London, UK: Anger at customs clampdown

Anger at customs clampdown

Stricter enforcement of UK bond rules pushes dealers’ credit lines to the limit

By Charlotte Burns | From issue 215, July-August 2010
Published online 5 Aug 10 (market)

Shock in store: more red tape for the trade

LONDON. A customs clampdown on works brought into the UK “in bond” has sent shockwaves through the trade. At the moment, works which enter the UK from outside Europe “in bond” can be taken out of customs warehouses for three months—allowing galleries to mount exhibitions, show works to clients or for specialist conservation—without paying import tax. However, many galleries frequently extend the three-month period by returning the work to the warehouse for 24 hours, before beginning another cycle.

Customs officials have now started sending out instructions which tighten up these procedures, making it much more difficult for galleries to extend the three-month period.

Officially, this is not new legislation. “Customs are not changing the law so much as enforcing it more rigorously,” said one shipper, although “it will reduce galleries’ flexibility”. Now if galleries want to extend the “bond” beyond three months, they must use the “temporary admission” system. It is not a new invention—but it is more expensive. The import tax (VAT) on works of art is currently 5% of the work’s value. Under the temporary admis sion system, galleries must demonstrate that they either have the cash available on deposit, or that the sum is backed by a bank guarantee.

Customs are downplaying the issue. “There is no change in the law…This is merely a clarification following numerous problems that have been found during assurance of customs warehouses,” said Jan Marszewski, press officer for HM Revenue and Customs. “It came about because of disagreements between HMRC’s interpretation and that of the trade of the temporary removals procedure, so we sought clarification from the European Commission.”

Many in the trade, however, disagree. “This is going to affect people quite considerably. It is just another reason for the markets to move elsewhere,” said private dealer Ivor Braka, while old master specialist Luca Baroni said: “It is a further burden on the market—and I am not sure the market needs that.” Iwan Wirth, director of Hauser & Wirth gallery, which has bases in London, New York and Zurich, said: “This seriously weakens London’s position as an international hub. It’s extraordinarily easy to do business in New York, Hong Kong, Singapore or Switzerland, so those places will benefit. It just means there will be less great art in London.”

The amount of money, or number of credit lines, needed to arrange a temporary admission—especially in the middle of a recession—is causing particular anger.

“To take liquidity out of the dealing kitty—which is what bank overdrafts guaranteeing imports would do—is going to reduce the actual turnover of trade in the UK art dealing world. There will be less money available to buy and sell works of art,” said Peter Nagy. Another dealer said the effects could be crippling: “It is a liability that comes off your credit line, so it impacts your overdraft—which means you have less flexibility for the rest of your business.” Another said banks are unlikely to lend so much cash. “For a £20m work, you need a £1m guarantee—which bank is going to lend that? Add to that the bank charges. It’s ridiculous.”

Some galleries already use the temporary admissions system, including Daniel Katz, but the London gallery’s director Stuart Lochhead said: “It is very expensive because you have to put a lot of money aside for anything you want to bring in, and there is a time limit of two years. The system is restrictive for business.”

Auction houses are concerned, too. A Sotheby’s spokesman said: “We are aware of these changes and…are taking advice to minimise the affect on the business.” But dealers say that they are the harder hit: “Auction [houses] have an advantage because they have a completely different capital and sales structure,” said Iwan Wirth. “Private galleries work at a different pace—we deal with museums and private collectors, and it’s a slower process.”

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