of these artists at an acceptable level. This type of sale is now burdened with a droit de suite. We see that this practice, previously regarded as a service by the art galleries, is disappearing leaving the prices, and with them the reputation of the artists, free to fall. Of course it must also be remembered that artists supported by an art gallery benefit indirectly from the fact that the gallery representing them is a financially viable enterprise. from purchase to commission The introduction of droit de suite has already had the consequence that many galleries no longer invest in the work of the artists whom they represent, preferring nowadays to 13

14 operate only on the basis of commissions. This has clearly been disadvantageous for many artists, especially those at the start of their career. droit de suite applied not only to profits The vast increases which sometimes occur in the value of works of art are invariably used as justification for some form of droit de suite. In short, the argument is that it is nothing more than reasonable and fair for an artist to have some share of the good fortune if his work has significantly increased in value after he or she initially disposed of it. It would, after all, be unreasonable for others to benefit from such increases in value and not the artists themselves. There is something to be said for this argument. In the current situation, however, droit de suite is in no way related to profit, as it is charged on the sale price, whether the painting is sold for more or for less than the original price. Indeed, droit de suite is also levied on the sale price if a work of art is sold at a loss. the cascade effect of droit de suite Because the droit de suite is charged on the full price each time an object is sold through a dealer or auction, up to 5% is repeatedly levied on connected sales. It is very often the case that a dealer will buy an object at auction (where droit de suite is payable on the auction price) only to resell it to a client, on which sale droit de suite is payable again. Sometimes there will even be another dealer to dealer sale before the object finally reaches the collector. Unlike Value Added Tax, whereby the dealer is able to offset the tax paid on purchase against the VAT charged on the resale, droit de suite does not allow for such deductions. This means that related transactions can ultimately result in droit de suite payments of 10 or 15% on the value of a painting for what is in effect only one sale with a number of stages. recommendation It would be an enormous improvement in terms of efficiency and fairness if the collection of droit de suite were to operate in the same way as VAT. This would mean it would be levied only on profits and the cascade effect would also be avoided. 14

15 THE OUTLOOK FOR THE ART MARKET IN THE NETHERLANDS MAJOR RISK: EXTENDED OPERATION OF DROIT DE SUITE TO INCLUDE DECEASED ARTISTS Without doubt, the greatest threat to the art market in the Netherlands is the extension of droit de suite to include works of art by deceased artists. This will result in a series of consequences which will be to the disadvantage of the entire trade in works of art. quadrupling of administrative tasks Firstly, it can be established that the administrative burden will be multiplied at least fourfold. The financial consequences of this will be discussed in more detail below. damaging effect on competitive position Art fairs currently play an important part in the global art market: They represent profit peaks for both art dealers and galleries. The extended implementation of the droit de suite in the Netherlands from next year has made the country far less attractive to the organisers of international art fairs. It is undoubtedly more advantageous for dealers and galleries to participate in an art fair which is being organised in a country which does not operate the droit de suite. It is not for nothing that the Swiss art fair, Art Basel is such a huge success. This is an unfortunate development for the art market in the Netherlands, and it is becoming increasingly difficult to attract the best foreign dealers to the Dutch fairs. a sector of the market vanishes to non-eu locations The art market is a worldwide one, and this, coupled with the fact that the top end auction market is de facto in the hands of a duopoly, can have only one result: An auction house which operates worldwide can and will choose for itself the most advantageous location for its auctions. 15

16 The fact that an absence of droit de suite in certain countries may encourage buyers and sellers to conduct any business which concerns art objects in such countries in order to avoid levies in their homeland is often denied. A maximum charge ( ) should prevent this. For the most costly artworks though this is clearly not the case, when the simple expedient of conducting a transaction in a country with no droit de suite can offer such rich rewards. One ewell-known example of such a case from the past is the 1988 sale of a triptych by the German artist Joseph Beuys: this was auctioned in London, despite the fact that both the seller and the purchaser came from Germany. New York, the most important city for the trade in modern and contemporary art, provides a ready alternative, but Switzerland, which is somewhat closer to home, provides another haven where no resale right is applied. So, at what point on the scale of prices does it become advantageous to conduct your transaction in Switzerland or the United States? The maximum cost of transporting an art object to Switzerland from the Netherlands, including insurance, is 500. This means that from a sale price of approximately 12,500 upwards it could pay to have your artwork transported to Switzerland in order to sell it there. One sector of the art market within the European Union, namely that which deals in the more costly artworks, will almost certainly remove to locations such as Switzerland. Such a consequence will be damaging for the art market as a whole, not least because this premium market sector inevitably draws to it a market for less extravagantly priced works. If all the cherries in the cake migrate from the auctions of Amsterdam in the direction of Geneva, far fewer potential buyers will be tempted to partake of the meagre crumbs which remain. Although it is true that the Resale Right regulations have, as yet, not been the cause of any damaging repercussions in the Netherlands, we do have serious concerns for the competitive position of the market in the EU as opposed to non-eu markets. Already droit de suite undoubtedly makes it less attractive to sell a modern artwork within the EU, and overall, the climate for the art trade has deteriorated as a result. In London particularly, this is likely to be very noticeable, and this will also affect the Netherlands: if a part of the 16

17 market were to move from London to, for example, New York or Asia, then the relationship between London and the Netherlands would also be weakened. recommendation This uneven growth can be avoided if the European Commission can realise a situation whereby, in other competitive markets, but at the very least in the United States and Switzerland, the Resale Right is applied to these artworks. Failing this, they should at least extend the derogation for all EU member states, until such time as these competing markets do begin to levy a droit de suite. diminishing art sector in the Netherlands The art market is a vital link in the cultural and artistic life of the Netherlands. Sooner or later, all Dutch museums will make use of the services it provides, its expertise and its contacts. If, as seems likely, important art dealers and auction houses decide that their welfare is better served elsewhere, the inevitable result will be the impoverishment of the range of art available in our country. preference for artists outside the EU Even within the Netherlands, we are already seeing a preference for works by artists from areas outside the EU, such as Asia, the Middle East and South America. This is a way of avoiding the necessity to levy droit de suite. A number of gallery owners have compared this to the situation which prevails with art books, where compilers will avoid using images which are still subject to authors rights: "They would rather use the work of artists who have been dead for over 70 years". INCREASED VAT ON IMPORTS A second threat faced by the art market in the Netherlands is the increase to import VAT on art from outside the EU from 1 January The point is that an artwork from outside the EU may be imported into any EU member state, and in the countries which surround the Netherlands, the VAT percentage for import stands at five or six percent. This is in 17

18 stark contrast to the increased rate in the Netherlands, which has risen from six to nineteen (!) percent. Apart from anything else, this measure is the cause of a reversal in harmonisation within the art market in the EU. This measure, which was taken by the Dutch government without any prior consultation within the sector, or even a timely warning of its implementation, has only added to a prevailing climate which presents unnecessary difficulties for the art market in the Netherlands. INCREASE TO VAT ON ART A third threat is the increase in VAT on contemporary art. From 1 January 2011, the VAT on 'new' art was raised from six to nineteen percent. This has meant an unprecedented rise in prices which has undermined the market and which, above all, has dealt a crippling blow to the artists themselves. As was the case with the previous increase described, this poorly considered measure was introduced by the Dutch government without prior consultation. Because the increase is relatively recent, it is not possible to clarify precisely what its repercussions will be at this date, but a rise of 13% will undoubtedly damage the market in contemporary art to some degree. 18

19 THE COST OF ADMINISTERING THE RESALE RIGHT ROYALTY general The costs of administering the droit de suite are twofold. In the first place, the party who must ensure that the money is received will bear a part of the costs. These costs will fall to the professional actor in a transaction, generally the seller or an auction house. The second part of the administrative costs will be incurred by the collecting agency. These costs will ultimately be paid by the artist, or the heirs of the artists, entitled to receive the droit de suite. increased administrative burden for dealers and auction houses First and foremost, the introduction of droit de suite has been accompanied by the necessity for professional actors to set up a separate section for its administration. This has not been an easy task, particularly for the art dealers and auction houses. It is similarly difficult to establish precisely what their costs have been in this regard. More administrative processes are subsequently involved for each object which is either sold or for sale and for which droit de suite applies or might apply. Take, for example, an auction house. For each object which passes through their hands, the answers to the following questions must be verified: - is the maker still alive at the time of the transaction? - is the maker of the artwork a subject of an EU country or of a country that is a member of the EEA? - is the maker of the artwork ordinarily resident of the Netherlands? - was the artwork obtained from the maker by the person putting it up for auction less than three years ago? - is the maker a subject of a country which also recognises the resale right of subjects of the EU of EEA? 19

20 It must be remembered that these administrative costs are fixed, irrespective of the sale price of the object upon which the droit de suite will be levied. In a country where the art market consists of a great many smaller businesses, and where the majority of art objects handled have a value below 50,000, it is clear that such administrative costs will represent a disproportionately onerous burden. The consequences are significant, particularly for businesses which deal with many different types of objects. For example, the auctioning of a house contents of any volume might necessitate dealing with several thousand objects for a single auction; some of which will be subject to resale right by virtue of the fact that they were made by an artist who has been dead for less than 70 years. So when any art object is presented for auction, it must first be established whether the artist (assuming it is possible to find out who this was) has been dead for more than 70 years. If this is not the case, then the first step is to enter the object in the register. Obviously it is not possible to say what the price of the object will be before the auction. Not until the auction is underway will it become clear whether or not an object will reach the financial threshold at which resale right regulations come into force. It is only at that moment that it will become certain whether or not it was in fact necessary to register the object as being subject to the droit de suite. In practice, therefore, a significant administrative burden will have been incurred, the cost of which it will be impossible to recover. Similar uncertain aspects are equally likely to apply to other categories of business. Imagine the possibility that a buyer has succeeded in negotiating a discount, whereby the price of an object drops below the threshold, or a situation where a buyer and seller agree on a substantial reduction because the buyer wants to purchase four paintings at once, one or more of which fall below the threshold. 20

21 costs involved in administration In 2004, an enquiry, commissioned by the Dutch ministry of justice, was conducted into the financial consequences of this increased administrative burden. As its starting point, it examined between 3,000 and 4,000 sales transactions in the Netherlands. For each transaction, the professional involved spent 15 minutes on administration, meaning that, in total, between 750 and 1000 hours were lost to administration. If this is converted into the salary cost for a clerical worker (0,5 fte) it comes out at approximately 40,000. The ministry also requested specification of the costs incurred in searching for information relating to transactions which involved droit de suite. These costs were established to be between 8 and 10 per investigation. In total this comes to between 30,000 and 40,000. It is necessary to point out here that the ministry somewhat unfairly asked only for the costs of enquiry to be established for transactions which had actually taken place which involved droit de suite. There are, however, many other situations to which these criteria do not apply; if, for example, the artist has been dead for more than 70 years or was not a citizen of an EU member state, or where the work does not realise a sum in excess of 3,000. In all such cases, investigative work will have been carried out without any transaction on which droit de suite must be levied ever taking place. The combined costs therefore total between 70,000 and 80,000 per year. including the work of deceased artists Extending the obligation to include payment of a sum to the successors and beneficiaries of deceased artists will increase the number of transactions by a factor of four. The consequence of this will be that the number of hours which must be spent on administering the regulations will also increase at least by a factor of four. Account must also be taken of the fact that answering the above questions becomes more complex in direct relation to the length of time which has elapsed since the artist's death: the further back in time the death occurred, the more investigative work will be necessary to trace any legal heirs to the estate. 21

22 This clearly means that the administrative burden for the art dealer or the auction house will therefore in fact be multiplied by more than a factor of four. recommendation One way to relieve the administrative pressure to some extent would be to set up a database with which artists and their beneficiaries would be obliged to register if they wished to be eligible to receive droit de suite. This would save art dealers and auction houses the burdensome amount of time they are obliged to spend searching for information as regards the nationality, place of residence, place of death etc. of an artist. Such a database would also provide clarification as to who, precisely, is entitled to receive droit de suite, and would make its application much more efficient, particularly with regard to the heirs to the estate of a deceased artist. costs for collecting agencies During the period of preparation which preceded the implementation of guidelines in the Netherlands, the art world had already expressed the opinion that the amount of money raised by the resale right was unlikely to match the costs of its collection, administration and registration. Unfortunately, we can only confirm that this is in fact the case. According to our estimate, the negative costs for the collection agencies in 2009 amounted to some 4,125. This amount is arrived at as follows: in 2009, 55,000 was collected in resale rights. In 2009, the percentage retained was 15% for the first 1,000 of resale right payment; with the remainder incurring a retention of 2%. In 2010, it was decided to reduce the percentage retained to 10% for the first 1,000 and 5% for the remainder. In order to arrive at a reasonably accurate estimate, calculation has been made using the average percentage of 7.5%. It must be said that, because we do not know precisely how the collecting agencies have made their own calculations, it is not possible to establish with any accuracy from their yearly accounts exactly what their rake-off actually is. 22

23 In a year such as 2009, the total cost of administration is in the region of 75,000 to 85,000. In addition, it is necessary to observe here that the organisation responsible for collection, Pictoright, also collects various other sums related to author s rights. The significant incomes accrued from these activities finance the organisation. We are persuaded that these other incomes must, to some extent, be subsidising the collection of the droit de suite; and it seems unlikely that it would be possible to sustain the operation of an organisation which was solely concerned with the collection of droit de suite. conclusion To summarise, it appears that in 2009, the most recent year for which the collecting agency has supplied accounts, the cost of collecting the droit de suite amounted to between 75,000 and 85,000. These costs were incurred in order to collect and disburse approximately 51,000 to artists. 23

24 THE NUMBER OF ARTISTS THAT HAVE BENEFITTED FROM THE RESALE RIGHT benefiting artists In the period from 2005 up to and including 2010 the droit de suite applied only to living artists in the Netherlands. Auction records for the year 2010 have been used to establish how many artists ultimately had a right to receive droit de suite, and - as may be noted from the figures in the Appendix this was an exceptionally good year. The auctions conducted by Christie s and Sotheby s in Amsterdam have already been processed, with the following result: Dutch artists: 44 Foreign artists: 49 In 2010, the total number of benefiting artists was therefore 93. If we set these Dutch artists (44) against the 10,000 or so artists working in the Netherlands, then it becomes clear that an enormous amount of administrative paperwork has been generated in order to ensure that a very few artists receive the small amount of droit de suite due to them: less than half a percent of the artists currently at work in the Netherlands. And if we then set this number against the amounts collected in 2009, it will illustrate the observation made earlier even more clearly. 44/93 x 51,000, means that a total of 24,129 is destined for those 44 Dutch artists. That comes to an average of per person. According to the yearly accounts of Pictoright, the following amounts were collected: Year Amount 6, ,000 55,000 The value of amounts disbursed is not known. 24

25 THE VALUE OF THE ROYALTIES THAT HAVE BEEN COLLECTED BUT NOT DISTRIBUTED Regrettably, it is not known what sum is involved here in the Netherlands. The collecting agency - Pictoright - does publish accounts, but the amount of money which they have collected but not distributed is unfortunately not to be found in the summary of information which they provide. The experience of gallery owners, art dealers and auction houses leads us to believe that such monies must exist. We are aware of a number of situations where dealers have sold works of art by artists who they know well. These dealers have conscientiously made over the droit de suite to the collecting agency. It appears that when they enquire of the artists a couple of years later, none of them seem to have received the amounts due to them. This fact is causing the art sector a good deal of concern. If, when such a small amount is concerned as is the case at present, the system of disbursing droit de suite is already so dysfunctional, how can it be expected to function efficiently when the resale right is extended to cover the works of deceased artists (a quadrupling of the task at the very least). recommendation Compulsory public accountability on the part of collecting agencies The operations of the collecting agencies must become more transparent. If they were obliged to publish a full accounting of their activities it would at least become clear exactly how much money is being collected and when and to whom it is being disbursed. This would also make it easier to obtain some idea of the costs incurred by collecting agencies in the administering of the droit de suite. 25

26 THE ROLE OF THE RESALE RIGHT IN FOSTERING ARTISTIC CREATIVITY Firstly, the question: why should droit de suite necessarily be expected to foster artistic creativity? Is an artist going to be stimulated to produce his or her greatest work because they know that at some later date they, or their descendants, might possibly receive a sum of money by way of droit de suite? To pose this question is to answer it! The droit de suite is run by an organisation, the operation of which is less than transparent, and in which those who actually have a right to the payments (the artists themselves) have no say. It is a right which cannot be relinquished and is non-transferable, the exercising of which is restricted to this organisation, which claims to represent the artist. Droit de suite has already had the effect that galleries no longer invest in the work of the artists whom they represent; they now work solely on the basis of commissions. Purchasers take account of the higher prices by buying less. It is clearly the artists who are ultimately disadvantaged by its implementation. Artists who are as yet unknown or unrecognized will eventually also become the victims of this system of droit de suite. By a perverse operation of the law of unintended consequences, the droit de suite system, far from supporting the as yet unknown or unrecognised artist, seems destined only to make it more difficult for these artists to break through. Perhaps it would be a good idea to ask the public; the purchaser, the collector, for their opinion on this point: The buying of art, particularly the work of new artists, is definitely not stimulated by this measure. Ultimately, it will hamper rather than foster artistic creativity. Maybe the question of the role of droit de suite in fostering artistic creativity is answered perfectly by the Dutch painter Philip Akkerman during an interview for a Dutch newspaper in 2004: Naturally I find it pleasant to receive a percentage, but I think it is more important to have a flourishing art market. 26

27 PRACTICAL DRAWBACKS Now that the implementation of the droit de suite is a fact in the Netherlands and there is therefore a certain amount of experience of its operation, a number of practical problems have arisen. We would like to take the opportunity to enumerate a couple of these here. If a work of art is sold as part of a larger group of objects, as sometimes happens when personal effects are sold after the death of the owner, what value must be attributed to that single object? What happens if there are doubts as to the attribution of a work of art? It is possible to envisage situations when the ownership of a work of art takes place without any accompanying financial transaction. Must the market value be taken as a starting point for any calculation; and if so who is to determine what that is? Furthermore, who would be responsible for deciding who should value the work? Supposing that a work of art is stolen. The insurer recompenses the victim, and at that point acquires the rights of this victim and becomes the owner of the stolen artwork. Must droit de suite be levied on the insurance payment? Imagine that a work of art - a sculpture or a wall painting - is installed on the gable of a building, and as a result becomes part of a piece of immovable property. Must droit de suite be paid when this property - incorporating a work of art - is sold? If so, how much would have to be paid? There are artists who do not wish to have anything to do with the resale right on principle. Karel Appel is one Dutch artist who declared himself to be opposed to the scheme. What course must a dealer or auction house follow if they are selling the work of such an artist? 27

28 APPENDIX SUPPORTING DATA for THE NETHERLANDS For the Consultation by the European Commission on the Implementation and Effect of the Resale Right Directive (2001/84/EC) Report prepared by ARTS ECONOMICS February

29 SECTION 1. ART MARKET TURNOVER and VALUE of SALES a. Data on the Market for Works by Living Artists Note: Works by living artists are works of art sold at auction by artists that have no recorded death date and are alive at the time of sale. The data given in the tables in Sections 1 and 2 is based on data sourced from Artnet. Artnet cover the major auction houses in all countries, but do not include some minor sales and smaller houses and therefore may slightly understate actual sales. All sales values and prices are based on hammer prices at auction (excluding premiums and commissions). i. Total Auction Sales Year-by Year (Euro Millions) Country The Netherlands EU Source: Arts Economics (2011) with data from Artnet (2011) ii. Total Auction Transactions Year-By-Year (Number of Lots Sold) COUNTRY The Netherlands EU 12,084 16,009 18,581 23,658 21,865 27,609 Source: Arts Economics (2011) with data from Artnet (2011) iii. Global Market Share by Value COUNTRY The Netherlands 0.6% 0.3% 0.3% 0.2% 0.4% 0.6% EU 36.6% 34.4% 36.1% 44.2% 36.6% 29.8% Source: Arts Economics (2011) with data from Artnet (2011) 29

30 iv. Global Market Share by Volume Country The Netherlands 1.9% 1.9% 1.8% 1.0% 1.3% 1.2% EU 54.1% 50.8% 49.4% 51.9% 53.1% 51.6% Source: Arts Economics (2011) with data from Artnet (2011) v. EU Market Share by Value COUNTRY The Netherlands 1.7% 0.9% 0.8% 0.5% 1.2% 2.1% EU 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Arts Economics (2011) with data from Artnet (2011) vi. EU Market Share by Volume COUNTRY The Netherlands 3.5% 3.8% 3.7% 1.9% 2.4% 2.3% EU 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Arts Economics (2011) with data from Artnet (2011) b. The Market for Works by Deceased Artists (Deceased Within 70 Years of the Date of Sale) Note: Works by deceased artists are works of art sold at auction by artists that died within 70 years of the date of sale. i. Total Auction Sales Year-by Year (Euro Millions) The Netherlands EU , , , , Source: Arts Economics (2011) with data from Artnet (2011) 30

31 ii. Total Auction Transactions Year-By-Year (Number of Lots Sold) COUNTRY The Netherlands 1,630 2,072 2,516 1,370 1,192 1,729 EU 37,207 45,122 49,786 55,198 51,775 61,648 Source: Arts Economics (2011) with data from Artnet (2011) iii. Global Market Share by Value COUNTRY The Netherlands 0.8% 0.6% 0.6% 0.4% 0.6% 0.6% EU 41.3% 41.8% 42.1% 48.8% 49.9% 33.7% Source: Arts Economics (2011) with data from Artnet (2011) iv. Global Market Share by Volume COUNTRY The Netherlands 2.5% 2.7% 3.0% 1.5% 1.4% 1.6% EU 57.4% 58.5% 58.7% 61.8% 60.1% 57.4% Source: Arts Economics (2011) with data from Artnet (2011) v. EU Market Share by Value COUNTRY The Netherlands 1.9% 1.3% 1.3% 0.9% 1.1% 1.7% EU 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Arts Economics (2011) with data from Artnet (2011) vi. EU Market Share by Volume COUNTRY The Netherlands 4.4% 4.6% 5.1% 2.5% 2.3% 2.8% EU 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Arts Economics (2011) with data from Artnet (2011) 31

32 SECTION 2. VALUE and VOLUME of SALES by PRICE RANGE a. The Market for Works by Living Artists i. Share of Value of Sales by Price Band ( ) , , , ,000 More than 500,000 Netherlands 74.8% 25.2% 0.0% 0.0% 0.0% EU 35.9% 23.3% 10.1% 6.2% 24.6% , , , ,000 More than 500,000 Netherlands 90.6% 9.4% 0.0% 0.0% 0.0% EU 31.9% 24.2% 12.3% 7.1% 24.4% , , , ,000 More than 500,000 Netherlands 83.5% 16.5% 0.0% 0.0% 0.0% EU 22.9% 22.2% 10.0% 8.9% 35.9% , , , ,000 More than 500,000 Netherlands 70.8% 29.2% 0.0% 0.0% 0.0% EU 19.4% 16.3% 7.9% 6.7% 49.7% , , , ,000 More than 500,000 Netherlands 75.3% 24.7% 0.0% 0.0% 0.0% EU 43.9% 23.3% 10.0% 6.3% 16.6% , , , ,000 More than 500,000 Netherlands 52.0% 27.6% 15.1% 5.3% 0.0% EU 34.5% 20.4% 12.4% 6.4% 26.4% Source: Arts Economics (2011) with data from Artnet (2011) 32

33 ii. Share of Volume of Transactions by Price Band ( ) , , , ,000 More than 500,000 Netherlands 98.1% 1.9% 0.0% 0.0% 0.0% EU 95.8% 3.3% 0.5% 0.2% 0.5% , , , ,000 More than 500,000 Netherlands 99.5% 0.5% 0.0% 0.0% 0.0% EU 94.2% 4.3% 0.8% 0.3% 0.7% , , , ,000 More than 500,000 Netherlands 99.1% 0.9% 0.0% 0.0% 0.0% EU 91.8% 5.9% 1.0% 0.5% 1.0% , , , ,000 More than 500,000 Netherlands 98.0% 2.0% 0.0% 0.0% 0.0% EU 93.5% 4.5% 0.8% 0.4% 0.7% , , , ,000 More than 500,000 Netherlands 99.0% 1.0% 0.0% 0.0% 0.0% EU 97.1% 2.3% 0.4% 0.1% 0.3% , , , ,000 More than 500,000 Netherlands 88.9% 7.1% 2.2% 0.7% 1.8% EU 78.3% 15.1% 2.9% 1.4% 4.1% Source: Arts Economics (2011) with data from Artnet (2011) 33

34 b. The Market for Works by Deceased Artists (Deceased Within 70 Years of the Date of Sale) i. Share of Value of Sales by Price Band ( ) , , , ,000 More than 500,000 Netherlands 73.1% 18.6% 8.4% 0.0% 0.0% EU 32.1% 21.3% 9.8% 5.9% 30.8% , , , ,000 More than 500,000 Netherlands 66.5% 21.3% 9.2% 3.1% 0.0% EU 24.9% 19.2% 7.9% 5.8% 42.2% , , , ,000 More than 500,000 Netherlands 65.2% 19.0% 11.6% 4.2% 0.0% EU 20.7% 16.5% 7.6% 4.9% 50.4% , , , ,000 More than 500,000 Netherlands 66.1% 31.4% 2.5% 0.0% 0.0% EU 21.5% 15.6% 7.6% 5.1% 50.3% , , , ,000 More than 500,000 Netherlands 62.1% 26.8% 2.4% 8.7% 0.0% EU 27.2% 16.3% 7.4% 4.7% 44.4% , , , ,000 More than 500,000 Netherlands 41.0% 25.8% 17.1% 11.5% 4.6% EU 23.8% 15.8% 7.3% 5.0% 48.2% Source: Arts Economics (2011) with data from Artnet (2011) 34