Taxation - European rules spark art row

The London art market has lambasted the European Commission’s plans to drastically alter its tax treatment.

But claims that the market, viewed by many as pre-eminent around the world, has been doomed by European tax rules were brushed aside by the former chief Treasury secretary Alistair Darling last week.

Pressure was piled on the market recently by the commission’s proposed introduction of a droit de suite – an allowance of continued financial rights for artists on future sales. Tax experts claimed the plan was unworkable.

Darling, appointed social security secretary in this week’s Cabinet reshuffle, said he was ‘aware of the fears’ of the art world and insisted ministers had stuck up for London.

The British Art Market Federation, backed by Ernst & Young, is due to meet commission representatives in early September to find a solution.

Peter Jenkins, national VAT partner for E&Y, said: ‘The proposals are absolutely dire and not at all thought through. Are the royalties taxable and, if so, how is the tax collected?’

Darling told the House of Commons: ‘The government is aware of the problem – and to say that the London art market is under threat is to raise unjustified fears, since it is competitive and well regarded throughout the world.’

Shadow finance minister John Whittingdale claimed the market was ‘already largely destroyed in the pointless quest for tax harmonisation’.

Whittingdale also warned that the European Commission’s plan for a 20% withholding tax on interest income would pose a real threat to the City’s position as an international financial centre and would lead investors to switch to Zurich or New York.