the spanish art market in 2012

THE SPANISH ART MARKET IN 2012

CUADERNOSARTE YMECENAZGO

01

Dra. Clare McAndrewArts Economics

The Spanish Art Market in 2012 P. 2

Dra. Clare McAndrew Arts Economics

www.fundacionarteymecenazgo.org

Fundación Arte y MecenazgoAv. Diagonal, 621 - 08028 Barcelona © Fundación Arte y Mecenazgo, 2012

Leopoldo Rodés Castañé President

Isidro Fainé CasasRicard Fornesa Ribó Vice-presidents

Juan Abelló GalloLuis Bassat CoenArcadi Calzada SalavedraCarmen Cervera, Baronesa Thyssen-BornemiszaJosep F. de Conrado y VillalongaMiguel Ángel Cortés MartínElisa Durán MontolíoCarlos Fitz-James Stuart, Duque de HuéscarJaume Gil AlujaCarmen Godia BullLiliana Godia GuardiolaFelipa Jove SantosAlicia Koplowitz Romero de Juseu, Marquesa de BellavistaEsther Koplowitz Romero de Juseu, Marquesa de Casa PeñalverJaume Lanaspa GatnauMaria Reig MolesÁlvaro Saieh BendeckJoan Uriach MarsalJuan Várez BenegasAntoni Vila CasasGovernors

Marta Casals Virosque Secretary

Mercedes Basso Ros General manager

Digital edition

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Board of Governors of the Fundación Arte y Mecenazgo

CUADERNOS ARTE Y MECENAZGO THE SPANISH ARTMARKET IN 2012

01Contents / Author’s Notes


CONTENTS

Foreword Leopoldo Rodés

Foreword Isidro Fainé

Acknowledgments

Introduction and Key Findings

1 Art Market Sales

The spanish fine art Market

Sales by Spanish Artists

2 Art Market Shares and Relative Performance

3 Art Market Structure

The Auction Sector

The Dealer Sector

4 Prices and Values of Spanish Art

5 Sales by Sector in 2011

6 The Spanish Trade in Art

Imports

Exports

Import and Export Regulations EU Context

Export Regulation

Import Regulation and VAT

7 Art Collecting in Spain

The Spanish Wealth Context

Art Collecting

Motivations for Collecting

Key Sectors for Collecting

Collecting Process and Buying Channels

P.5

P.6

P.7

P.8

P.11

P.13

P.14

P.16

P.20

P.20

P.22

P.28

P.31

P.33

P.33

P.36

P.38

P.39

P.41

P.44

P.44

P.47

P.47

P.49

P.50

Contents / Author’s Notes


8 Taxation and the Spanish Art Trade

Personal Income Tax

Corporate Income Tax

Wealth Tax

Inheritance and Gift Taxes

VAT

ARR (Artists’ Resale Rights)

Unregulated trade

9 The Economic Impact of the Spanish Art Market

Auction Sector Employment

Dealer Sector Employment

Ancillary Economic Impact

Fiscal Contribution

10 Outlook and Recommendations

Author’s Notes

P.52

P.52

P.53

P.54

P.55

P.55

P.56

P.59

P.60

P.60

P.60

P.62

P.63

P.64

P.66



FOREWORD

The knowledge generation, seen from a cultural and economic perspective, makes up one of the central pillars of the work of la Fundación Arte y Mecenazgo, an institution supported by “la Caixa” as part of its commitment to culture. I am therefore proud to present this report, The Spanish Art Market in 2012, which is the first in the Cuadernos Arte y Mecenazgo series, a series that I hope will contribute to raising the perception of the art industry of our country.

This study was led by Dr. Clare McAndrew, an economist specialising in the art market and the author of benchmark international reports. I am especially grateful to her for accepting the challenge of writing this report, which was so necessary, and which fills a significant gap in the market by providing reliable and comprehensive information on the Spanish art market.

I would like to emphasize how extensively this report relied upon the participation of art galleries, auction houses and collectors, who, in sharing their invaluable experience, have given the project fundamentally important and enormously interesting information. I offer my most sincere appreciation for their time and dedication.

Many industry professionals have made this report possible, and I would like to give a special mention to the generous collaboration of Eva Lasunción, a lawyer specialising in legal and fiscal matters in the art market, and who contributed to analysing the tax and regulatory framework that shapes and oversees this market. I wish to point out that one of our aims in this report is to identify the need for reform, a matter which has been the subject of a Proposal for the Development of Art and the Art Market in Spain.

It is especially revealing to compare the situation of our country against the global market and so be aware of the need to take measures to promote the conservation and generation of our artistic heritage. The Spanish Art Market in 2012 aspires to be a benchmark report that will stimulate the complex task of development merited by the industry for all of the actors involved. The coordinated efforts of those of us who are committed and involved in the art world in Spain is essential for promoting art collecting, the raison d’être of our foundation.

Leopoldo RodésPresident of la Fundación Arte y Mecenazgo



FOREWORD

The first and most visible instance of the commitment of “la Caixa” to culture was in the seventies, when our first cultural centre was inaugurated in Barcelona. In the eighties, the Contem-porary Art Collection of “la Caixa” was born, which, very active today, has merged with the collection in the MACBA. After expanding the network of CaixaForum centres to several Spanish cities, we believe that our commitment and activities in the field of culture have sufficiently matured to be able to scale up our aims and create a national artistic heritage. This is why we have created, with the support of a group of key art collectors, dealers and patrons of the arts, la Fundación Arte y Mecenazgo, which is presided over by Leopoldo Rodés. We firmly believe that art collectors are the keystone of all major public art collections, and we feel it is necessary to grant them the recognition they deserve for this contribution.

We are in times of profound economic difficulty and in these times the art world can be seen as a safe bet for wealth creation in the future. Against a backdrop of job losses, the art industry has been a net creator of jobs over the last year, and more importantly, these new posts are specialist and are held by highly educated industry professionals. The art market has shown growth based on a knowledge economy: the creation of added value and improvements in productivity. This industry, with its high degree of specialist professional skills, together with the intervention of cultural institutions bringing this valuable artistic heritage to a wider public, generates positive externalities for the greater good of society.

Culture in Spain has enjoyed until now continuous growth from stable foundations and has outgrown the limits of the major cities, spreading out over the whole of the country. Our nation has su-pplied internationally renowned names, but this artistic corpus and cultural base must be strengthened and must grow, and to achieve this all of us who contribute to the diffusion of culture must be involved. For this reason, la Fundación Arte y Mecenazgo aspires to clearly demonstrate the need to consolidate these foundations and harvest our commitment to this heritage. It is a privilege for “la Caixa” to have the opportunity to support this task.

Isidro FainéPresident of “la Caixa”President of la Fundación “la Caixa”



ACKNOWLEDGMENTS

This report on the Spanish art market has been made possible thanks to the support and vision of Fundación Arte y Mecenazgo. My sincerest thanks and appreciation to Leopoldo Rodés, chairman of Fundación Arte y Mecenazgo, for commissioning the research and to their team lead by Mercedes Basso for all of their help in completing the study.

The information presented in this report is based on data gathered and analysed by Arts Economics from Spanish collectors, dealers, auction houses, ARCO Madrid and other experts as well as global and national databases. Much of the qualitative data and insights presented in the report is based on a series of interviews conducted with collectors, auctioneers and dealers in Madrid and Barcelona in 2012. My sincerest thanks to all of those participants who gave their time and invaluable insights into the Spanish art market.

An important part of the research involved a survey of art dealers and auctioneers in Spain. Sincerest thanks and appreciation to the presidents of the dealers’ associations in Spain for their support of the survey and especially to all of those individual dealers and auctioneers who took the time to take part in the survey, which made this research possible.

I am particularly grateful to Eva Lasuncion Patus for her help in providing assistance and information on the tax and regulatory aspects of the Spanish art market.

Dr. Clare McAndrewArts Economics



INTRODUCTION & KEY FINDINGS

In 2011, the Spanish art market reached a total of just under €300 million in auction and dealer sales.

The Spanish market grew over 200% in value in the years from 2002 to its peak in 2007, but fell 44% from 2007 through 2009. It recovered by 16% in 2010, before contracting again by 5% over 2011. This year-on-year contraction was significantly worse than the performance of the aggregate global art market, which advanced 7% year-on-year.

The Spanish art market grew by 87% over the last ten years, outpacing inflation and the wider economy.

The fine art market heavily dominates decorative arts in Spain in both the dealer and auction sectors, and in 2011 represented some 71% of its value, with sales estimated at just over €211 million.

In 2011, it is estimated that at least 63% of the value of the fine art auction market in Spain was sales of works by Spanish artists, which also accounted for at least 64% of the volume of auction transactions.

Average prices for art in Spain are 39% of the EU average.

At auction, 99% of lots of fine art sold in 2011 were for less than €50,000 and they accounted for 85% of the value of sales. For dealers, 95% of the works they sold in 2011 were for less than €50,000.

The most expensive works by Spanish artists are sold outside Spain, with 97% of the total value of works of Spanish artists sold at auction, sold externally.

Total Sales€300 million

Auction Sales€87.3 million

Dealer Sales€212.4 million

Imports and Exports

Imports of art€88 million

Exports of art€66 million

Total Businesses 3,625

Auction 125 (core 50)

Dealers 3,500 (core 600)



In 2011, Spain held a 0.6% share of the global art market. It is the sixth largest art market in the EU by value, with a share of just under 2% of the EU total.

Contemporary and Modern art make up 42% of the value of the Spanish art auction market, while Old Masters accountfor 37%.

Dealers account for a 75% share of the aggregate Spanish art market and 80% of the fine art market.

Dealers now conduct one third of their annual sales via local and international fairs. The most important international art fair in Spain is ARCO Madrid.

In 2011, Spain ran a trade deficit for art with imports of art at €88 million exceeding exports at €66 million.

Spain is the eighth largest importer of art in the EU and extra-EU imports account for 83% of the total value. It is the seventh largest exporter and again, extra-EU exports dominate with 72% share by value.

Spain has a relatively high number of wealthy inhabitants yet the “culture of art collecting” appears to lag behind more well-developed markets. The reasons given for this included the country’s pre-1975 historical/ political context, a lack of art in education and insufficient government support and stimulus. Most of Spain’s tax incentives in relation to art apply only to heritage art.

The art and antiques market in Spain is made up of over 3,625 businesses*1 with the core fine art sector comprising some 650 companies. The art market employs a conservatively estimated 11,625 people (with 90% of those in the dealer and gallery sector).

In 2011, it is very conservatively estimated that the Spanish art trade spent €154 million on a range of external support services linked to their businesses with the largest component being dealers spending on art fairs.



In 2011, at least €128 million accrued to the government in corporation taxes, income tax and net VAT directly generated by the art trade.

* Author’s notes at the end of the report (pag. 66).



In 2011, the Spanish art market reached a total of just under €300 million in auctionand dealer sales. The Spanish art market, like the global art market, has been through a vola-tile period of boom, contraction and recovery. The Spanish market grew over 200% in value in the years from 2002 to its peak in 2007, but then in two years of marked declines, it fell 44% from 2007 through 2009, bottoming out at €271 million in 2009. The global market recovered in 2010 and Spain also returned to positive growth, with the value of sales increasing 16% to a high of €315 million. However, while the global market continued to recover, Spain again witnessed a drop in total sales of 5% over 2011. This year-on-year contraction was significantly worse than the performance of the aggregate global art market, which advanced 7% year-on-year to €46.4 billion2, and comes alongside escalating economic crises in the wider Spanish economy.

While the major art economies in Europe such as France and the UK both showed positive growth year-on-year, the EU as a whole contracted 2% over 2011 (to €15.8 billion) as many of the smaller markets within it, such as Spain, experienced continued declines in sales. These mid-sized and smaller European art markets tend to have a high share of sales in the low to middle priced range of the market, and the contractions they experienced during the year fit with the anecdotal evidence from dealers and auction houses that, while the top end of the market recovered well over 2010 and 2011, the middle market continues to struggle with a much slower bounce back in demand from the recession in the global art market in 2009. The key centres in Europe for higher priced sales continue to be the UK and France, which explains their better performance over the year. The art market in Spain was further hampered by a disproportionately poor economic backdrop, with the financial crisis and its ensuing uncertainty damp-ening demand across many sectors, and damaging consumer confidence3, as the country slipped into its second recession since 2009. A lack of liquidity and discretionary

ART MARKET SALES

FIGURE 1Aggregate Sales of Art and Antiques in Spain 2002-2011

Million Euros

€0

€100

€200 €160€200

2002 2003

€300

€400

€500

€600

€320€289

€481 €480

€385

€271€315 €300

2004 2005 2006 2007 2008 2009 2010 2011

1

Source: © Arts Economics (2012)



income to spend on art on the part of individual and corporate buyers, coupled with reductions in government budgets for the acquisition of works of art, meant that al-though some individual businesses in the art trade reported strong sales over 2011, on aggregate the market was marked by continued sluggishness. Those businesses that had an external focus in terms of buyers and sales tended to fare significantly better than local businesses, and the most expensive Spanish art continued to be sold outside Spain. Looking over the longer-term, in the ten-year period from 2002 through 2011, Spain, like most other major markets such as the UK, US and China experi-enced positive growth. The market rose in value by 87% since 2002 when it was valued at an estimated €160 million. While this increase in size is relatively small compared to emerging markets such as China (which increased by 40% per annum over the decade), it is a significantly higher increase than many of the other markets in Europe over the period, and more than double that of the US. It is worth noting also that the growth in the art market in Spain has significantly outpaced growth in the Spanish economy over the same period: GDP rose 16% over this ten year period or an average of 2% per annum versus the art market’s 12% average annual rise. It was also substan-tially higher than inflation, which increased by 27% from 2002 to 2011, as well as the aggregate wholesale, and retail index which increased 16%4. In 2011, close to 75,000 works of art were sold in Spain. The volume of trans-actions dropped 19% year-on-year, with losses exceeding the loss in values, indicating that the continued contraction of the market in 2011 was caused by less supply in the market, rather than simply a reduction in prices.

“Those business in the art trade that had an external focus in terms of buyers and sales tended to fare significantly better than local businesses”

TABLE 1Average and Total Growth: Boom, Recession, and Recovery

Spain 200.1% -43.5% 10.4% 11.5% 87.4%

France 35.7% -1.3% -0.2% 4.4% 33.6%

Italy 51.9% -40.7% -10.6% 0.3% -19.4%

Austria 75.6% 30.5% -15.9% 8.9% 92.7%

Germany 57.2% -8.6% -12.7% 3.9% 25.4%

UK 100.1% -49.8% 58.2% 10.5% 59.0%

The Netherlands 23.7% -34.5% -31.7% -3.5% -44.7%

Sweden 36.8% -21.0% 10.8% 5.0% 19.6%

US 87.3% -52.0% 56.2% 9.8% 40.6%

EU27 72.3% -37.0% 27.4% 6.4% 38.4%

China 194.1% 14.4% 168.6% 40.5% 803.6%

Switzerland 70.3% -12.5% 112.2% 18.5% 216.3%

Global Market 115.9% -41.0% 62.8% 12.0% 107.2%

Country 2002-2007Boom

2007-2009Recession

2009-2011Recuperation

Average Growthpa 2002-2011

Total Growth 2002-2011




The art market in Spain is divided into fine art and decorative art and antiques. The fine art sector, which includes paintings, works of paper, sculptures and new media fared better and recovered much faster globally than decorative art and antiques, and is driven especially by strong sales in sectors such as Contemporary and Modern art. The fine art market, which is the focus of this study, heavily dominates decorative arts in Spain in both the dealer and auction sectors, and in 2011 repre-sented some 71% of its total value, with a market estimated at just over €211 million. In 2011, in the auction sector, the share of the value of fine art in total sales was approximately 60%, while for dealers it was around 75%. Auction sales of fine art decreased 4% over 2011 and sales in the much larger dealer segment of the market dropped 6% on aggregate, leading to an overall year-on-year decline of 5%.

“The fine art market heavily dominates decorative arts in Spain in both the dealer and auction sectors, accounting for 71% by value in 2011”

THE SPANISH FINE ART MARKET

FIGURE 2Fine Art Sales in Spain 2002-2011

€0

€100

€200

2002 2003

€300

€400

Million Euros

2004 2005 2006 2007 2008 2009 2010 2011

Total Fine Art Auctions Dealers




Although the Spanish art market has become increasingly international over the last ten years, the fine art sector in Spain is still very much dominated by sales of works by Spanish artists. In 2011, it is estimated that at least 63% of the value of the fine art auc-tion market in Spain was the sales of works by Spanish artists, which also represented 64% of the volume of auction transactions5. In the global fine art market, Spanish artists have a small but significant pres-ence, accounting for 4% of the value of global fine art sales in 2011 and 2% of lots sold. An interesting and consistent feature of the Spanish art market is that most of the sales of the highest priced works by the best-known Spanish artists are predominantly outside Spain. Of all sales of fine art at auction in 2011, although 26% of the volume of works by Spanish artists were sold in Spain, these works represented only 3% of the total value of auction sales of works worldwide by Spanish artists. In other words, 97% of the total value of works of Spanish artists sold around the world were sold outside Spain. These statistics are influenced by the fact that the best known Spanish artists predominantly sell in the larger auction houses, such as Christie’s and Sotheby’s in London and New York. For example in 2011, of the 61 oil paintings offered at auction by Picasso, only one was sold in Spain (which represented less than 0.1% of the value of works sold by the artist that year), whereas the highest value multi-million dollar lots were sold in Christie’s and Sotheby’s in London and New York. Even for well-known Contemporary artists such as Antonio Tapies, there were only four successful pub-lished sales of paintings at auction in Spain in 2011 (out of 12 lots offered in Spain) and these accounted for only 1.4% of the value of the artists’ global sales in this medium and 11% of the number of successful lots sold. The top sales of this artist were again in Sotheby’s and Christie’s and predominantly in London. These examples reinforce the point that Spain is predominantly a lower to mid-priced market for works of art, and that it loses consignments of the most expensive works to foreign markets.

SALES BY SPANISH ARTISTS

FIGURE 3AThe Share of Value and Volume of Transactions at Auction in 2011 of Spanish Artists

0%

20%

40%

60%

80%

100%

Value of Spanish Sales Value of Global Sales Volume of Spanish Sales Volume of Global Sales

64%63%

Source: © Arts Economics (2012) using data from Artnet

Spanish Artists Non-Spanish Artists

96%

4% 2%

36%

98%

37%



In the dealer sector, many Contemporary galleries sell a mix of both Spanish and international artists, catering to demand from Spanish collectors looking for greater diversity and an increasing global client base at fairs and through private sales. Some of the galleries that reported having the most success in terms of sales over 2010 and 2011 were increasingly focused on selling to buyers from markets outside Spain, such as the US and South America, and were adapting their exhibition sched-ules to meet the preferences and demands of their increasingly international buyers. While many galleries have been successful in incorporating international artists into their exhibition programmes, some collectors and dealers feel that Spain in general has not been successful in exporting its own Contemporary artists on to the global art market. Reasons suggested for this included the low presence of Spanish galleries at the start of some of the important Contemporary fairs, a lack of public and government support for artists’ careers, and the problem of a local focus in the Spanish arts-related media. Some pointed out that often Spanish art critics did not write and publish in English, and focused more on local rather than international platforms, apart from publicising the best known, older and already established artists from Spain.

FIGURE 3BThe Share of Value andVolume of Spanish Artists Sold at Auction in Spain versus Outside Spain

€0

20%

40%

60%

80%

100%

Value of Sales Volume of SalesSource: © Arts Economics (2012) using data from Artnet

Spanish Artists sold in Spain Spanish Artists sold outside Spain

74%

26%

97%

3%

“Many Contemporary galleries sell a mix of both Spanish and international artists, catering to demand from Spanish collectors looking for greater diversity and an increasing global client base”



ART MARKET SHARES AND RELATIVE PERFORMANCE

2In 2011, Spain held a 0.6% share of the global art market. It is the sixth largest art market in the EU by value, with a share of just under 2% of EU total sales. Spain can be classi-fied as a middle-tier market within Europe in terms of size, along with markets such as Austria, Sweden, the Netherlands and Belgium. These markets are positioned below top tier markets such as the UK, France, Italy and Germany, which have ranked among the top five countries in terms of share over the last ten years. The last decade has witnessed significant changes in the geographical distri-bution of sales of art globally. Since the 1950s, the market has been dominated by sales in the US and UK, however in more recent years, the Chinese market has grown at an astonishing pace and in 2011 fundamentally changed the global hierarchy by taking first place, in terms of the national value of auction and dealer sales6.This shift, along with a sluggish recovery in 2010, has meant that Europe has been gradually losing market share in recent years. Sales in the EU as a whole declined 2% over 2011 and represented 34% of the global art market, down from a high of 53% in 2003. The UK dominated the European art trade with a market share of 64% in 2011, and both it and second-ranking France posted positive year-on-year growth rates (of 8% and 6% respectively). However Spain, like many other mid-sized markets in Europe includ-ing the Netherlands, Sweden and Germany, experienced a decline in sales values over the year. Again, these markets tend to have the largest number of sales in the lower priced brackets, whereas higher priced works sold in Europe are channelled through the key market centres such as London. Over recent years, collectors have become more focused on finding the highest quality works, a phenomenon which has tended to increase in the cautious buying climate since 2009. This has caused a significant polarization of the art market, with the top end doing relatively well and some smaller markets like Spain faring worse.

FIGURE 4The Global Art Market Share in 2011

Spain 0.6%Sweden 0.6%Rest of the World 4.9%

Austria 0.7%Italy 1.2%

Germany 1.8%Switzerland 2.8%

France 5.9%

UK 22.0%

China 30.2%

USA 29.3%Source: © Arts Economics (2012)



FIGURE 5The EU Art Market Share in 2011


Table 2 shows the changing share of the selected global art markets from 2002 to 2011. Spain’s share of the global art market has not changed significantly over the last ten years, although it has shown an incremental decline over the last two years, and was slightly lower in 2011 than the level it reached ten year’s previously in 2002. The table also shows that all of the markets in the EU have lost share in the last few years as China and markets outside Europe have gained ground.


TABLE 2Global Art Market Share 2002-2011 (By Value) Spain 0.7% 1.1% 1.3% 1.0% 1.1% 1.0% 0.9% 1.0% 0.7% 0.6%

France 9.2% 9.3% 7.3% 6.8% 6.4% 5.8% 5.8% 9.6% 6.0% 5.9%

Italy 3.0% 3.7% 3.7% 3.5% 2.8% 2.1% 2.7% 2.2% 1.3% 1.2%

Germany 3.0% 3.7% 3.7% 3.5% 2.8% 2.1% 2.7% 2.2% 1.3% 1.2%

Netherlands 1.4% 1.7% 1.3% 1.2% 1.1% 0.8% 0.7% 0.9% 0.6% 0.4%

Sweden 1.1% 1.3% 1.2% 1.0% 1.0% 0.7% 0.7% 0.9% 0.8% 0.6%

UK 28.8% 28.1% 26.5% 28.1% 26.8% 26.7% 33.7% 22.7% 22.0% 22.0%

Switzerland 1.5% 1.4% 1.8% 1.9% 1.4% 1.4% 2.2% 2.0% 2.8% 1.8%

Rest of World 7.9% 8.8% 0.8% 1.3% 3.2% 12.3% 6.8% 9.4% 7.8% 6.8%

US 43.4% 40.9% 46.0% 42.9% 45.8% 37.6% 34.8% 30.7% 33.8% 29.3%

China na na 6.4% 8.8% 7.6% 9.5% 9.0% 18.4% 22.9% 30.2%

Country 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Austria 2.1%Spain 1.9%

Sweden 1.8%The Netherlands 1.1% Rest of EU 2.8%

UK 64.3%

Germany 5.2%

Italy 3.5%

France 17.3%



Table 3 analyses the EU art market and shows that Spain’s share of the value of sales has not altered significantly over ten years, with a consistently low share ranging between 1% to 2.5% for the period.

The volume of transactions in the global art market is more diversified than value, although over 60% of all transactions took place in the four largest art markets. Figure 6 shows the share by volume of the fine art auction market in 2011, where Spain held a share of 1%.


TABLE 3EU Art Market Share 2002-2011 (By Value) 2002

2003

2004

2005

2006

2007

2008

2010

2009

2011

UK

56.6%

53.1%

55.1%

57.8%

59.8%

65.9%

68.0%

58.0%

51.5%

64.3%

France

18.0%

17.7%

15.1%

14.0%

14.4%

14.2%

11.8%

15.8%

21.9%

17.2%

Germany

5.8%

6.5%

6.6%

7.7%

6.6%

5.3%

4.8%

5.7%

7.6%

5.2%

Italy

6.0%

6.9%

7.7%

7.3%

6.2%

5.3%

5.5%

3.4%

4.9%

3.5%

Austria

1.6%

1.9%

1.9%

2.0%

1.3%

1.6%

1.4%

2.0%

3.2%

2.1%

Spain

1.4%

2.0%

2.7%

2.1%

2.5%

2.5%

1.8%

1.9%

2.2%

1.9%

Sweden

2.1%

2.4%

2.5%

2.0%

2.3%

1.7%

1.5%

2.1%

2.2%

1.8%

Netherlands

2.7%

3.2%

2.7%

2.4%

2.5%

1.9%

1.3%

1.7%

2.0%

1.1%

FIGURE 6Global Fine Art Auction Market Share by Volume 2011

Source: © Arts Economics (2012) with data from Artnet

Spain 1.0%

The Netherlands 1.1%

Belgium 1.8%

Sweden 2.0%

Austria 2.3%

Japan 2.5%

Switzerland 2.6%

Denmark 2.8%

Italy 5.8%

Germany 6.9%

US 21.2%Rest of World 9.9%

China 19.2%

France 11.2%UK 9.7%



The EU’s share of the volume of global transactions in 2011 was 47% (down 11% on 2010) and within it, France had the highest share with 26% of transactions followed by the UK (22%) and Germany (16%). Spain held a 2% share, the tenth largest market by volume of fine art sales in the EU.

In the dealer sector, according to polling in 2011, the median number of works sold by dealers was 40, but this ranged widely between dealers (from four to 900). The average volume of works sold has dropped by 29% from 2007 to 2011, which is on par with trends in the wider global market where the number of works sold fell 26% over the same period. This indicates that the contraction in the market from its peak was not solely brought about by a fall in prices, but also by less works being sold by dealers. The biggest year-on-year drop in sales for Spanish dealers was in 2009 (of 14%), which was much less than the global contraction of close to 30%. Volumes continued their decline falling 3% over 2011, which goes against the trend experienced in many other larger art markets, where the volume of sales improved over the year (with global volumes advancing 5%).

FIGURE 7Global Fine Art Auction Market Share by Volume 2011


Spain 2%The Netherlands 2%

Belgium 4%

Sweden 4%

Austria 5%

Denmark 6%

Italy 12%

Germany 15%

France 24%

Rest of EU 5%

UK 21%



ART MARKET STRUCTURE3Art sales in Spain are divided into auction and dealer sales. While the global share between these two sides of the market was estimated as close to 50:50 in 2011, in some of the more mature and established markets the share of sales by dealers is often larger. In Spain, the dealer sector is considerably larger by value than auction sales, with a share of around 75% of the art and antiques market and close to 80% of the fine art market. The dealer share of the market has fluctuated between 70% and 85% over the last ten years.

Sales in the auction sector in Spain reached close to €87 million in 2011, with fine art accounting for approximately 60% of this value. Sales in the auction sector peaked in 2006 at just under €118 million, but then started to decline rapidly from 2008. The market lost over 60% of its value from 2006 though 2009, but after a strong recov-ery in 2010, regained significant ground. Over 2011 however, the market was virtually stagnant in many sectors and had contracted by 4% on aggregate by the end of the year. There are around 125 listed auction businesses in Spain that either regu-larly or occasionally sell art and antiques, including regional offices and online sales. However there is a core of around 50 auction houses that sell fine and decorative art on a regular basis, based primarily in Madrid and Barcelona, with the top five houses in the country accounting for well in excess of 50% of the value of the market. For fine art only, the top five houses in 2011 were Ansorena, Balclis, Alcala, Fernando Duran and Segre, which combined to total over 75% of the fine art auction market by value. The international houses of Christie’s and Sotheby’s both have offices in Spain but have not held sales in the country since 2008. Christie’s held sales of Spanish art in Madrid from 2004 through 2008. Their highest ever 2006 sale achieved a total of over €15 million, setting a world record for an auction of Spanish art. By 2008 however, total sales had fallen to just over €5 million, at which point the auction house decided to cease local sales. Since then, their sales of Spanish art are held outside Spain, with works included in various Modern, Contemporary and other sales. Sotheby’s held sales of 19th century and 20th century Spanish paintings in London from 2000, how-ever Spanish art is now mainly included in its biannual sale of European paintings. Although both houses continue to conduct private sales in Spain, since the cessation of local auction sales by Christie’s, some of the most expensive Spanish art through the public auction channel now takes place outside of Spain and predominantly in London. According to anecdotal evidence from collectors and experts in the trade, these houses are still highly successful in getting some of the most high value consign-ments from Spanish sellers, and reportedly tend to receive much of their higher priced inventory. Because of this, many of the smaller local auction houses have concentrated in specialized sectors and on works with lower price points than those sold externally at Christie’s and Sotheby’s. Auction houses in Spain conduct sales through public auction, privately and online. Many of the larger auction houses in Spain conduct a significant amount of pri-vate sales alongside their public auctions. In interviews with Spanish auctioneers, some commented that the divide between private and public sales through auction houses is different from the UK and other major centres in that the best Masterpieces tend not

THE AUCTION SECTOR



to be sold publicly. In some of the key international centres such as London and New York, multi-million dollar lots are showcased at public auction, and private sales for the top tier houses globally run at around 15% and less than 10% for second tier houses. In Spain however, private sales by auction houses tend to be low volume but can often be high value. Art Economics surveyed the core 50 auction houses in Spain in 2012. They reported that the public auction channel was still the most important for sales in 2011, at 58% of total sales on average7, but private sales were a substantial 24%. Accord-ing to auction experts in Spain, most works priced at over €1 million tend to be sold via private sales and not put up for auction. Some reasons suggested for this included the lack of demand for works priced at this level to generate sufficient bidding in Spain as well as the value placed on privacy and discretion by art buyers. According to the poll of Spanish auction houses, 60% of respondents held sales only in Spain (excluding online sales) while 40% also had an international pres-ence. Despite their international reach, Spanish buyers made up the bulk of sales for these auction houses, with respondents reporting that, on average, in both 2010 and 2011, close to 80% of their sales were to local or national buyers and 20% to those from overseas. The main overseas buyers were geographically local Europeans (mainly French, Portuguese and Italians), US and South American buyers (including those from Argentina, Brazil and Mexico) and some occasional Asian, Chinese and Russian buyers. Of those surveyed, in 2010, 75% were small businesses, with 38% of those at the micro- business level (with turnover of less than €2 million).8 One quarter of the busi-nesses were large businesses, but these included auction houses with sales from locations outside Spain. In 2011, the share in the large business segment remained unchanged, but 12% of the sample shifted from being a small business to a medium sized, indicating some improvement in turnover for some houses in the sample. Most auctioneers were optimistic that business would improve in 2012 also, with 63% stating they felt it would better or significantly better and the remaining 37% estimating that sales would be virtu-ally unchanged. However, what was described by some auctioneers as the “intense crisis” and “paralysis” in the Spanish economy was a great cause of concern, particularly with regard to its effects on reducing the liquidity of their key buyers. Liquidity was a problem for many auctioneers themselves also, with 88% citing problems related to access to credit and lending as having a negative or very negative effect on their businesses. Online sales are also relatively high in Spain according to the survey, with 13% of sales on average made through this channel in 20119, which is higher than the global averages of 5% and 10% for first and second tier houses respectively. When asked about the most important changes in the market over the last ten years, many auctioneers cited the positive effects of greater information and international reach via the internet and new technologies. All auctioneers surveyed felt that the increased globalisation of the market had a positive effect on their businesses (with two thirds stating it was very positive), and the online channel was seen as key in reaching wider markets for purchases and sales. Most felt that online sales would increase in future, which would create both positive opportunities for Spanish auction houses as well as greater challeng-es with increased transparency and attempting to cater to a wider audience. A majority

“Most works priced at over €1 million tend to be sold via private sales, due to lack of demand as well as the value placed on privacy and discretion by art buyers”



(60%) of the auctioneers surveyed felt that the growth of e-commerce and the use of the internet in the art trade had a positive effect on their business (with the remaining 40% reporting that it had no effect).

The dealer sector in Spain is much larger than the auction sector, and is made up of over 3,500 listed dealers in fine and decorative art, antiques and collectibles with sales of €212 million in 2011. There is a core of around 600 main fine art dealers that accounted for at least 70% of the value of the market in 2011 and who are focused predominantly in the main market hubs of Madrid and Barcelona, as well as Valencia, Bilbao and Seville. Many dealers interviewed in 2012 described the dealer sector as increasingly polarized, with a small number of galleries having the most power and sales, versus the majority that were more “in the margin” and often focused more on conceptual, experimental or emerging art. “ Art is a social issue: the top galleries have the power to deal with the top social groups. There have been some monopolies but they are slowly breaking down.” The dealer sector, like the aggregate market, peaked in 2007 with values in excess of €354 million. The sector has been declining or stagnant since then however, and sales fell 6% over 2011. Arts Economics polled around 500 of the core dealers of fine art in Spain in 201210. While 28% of dealers polled in early 2012 were optimistic that their sales would be higher in 2012, 25% thought they would be stable, and 47% thought they would be less than 2011. Dealers were asked to report their margins over the last five years, which averaged at 29%. Despite the crisis, average dealers margins were highest in 2009 at 33% but dropped 2% over the next two years. The business model used by most dealers in the primary market in Spain is to work on an agency or commission basis with artists. The smaller number of galleries who work in the secondary market and/or deal in the works of deceased artists tend to combine selling on consignment with owning inventory. By far the greatest number of dealers in Spain work in the Contemporary art sector and most often work directly with living artists on commission. Whereas the number of Contemporary dealers has tended to increase over the last ten years, dealers in older sectors of the fine art market have reduced in number and are now consolidated around a small number of impor-


TABLE 4Actuation and Dealer Business Size in Spain 2011

<€500,000 Micro (Lower end)

€500,000 - €2 million Micro 12.5% 13%

25% 84%

€2 - €10 million Small 25% 3%

€10 - €50 million Medium 0% 0%

>€50 million Large 25% 0%

Annual Turnover Company size AuctionHouse

Dealers

THE DEALERSECTOR



tant dealers mainly in Barcelona and Madrid. According to interviews with leading dealers in these older sectors, to maintain a successful business, they have adopted a model of buying locally in Spain and selling abroad, privately or at major art fairs (while maintaining some mainly lower priced local sales). Nearly all dealer businesses in Spain are small companies employing three people on average. The average turnover of Spanish dealers is relatively low compared to their global counterparts, with a majority (84%) having sales of less than €500,000 in 2011, versus 44% globally at that level. Both the survey and anecdotal evidence from interviews with dealers suggests that there are no dealers in the country regularly turning over in excess of €10 million (versus 4% of dealers globally). Part of the reason for their relatively low value sales turnover is that the majority of galleries in Spain concentrate on Contemporary art and specifically the works of living artists, with a small percentage of dealers trading in older sectors at higher price points. Works by living Spanish artists are rarely traded at auction (although they regularly trade works by well known deceased artists) and a reported 98% of living artists works are sold via the gallery channel11. Although many Spanish dealers are focused on domestic markets, others have a relatively internationally focused business model. Dealers reported that on average 29% of their sales took place overseas in 2011 and 71% locally. Around half of those surveyed did at least three quarters of their sales in Spain, while 28% did Spanish sales only. In-depth interviews in the sector, dealers described that during “the good years” they may have conducted as much as 90% of the value of their sales within Spain, but more recently a lack of demand and deteriorating economic circumstances for local buyers had forced them to look more at selling overseas via fairs and direct private contacts (which had also tended to increase their work with international artists to meet changing demands).

FIGURE 8Share of the Most Important* Overseas Buyers for Spanish Art Dealers in 2011

Source: © Arts Economics (2012)*Importance is measured by the frequency of responses in the survey, with dealers asked to list their three most important buyer nationalities in 2011.

China and other Asia 3%Portuguese 4%

Other EU 8%

UK 6%

Italy 6%

Belgium 6%

Switzerland 9%

South America 10%

US 16%

France 17%

Other 2%

Germany 13%



There were already a number of significant internationally focussed dealers, with one third of respondents doing at least 50% of their business with overseas buyers. Several dealers representing international artists felt that Spanish collectors, in general, often showed a distinct preference for local artists and had therefore focused their efforts more on increasing overseas sales, with many commenting on the increas-ing importance of Central and South American buyers in the Contemporary sector. Many dealers felt that historical and cultural links promoted these trades, but felt there was much less connection with Chinese and other Asian buyers despite their increasing importance in the international market. When asked about the most important foreign buyer nationalities in 2011, French buyers ranked first, followed by US, German and South/ Central American. Just as in the global market, many dealers businesses are now increasingly centred on key events, particularly art fairs. Dealers reported that on average 33% of the value of their sales in 2011 were made at art fairs (within Spain and internation-ally), while 58% were through the more traditional retail gallery channel (versus an international average of 43% in 2011). When interviewed, some dealers commented that while gallery exhibitions remained an important mechanism for promoting artists, they increasingly did not make significant sales during gallery shows, but instead these occurred at fairs and through private collector contacts. E-commerce remains relatively low compared with other industries, with only 5% of Spanish dealer sales on average made online in 2011. This is half the share of online sales for dealers globally and also considerably less than the auction sector in Spain. Some dealers explained that they tended only to make online sales for very well known artists, but still felt that the internet had become a critical tool in disseminating information on artists and reaching collectors in Spain and overseas. The majority of dealers surveyed (56%) felt that the growth of e-commerce and the use of the internet in the art trade had had a positive effect on their business, 9% felt its effect was nega-tive and 35% reported no direct effect. It was recognized by many dealers as one of the most important changes in the art market over the last ten years, with its main positive influences cited as increased work efficiency, greater global access to clients and faster and better dissemination of information. Greater transparency and the easier assimila-tion by collectors of digital information was also identified as an important factor in encouraging new collectors and broadening their geographical interests. Sales via art fairs are split fairly evenly between local versus international fairs, with the latter taking the lead marginally at 17%. Many dealers discussed the increasing importance of fairs to their businesses, while also seeing both positive and negative outcomes associated with the growth of the event driven market over the last ten years. On the positive side, Spanish dealers agreed that fairs were important in providing access to new global collectors as well as greater opportunities for networking within the trade. Many dealers felt however that Spanish collectors had also begun to buy more at international fairs and now were more loyal to the fair versus a particular dealer, with a consequential reduction in their local purchases through the gallery channel. Some dealers also felt that many works of art could be better presented through exhibition at galleries, which was important for new and emerging artists, and certain

“Dealers reported that on average 33% of the value of their sales in 2011 were made at art fairs”



art forms were difficult to transport and display, such as video art and installations. Some dealers were attending ten or more fairs per year, which helped them focus on an increasingly international audience, but was also a significant drain on finan-cial and manpower resources for their small businesses. Many commented that while they often only managed to cover their costs with sales at fairs, they still had positive consequences due to contacts built and potential for future sales. Some also felt that the growth of fairs and globalisation of the market, while positive for connections, had changed the nature of the dealers’ profession.

“Dealing art has become an increasingly stressful profession over the last ten years - no matter how many fairs you attend, you still feel like you are not doing enough. You might have more successful sales, but there’s also much more competition, and collectors have many more options. Many Spanish collectors will now buy at a fair, even if a gallery in Spain has the same artist.15 years ago, you could wait for people to come into the gallery, you had time to meet with artists and visit studios - now there is no time and it has become all about commerce. There is a lot more stress in our professional lives.” While most dealers agreed that they would continue to exhibit at more inter-national fairs in future, many recognized that the increasing focus on fairs abroad, had meant a consequential lack of focus on their presence locally, and a few were beginning to go against the trend and return their attention to their galleries and buyers in Spain. Finally some dealers commented that they had observed a drop in the qual-ity of certain fairs in recent years, although specialised fairs were noted as markedly improving. Overall, of the dealers surveyed, 54% said that the growth of fairs had a positive or very positive effect on their business, while 21% felt it was negative.

FIGURE 9Spanish Dealer Sales by Sales Channel in 2011


Online 5.3%

In Gallery 57.8%

Art Fairs in Spain 15.9%

International Art Fairs 17.1%

Via Auction 0.5%Privately 3.5%



The most important and only international fair for dealers in Spain is ARCO Madrid. This annual fair was first started 30 years ago by IFEMA and has had a central role in fostering the cultural sector and Contemporary art in Spain, as well as helping to develop and sustain art galleries and private, institutional and corporative art collections. When the fair commenced in 1982, there were 90 galleries in total exhibiting and 62 of these were from Spain, however over the last 30 years, the total number of exhibitors and their nationalities have expanded substantially. The 31st edition of the fair in 2012 hosted 216 galleries, with 139 from the international market alongside 77 Spanish dealers. The number of visitors to the fair has also increased substantially rising over 400% from when it started in 1982 with 25,00 people. The peak in visitor numbers to the fair was in 2003 and 2004 when close to 200,000 people attended. Like most fairs internationally, there has been some contraction in visitor numbers since 2008 as the global crisis damaged consumer confidence, spending and international travel.

FIGURE 10Exhibitors at ARCO Madrid 1993 to 2012

0

100

50

150

200

250

300

©Arts Economics (2012) with data courtesy of ARCO Madrid

International Exhibitors Spanish Exhibitors

1994

2000

2009

1997

2006

2003

1995

2001

2010

1998

2007

2004

1996

2002

2011

2012

1999

2008

1993

2005



The importance of the fair was summarized in an interview with a leading expert in the art trade: “ARCO is one of the driving forces of the art market in Spain and the main market event. It has reached beyond the status of an art fair and is now an institution in the marketplace providing both sales and education” Other important but smaller Spanish fairs include Loop (Barcelona), Art Madrid, Just Madrid y Mad Foto (Madrid), Foro Sur (Cáceres), Espacio Atlántico (Vigo), Feriarte (Madrid), Salón de Arte Antiguo y Moderno Antiquaris (Barcelona).

FIGURE 11Visitors Numbers at ARCO Madrid 1982 to 2012

0

150,000

100,000

50,000

200,000

1982

1994

1988

2000

2009

1985

1997

2006

1991

2003

1983

1995

1989

2001

2010

1986

1998

2007

1992

2004

1984

1996

1990

2002

2011

2012

1987

1999

2008

1993

2005

250,000

©Arts Economics (2012) with data courtesy of ARCO Madrid

25,000

127,500

199,000



PRICES AND VALUES OF SPANISH ART4London and Paris are the main international hubs for art sales in Europe, and tend to attract the highest priced sales. Middle-sized markets such as Spain on the other hand are based on a higher volume of lower priced sales. Table 5 examines average prices for fine art at auction net of all fees and commissions. In 2011, the average price at auction in Spain was around 30% of the EU average, and significantly lower than the key art centres such as the UK, US and China12. Average prices peaked in 2007 at the height of the art boom, but dropped by 40% over the next two years, falling to just over €3,400 in 2009. Prices did recover over 2010 and 2011, rising 41% in the two year period, and prices in 2011 were more than double the level they were in 2002.

Source: © Arts Economics (2012) with data from Artnet and AMMA


TABLE 5Average Hammer Prices at Fine Art Auctions 2002-2011

TABLE 6Average and Median Hammer Prices Fine Art Auction 2009-2011

Spain

Spain

€2,363 €2,940 €3,646 €3,598 €3,948 €5,976 €4,471 €3,434 €4,087 €4,848

France

Austria

France

Italy

Germany

Netherlands

Sweden

UK

Switzerland

US

China

€6,180

€3,434

€7,785

€16,271

€13,532

€5,417

€9,852

€5,402

€31,746

€8,321

€22,683

€14,995

€4,087

€10,650

€11,056

€7,895

€6,070

€11,198

€7,670

€48,512

€14,318

€37,946

€27,820

€4,848

€8,062

€6,650

€5,267

€11,623

€8,713

€7,750

€50,125

€17,504

€30,402

€35,922

€885

€2,277

€1,845 €1,523

€3,115 €1,085

€1,406 €2,037

€2,658 €2,776

€1,686 €1,890

€2,976 €2,949

€1,325 €1,746

€1,938 €1,884

€10,387 €8,529

€1,803

€2,254

€1,850

€1,311

€1,463

€2,667

€1,809

€3,202

€1,704

€2,141

€23,091

€1,684

€2,278

€6,446 €5,083 €5,501 €6,378 €9,095 €6,629 €16,271 €11,056 €11,623

Italy €7,682 €7,486 €8,227 €7,837 €9,048 €9,539 €7,969 €13,532 €7,895 €5,267

Germany €2,963 €3,259 €3,216 €4,145 €4,127 €7,001 €4,249 €5,417 €6,070 €6,650

UK €25,516 €21,656 €23,067 €25,772 €33,135 €59,990 €56,450 €31,746 €48,512 €50,125

EU €5,432 €5,092 €5,231 €5,569 €6,190 €12,997 €10,666 €7,937 €15,807 €16,307

Switzerland €6,765 €4,245 €5,425 €7,584 €9,776 €13,808 €7,848 €8,321 €14,318 €17,504

US €47,398 €35,410 €38,945 €35,505 €47,826 €84,683 €51,550 €22,683 €37,946 €30,402

China — — €6,486 €12,632 €12,138 €14,515 €16,247 €14,995 €27,820 €35,922

Country

Country Average Average AverageMedian Median Median

2002

2009 2010 2011

2003 2004 2005 2006 2007 2008 2009 2010 2011



In Spain, as is the case in many art markets, average prices are skewed upwards by a small number of highly priced sales. The median price or middle price is therefore also a useful comparative measure and is analysed in table 613. This shows that the median price in Spain is consistently much lower than the average, indicating that a smaller number of high value sales have an upward bias on averages, while much of the trade happens at a much lower level. Spain also has a lower median price than many of the other European markets of comparable size such as the Netherlands, Sweden and Austria. Another way to analyse the skewed price distribution for works of art is to look at the number and value of transactions in different price brackets. Table 7 shows the value of sales and lots sold in the fine art market, dividing works sold into different price brackets, as well as the share of artists (from all artists selling in that regions) that sell in each category14. Globally, and in larger markets, the majority of the value of the market comes from sales of works of art priced at over €50,000. In the fine art market as a whole these sales account for 81% of the value of the market despite being just less than 7% of the volume of transactions that take place, and in the larger markets such as the US, UK and China they are over 85% of the value of the market. In the EU, only 4% of the transactions that take place at auction are priced at over €50,000 but they make up 75% of its value. In smaller markets such as Spain, Italy and Belgium however, lower priced sales are more common and account for a larger share of the volume and value of the market. In Spain, the lower end of the market is even more dominant, accounting for the majority of both value and volume of sales: 99% of lots sold are for less than €50,000 and they account for 85% of the value of sales. Works priced at over €50,000 make up only 15% of the market’s value and are gener-ated by around 2% of the artists that sell at auction.


TABLE 7Lots Sold by Price Level for Spanish Dealers Versus Global Dealers

Price

Spain

World

France

Italy

Over €2m

Lots Sold 0.0% 0.0% 0.0% 0.03% 0.8% 32.3% 33.9% 33.0%

0.0% 0.0% 0.0% 1.2% 13.6% 68.4% 12.5% 4.3%

0.0% 0.0% 0.0% 0.1% 1.6% 37.9% 45.9% 43.7%

0.2% 0.6% 0.4% 0.9% 4.7% 37.4% 27.7% 28.1%

28.8% 21.5% 6.2% 8.7% 16.1% 16.3% 1.8% 0.6%

0.2% 0.6% 0.5% 1.0% 4.0% 29.9% 30.5% 33.3%

0.0% 0.2% 0.2% 0.4% 2.7% 35.6% 32.4% 28.5%

7.4% 16.7% 5.7% 9.3% 21.6% 32.8% 5.0% 1.5%

0.1% 0.5% 0.5% 1.1% 4.9% 42.6% 47.4% 46.2%

0.0% 0.1% 0.1% 0.2% 1.4% 22.5% 29.0% 46.9%

0.0% 8.2% 4.4% 7.6% 22.8% 43.1% 9.7% 4.1%

0.0% 0.2% 0.2% 0.4% 2.8% 33.0% 41.8% 60.7%

Lots Sold

Lots Sold

Lots Sold

Sales

Sales

Sales

Sales

Artists

Artists

Artists

Artists

€500k -€2m

€350 -€500k

€200 -€350k

€50 -€200k

€3 -€50k

€1 - €3k <€1k

“In Spain, the lower end of the market is even more dominant, accounting for the majority of sales: 99% of lots sold at auction are for less than €50,000”



Dealers were also asked how many works they sold in 2011 in each price category. Their figures reflect a similar trend, with 95% of the works they sold priced at less than €50,000 (versus the global average of 80%). Spanish dealers had a much higher percentage of works at the level of less than €3,000 than global dealers, with the majority of the market (62%) priced at this lower end. None of the dealers responding to the survey reported sales over €350,000 during the year, versus the global average of 5%.

FIGURE 12Lots Sold by Price Level for Spanish Dealers Versus Global Dealers

0%

10%

20%

30%

40%

50%

60%


Global Average Spanish Dealers

Less than€3.000

€3.001 -€50.000

€50.001 -€200.000

27.9%

51.6%

33.0%

11.7%

3.8%

5.1%

0.3% 1.8%2.4%

0.9%0.0% 0.0% 0.0%

61.6%

€200.000 -€350.000

€350.001 -€500.000

€500.00 -€2m

> €2m



SALES BY SECTOR IN 20115As noted above, the Spanish market is dominated by fine art sales, and this sector has been the driver in the recovery of the market from its contraction of 2009. Within the fine art sector, the importance of different sectors of the market differs quite substan-tially between auction and dealers. In the dealer market, it is estimated conservatively that at least 80% of dealers sell Contemporary art, and as noted above, many either deal exclusively with living artists or sell works of both Contemporary and Modern artists (some of whom are deceased). At auction, Contemporary art is less dominant, and the key sectors of the fine art market are Modern art and Old Master paintings. Figures 13 and 14 show the share of the value and volume of fine art auction sales in 2011. Despite its dominance of the dealer sector, Contemporary art (defined here as artists born after 1945) made up just 6% of the value of fine art auction sales and 7% of all transactions. This was slightly smaller than the global share of Contemporary art, at 10% of the global fine art auction market by both value and volume of sales. The global Contemporary market rose in value by 63% in 2011, its second strong year of recovery from the severe contraction of 2009, reaching a high of €955 at auction. The Spanish auction market accounted for less than 0.5% global share by value, while its share in the volume of transactions in the sector was 0.7%. The largest Contem-porary auction markets remained outside Europe in 2011, with China leading with a share of 45% and the US with 25%. (The UK was in third place with a 19% share by value.) Average prices in the Contemporary sector in Spain were around €4,600 with a considerably lower median of €1,525, both of which are much lower than the EU average and the averages in most major art markets. The Modern art sector (defined as artists born between 1875-1945) had a second year of exceptional growth globally in 2011, with global sales totalling €5.7 billion, its highest-ever recorded level, making it the most valuable sector of the art market, and surpassing its previous peak in 2007 of just over €3.8 billion. Some of the highest selling artists worldwide15 in this sector are Spanish in origin, with Picasso fre-quently ranking as the highest selling artist at auction worldwide . The Modern sector of the Spanish auction market is also the largest sector with 38% of its value and 46% of all transactions. Again however, this represents a very small portion of the global art market with only 0.1% of its value and 0.9% of transactions. The largest markets for Modern art at auction in 2011 were China with a 42% market share and the US with 26%. While average prices in these key centres ranged from €35,000 to €70,000, in Spain, average prices for Modern art were much lower at around €4,000. The Old Master sector (defined as artists of all nationalities born between 1275 and 1875) reached a total of €2.3 billion in 2011 globally, up over 21% from the previous peak in the market in 2007. Spain had a global share of just over 1% of transactions and 0.3% by value, and again the dominant markets were China, the US and the UK with a combined share of over 80%. This is a relatively important sector for Spanish auctions, accounting for 37% of its value and 25% of its volume, whereas globally the sector accounts for 24% and 22% respectively. Average prices in this sector are among the highest also, with an average of €7,265 (and median of €2,555). Spain was the 10th largest market internationally for the sale of Impression-ist works in 2011 with a 0.1% global share by value and 0.9% by volume. In 2011,



85% of the Impressionist market by value was sold in London and New York, with the US accounting for over half the market by value and volume of sales. Average prices were high in sector in Spain (at over €17,000), however this was based on less than 20 sales, and was again much less than the leading markets where averages were in excess of €100,000.

FIGURE 13Market Share by Value in Sectors of the Spanish Fine Art Auction Market in 2011

FIGURE 14Market Share by Volume in Sectors of the Spanish Fine Art Auction Market in 2011

Modern 38.5%

Modern 46.5%

Post Impressionist 0.0%

Post Impressionist 0.03%

Impressionist 0.4%

Impressionist 1.5%Contemporay 6.4%

Contemporay 6.7%

Other 16.6%

Other 21.6%

Old Masters 37.0%

Old Masters 24.7%





THE SPANISHTRADE IN ART6In 2011, Spain ran a trade deficit for art, with imports of art at €88 million exceed-ing exports at €66 million. Net exports (or exports minus imports) have maintained a negative balance of trade for every year over the last ten years with the exception of 2009 and 2010. Although Spain would have traditionally been a source country for art, the predominance of imports over exports indicates the importance of international purchases by value over international sales. This could indicate that either domestic demand outweighed sales in the Spanish art market and/or the predominance of lo-cal over international buyers in the market in terms of value. The larger market hubs in Europe such as the UK and France are predominantly net exporters as they tend to host international sales with global buyers participating in them, rather than selling primarily to local purchasers.

FIGURE 15Spanish Net Exports of Art: 2000 to 2011

-€400

€0

-€100

-€200

-€300

€100

2000 2001 2002 2003 2004 2005 2006 2007 2009 2010

€200

Source: © Arts Economics (2012) with data from Eurostat

Imports of art reached a total of €88 million in 2011, making Spain the eighth larg-est importer of art in the EU16, and growing 58% in value year-on-year17. From 2002, imports grew rapidly to a peak of €362 million in 2005, over four times the size of their 2011 total. The value of imports fell 56% in 2006 and then again started to contract in the fallout of the financial crisis in 2008, dropping 50% year-on-year and bottoming out at just €56 million in 2010, or a total decline of over 70% in the three year period. The experience in Spain matched the global market over 2008 and 2009: imports of art fell 40% globally and 45% in the EU. However inbound trade tended to rebound elsewhere in 2010, with the EU market picking up by 35% driven by recoveries in the UK (+48%), Germany (+32%) and France (+3%). Spain’s contraction was more protracted however, and the market continued to decline in 2010 before returning to growth in 2011. Despite this recovery, the value of imports of art to Spain in 2011 remained around half the size they were ten years previously, and totalled less than 2% of the value of total imports of art into the EU.

IMPORTS

2008 2011

Million Euros



FIGURE 16Spanish Imports of Art 2002 to 2011

€0

€100

€200

€300

€400

Million Euro

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

€176€184

€273

€362

€170

€195

€97

€65€56

€88



TABLE 8Source Countries for Art Imports 2011 versus 2002 ( Share of the Valueof Total Imports)

US US

Brazil Netherlands

Bahamas Switzerland

China France

Switzerland Belgium

UK UK

Germany Germany

Peru China

France Portugal

41.1% 26.1%

9.5% 24.2%

9.1% 15.6%

8.2% 13.2%

7.6% 8.6%

5.5% 2.8%

3.8% 2.2%

3.1% 1.6%

2.4% 1.0%

1.2% 0.7%

8.5% 4.1%

Belgium Italy

Others Others

Source of Imports 2011 Share of Total Source of Imports 2002 Share of Total

The top source countries for imports in 2011 were outside the EU, with the US being the largest trading partner by far for Spain accounting for 41% of imports of art by value. The US has been the most important source country for imports over the last ten years, as it is for many markets in Europe, however other important trading partners have changed, as the importance of trading with countries outside the EU has increased.



FIGURE 17Spanish Intra-EU versus Extra- EU Imports of Art 2002 to 2011

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: © Arts Economics (2012) with data from Eurostat

Figure 17 shows the break down in share of value between intra-EU and extra-EU source countries. The share of intra-EU imports to Spain began to decline from 2004, and reached just 17% of the total in 2011. The EU was designed to facilitate free trade in goods and services within the Single European market. While this has enhanced trade in many goods within the EU, the art trade has been a notable exception, with the relative importance of extra-EU imports (and exports) growing considerably in most states. The EU average for intra-EU imports is now only around one third of total imports, with countries such as the US, China and Switzerland now representing the dominant trading partners for many countries including Spain. Spain also maintains important links with South America, with imports from Brazil account-ing for just under 10% of the total value.

The bulk of both imports and exports is trade in fine art, that is paintings, sculptures and collages (versus decorative art and antiques). In 2011, 79% of all imports of art and antiques were fine art. The dominance of trading in fine art is a global phenomenon: works of art in this sector are often more portable than some antiques and decorative pieces and are often traded relatively freely and without restric-tions or legal impediments. However another important reason for their dominance over decorative art and antiques is that these sectors tend to have achieved much higher prices and valuations in recent years.

“The top source countries for imports in 2011 were outside the EU, with the US being the largest trading partner by far”

20%

0%

40%

60%

80%

100%

Extra-EU Intra-EU

46%39%

50%58%

60%

85% 86%82% 83%76%

42% 40%

15% 14%18% 24% 17%

50%

61%

54%



The value of exports of art from Spain in 2011 reached €66 million, showing low but positive growth of just under 1% year-on-year18. The value of Spain’s exports were the seventh largest in the EU, but markedly lower than other major markets such as the UK, France or Germany19. As shown in figure 18, the value of exports from Spain has waivered in a range from €50 million to €66 million in all years, with two exceptions in 2002 and notably 2009. In 2009 the contraction in the value of global exports of art was one of the largest in recent history, with the market falling 28% over that year (and 30% in the EU) as the global financial crisis took hold. However in Spain the opposite occurred, with exports of art more than doubling to their highest point since 2002 of €154 million. The rise in exports in 2009 was driven nearly exclusively by trade flows to Switzerland, with just over €100 million worth of paintings and sculp-tures exported there in 2009. This increase proved to be an exceptional flow of trade however, and export values fell 58% in 2010 to a more average level of €65 million. As the overall value of exports is relatively low in Spain, a small number of exceptional items can often influence the market rather than being an indication of a major shift in the direction of trade.


TABLE 9Fine Art Imports to Spain 2002-2011 and Share of Fine Art in Value of all Imports of Works of Art

2002

2006

2004

2008

2003

2007

2005

2009

2010

2011

€82.8 46.9%

€87.6 51.5%

€58.0 31.5%

€176.5 90.4%

€42.9 76.7%

€71.7 26.3%

€76.5 78.8%

€69.3 78.7%

€151.2 41.8%

€49.2 76.0%

Year Fine Art Imports % of Total

FIGURE 18Spanish Exports of Art 2002 to 2011

€0

€80

€40

€120

€160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

€107

€58 €53 €55€50

€62 €66 €66

€154

€65


“The value of Spain’s exports were the seventh largest in the EU, but markedly lower than other major markets such as the UK, France or Germany”

Million Euros

EXPORTS




TABLE 10Destination Countries for Art Exports 2011 versus 2002 ( Share of the Value of Total Exports)

US

France France

Brazil Switzerland

Italy UK

Switzerlan Japan

Singapore US

UK Gibraltar

Belgium Germany

China Italy

Canada Portugal

Others Others

32.4% 33.9%

7.6%

12.5% 12.5%

4.6%

2.6%

11.9%

9.8% 12.3%

4.0%

8.3% 10.8%

3.7%

2.5%

Destination for Exports 2011 Destination for Exports 2011Share of Total Share of Total

The main destination countries for Spain’s exports of art included the major art markets in and outside of Europe, with the US maintaining a 32% share by value in 2011. Ten years previously in 2002, Russia received the highest share of exports from Spain (34% of the total), while the US received 7%. Again, the relatively low total value of the export figures makes them susceptible to changes in ranking when even a relatively small number of high value works are purchased by overseas buyers.

A more distinct trend however since 2005, is that the share of exports to extra-EU destinations has started to dominate intra-EU exports. The share of exports from Spain to destinations outside Europe has averaged over 75% of the total value in recent years, reflecting the importance of buyers from the US, Switzerland, China and other external markets.

FIGURE 19Spanish Intra-EU versus Extra- EU Exports of Art 2002 to 2011

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: © Arts Economics (2012) with data from Eurostat

20%

20%

40%

60%

80%

100%

Extra-EU Intra-EU

79%

21%

49%

51%

38% 39%

62% 61%45%

55%

74% 73% 72%

26%20%

80%90%

10%

28%27%


Rusia

8.6%

6.6%

2.1%

5.0%

3.5%

3.3%

1.4%


Again, like imports, fine art exports dominate the value of exports of all art from Spain, accounting for 82% of the total value in 2011. This is true for nearly all major art markets around the world, and again reflects that fact that the values and volume of fine art sales tends to be higher and more international than decorative art and antiques.


TABLE 11Fine Art Exports to Spain 2002-2011 and Share of Fine Art in Value of all Exports of Works of Art 2002

2001

2000

2006

2004

2008

2003

2007

2005

2009

2010

2011

€51.9 87.3%

€29.3 54.9%

€51.7 80.5%

€25.1 49.8%

€63.5

€58.0

95.6%

89.3%

€86.8 80.9%

€42.5 77.5%

€150.2

€54.1

97.7%

82.4%

€36.2 62.1%

€55.3 88.4%

Year Fine Art Exports (€ million) % of Total

While trade in art is driven by wealth and consumers’ tastes and preferences, these often do not pan out in the European art market as member states interfere heavily with the free flow of works of art. Over the last few decades, there has been a number of important fiscal and regulatory changes in Europe that have affected the free flow of works of art. Free trade in all goods within the internal market was a guiding principle of the formation of the EU, guaranteed under Articles 9 and 30-34 EC of the Treaty Establishing the European Community (or Treaty of Rome). Recognised alongside this however, was the need to reconcile free movement with that of legitimately protecting member states’ cultural and artistic heritage. As far back as 1957 when the original Treaty was signed, special provisions were allowed for works of art and antiques, granting them a special status and exempting them from free trade. For intra- EU trade, Article 36 EC provides a derogation from 30-34, allowing member states to adopt or main-tain prohibitions, restrictions or measures of equivalent effect on the import, export, or transit within the EU of national treasures having artistic, historic or archaeological value. This has allowed each member state to define their own national treasures (using their own wording, form and values), and then to adopt any measures to restrict the free flow of art objects to whatever extent they deemed necessary in order to preserve the national patrimony. While most countries allow the free flow of Contemporary art, there are a broad range of definitions and inclusions in older sectors of the market,

IMPORT AND EXPORT REGULATIONS EU CONTEXT



EXPORT REGULATION

which has lead to some distortions in intra-EU trade. States have had divergent inter-pretations of the term ‘national treasure’, which had tended to be either: an ‘extensive’ interpretation by countries such as Italy and Greece that aim to enforce tight restric-tions through broad definitions or a more ‘restrictive’ interpretation by major importing countries like the UK, which are the key centres for international trade and advocate loose regulation or restrictions on a limited number of items. Spain’s interpretation and definition of its national treasures lies somewhere in the middle ground: works of art that are export restricted are generally over 100 years old or those items that have been expressly inventoried or declared of cultural interest20. The idea behind the legislation was that the formation of the Single Market and the abolition of internal frontiers meant the removal of checks and controls at in-ternal frontiers, which might encourage illicit trade or make it more difficult to prevent the export of cultural goods. In a Single Market, it would be more physically easy to illegally (or legally) remove national treasures to other member states and offer them for export to third countries, which could lead to the depletion of both an individual nation’s patrimony and that of the EU as a whole. The Commission therefore included Article 36 in view of reconciling free trade in goods with rights to protect national and Community patrimony. In practice, this last remaining exception to the free trade postulate of the EU has led to considerable segmentation of the EU art market. On an EU-wide level, these regulations also do not appear to have had an effect in stimulat-ing greater intra-EU exports at the expense of extra-EU trade: the share of intra-EU exports of art has halved on average in the EU since 1990 and currently extra-EU exports account for nearly three quarters of the value of exports of art from the EU.

In Spain, exports of art are regulated under the Spanish Historical Heritage Act of 1985 (SHHA) as well as the Royal Decree 111/1986. Under the former law, any property that forms part of the “Spanish Historical Heritage” and that is declared of cultural interest enjoys special protections from free trade. Works of art that have been declared of cultural interest (commonly referred to as BIC or Bien de Interés Cultural) to the Spanish Government are maintained in a General Inventory managed by the Subdirección General de Protección del Patrimonio Histórico21. Works from this inven-tory, along with any works over 100 years old, require express authorization from the State for export and can be restricted from export if they are deemed to belong to the Spanish artistic patrimony. Once an export application is made for such works, the government has a three month period in which to order reports on the work from museum curators or other experts to decide if it is of interest. The heritage laws state that the application for export is considered as an irrevocable offer for sale to the State Administration, the price of which is the stated valuation by the potential exporter. If the State decides not to allow the work to be exported, it has a six month period in which to accept the offer of the sale, and if it does so, has a year from the date of acceptance before the payment has to be made. In other words, from the date of application for an export license, a seller that has been declined permission for export could wait to be paid by the State for 21 months. These regulations apply to private sales by dealers and also to those by

“States have had divergent interpretations of the term ‘national treasure’, an ‘extensive’ interpretation by countries that aim to enforce tight restrictions or a more ‘restrictive’ interpretation by major importing countries”



public auction. Auction houses have to notify the government of any works of art that form part of the Spanish Historical Heritage and within a period of two months, the government can use its pre-emptive rights to purchase the work for a charity or public company paying an agreed price or, where appropriate, the auction price within a pe-riod not exceeding two financial years. In reality, the experience of many dealers in Spain is that the export process can be long and problematic. Dealers must notify and get permission from both their regional and national authorities (which can add to delays if meetings between these bodies are not coordinated). If an item is declared BIC, the seller can be prevented from exporting the work and coerced into either selling at a lower price to the government (reported as often significantly lower than the retail price) or otherwise being forced to keep it within the national boundaries. Some high profile cases such as the purchase of Bruegels’s The Wine of Saint Martin’s Day by the Ministry of Culture for the Prado Museum under this law for €9.4 million in 2010, rather than its much higher market value, have highlighted the prob-lems that this legislation can cause for dealers in older sectors of the fine art market22. One leading art dealer in Barcelona offered an example of purchasing a lot by Luis Lagarto at auction in Madrid in December 2010 for € 51,480. At the time of the purchase, the relevant Junta did not exercise any pre-emptive or withdrawal rights, so the dealer understood that the purchase could be exported if required, and planned to show the work at the TEFAF Fair in Maastricht the following year with an asking price of €200,000. However, when he sent the request form for the export license to the Junta with this price and Maastricht as the destination, they replied one month later stating that the work was not exportable, applied a BIC on it, and offered to purchase it for the cost price of €51,480. The dealer reported that he then had to wait nine months and engage in protracted and difficult negotiations before the Junta accepted to pay €62,880, which was finally settled 11 months after the initial applications23. Most in the trade agreed that while the law is necessary to balance the interests of preserving the Spanish artistic patrimony with the free movement of art, its application in practice comes down heavily in favour of the former. Dealers stated that many overseas buyers now required approved export licences before they would consider purchasing works which limited and delayed sales. Some also made the point that despite the wealth of art in Spain, little was known about it abroad apart from a few very well known artists. These dealers felt that restrictive legislation, alongside a lack of scholarship and active promotion, was limiting the internationalization of the Spanish market, and felt that the government should take a greater role in encouraging and enabling dealers to be ambassadors of Spanish art in the global art market by allowing freer circulation of works. The EU exception for art also applies to third-country exports (with similar provisions in Article 20). In 1992, Council Regulation No. 3911/92 regarding the ex-port of cultural goods to third countries was also introduced, which requires that an EU export licence be obtained in addition to any licensing requirements in national laws if a cultural good is to be exported outside the EU. The regulation was adopted to act as a minimum standard to ensure that once internal borders were abolished,

“In reality, the experience of many dealers in Spain is that the export processcan be long and problematic”



states with the most lenient export policies would not become an open door to third countries, but under Article 36 each state retains the right to adopt tighter restrictions and take a wider view of what it considers to be its national patrimony. This legislation was repealed by Council Regulation (EC) No 116/2009 and in effect now means that any paintings, sculptures and other works of art over 50 years old and over certain value thresholds24, all require an additional EU licence to be exported from Spain to a country outside the EU. Although all EU states have licencing of some kind for the export of art, Spain also goes one step further and applies a tax on the export of certain works of art over 50 years old to countries outside the EU. These export taxes are applied on the basis of a sliding scale depending on the value of the works sold and range from 5% to 30%25. This acts as a further disincentive to export, and can amount to an increasingly large burden for highly priced works. There are few member states that apply export taxes, with the notable inclusion of France (currently at a rate of 4.5% for works over €5,000).

IMPORT REGULATION AND VAT

Imports of works of art that are part of Spain’s historical heritage, on the other hand, are in some cases given preferential tax treatment. Once works of art imported into Spain are declared of cultural interest or part of the General Inventory, the importer can apply for a 15% deduction on the amount of investment or expenses paid in the acquisition of the goods abroad, provided they agree to keep them in Spain in their possession for a period of four years26. The 7th VAT Directive (Council Directive 94/EC) introduced a minimum import VAT charge of 5% on art coming from outside the EU27. All works of art imported to Spain from a non-EU country are subject to import VAT at the reduced rate of 8%(The standard rate for importing goods into Spain is 18%, although this will rise to 21% from September 1, 2012, with the reduced rates also rising to 10%.) Although some smaller member states do apply higher rates to imports the major art markets of the UK and France apply much lower rates (of 5% and 5.5% respectively), which is one reason why the bulk of imports of art flows through these market hubs. Table 12 shows that the countries with the lowest rates of import VAT on art are the UK, France, Belgium, Netherlands and Sweden, which also tend to have the highest shares of extra-EU exports, whereas high VAT countries including Austria and Italy tend to have a lower proportion of external trade, Portugal being an exception. Spain has occupied a middle position, in terms of the rate of VAT and share of extra-EU exports, however the increase in the reduced rate to 10% in 2012 will place it among the higher rate states and may have some detrimental effect on imports from outside the EU. It is worth noting that taxing imports from outside the EU has not particularly encouraged more importing within the trade bloc, and most countries on average have increased their share of imports from outside the EU over time. On average in the EU, the share of extra-EU imports has risen steadily from around 42% in 1990 to 84% in 2011. It would appear therefore that imports under the harmonized scheme have not been that affected, and that there may be other more important factors driving trade. One important reason for its lack of impact is that the Directive did not interfere with the tax-exempt status of temporary imports to the EU. Temporary import rules allow



auction houses and dealers to delay payment of import VAT for a period of two years. If the item is re-exported within this time, it is exempt from any import VAT. In other words, if a work of art is imported into the EU for the purposes of a sale and then sold to a buyer who exports it out of the EU, no import VAT is due. The use of temporary import has increased substantially since 1995, and a high proportion of imported works of art sold by auction are covered by these arrangements.

Source: © Arts Economics (2012) with data from Eurostat and the European Commission

TABLE 12Share of Value of Intra-EU versus Extra-EU Imports of Art in 2011 and Import VAT Rates

Austria

Spain

Belgium

Germany

Sweden

Italy

Netherlands

Portugal

France

UK

EU27

83.3% 16.7% 8.0%

52.0% 48.0% 6.0%

29.2% 70.8% 10.0%

74.2% 25.8% 6.0%

84.1% 15.9% 5.5%

66.4% 33.6% 10.0%

95.3% 4.7% 6.0%

90.5%

84.6%

9.5% 5.0%

15.4% na

80.6% 19.4% 7.0%

81.1% 18.9% 6.0%

Country Extra-EU Imports Intra-EU Imports Import VAT on Art

Overall within the EU, the conflict between free trade and cultural autonomy of member states has been decided in favour of the latter, and governments have imple-mented a wide range of trade-restricting policies both within the EU and also vis-a-vis third countries. The EU market as a whole is heavily regulated compared to the US and within it, a variety of different systems have developed resulting in a segmented European market, where the trade in art is channelled towards the most lenient and supportive states. The level playing field sought after by various Directives has not been achieved for trade flows and the share of imports and exports has tended to be static for most markets, with trade continuing to flow primarily through the UK as the largest entrepôt market in the EU. Some of the regulations introduced over the last few decades in the EU have had relatively limited effects on trade. Export restrictions on national treasures are, for the most part, limited in application to preserving only national patrimony works that make up a tiny proportion of the art market. Although some states are certainly more heavy handed in their discretionary definition of national treasures, nearly every country in the world, including the US, has similar regulations that protect heritage and nationally important works from free trade. Spain has occupied a middle- ground in terms of its legal restrictions on exports and imports, however in practice, at least on the export front, there appears to be some administratively enforced impediments, red tape and delays which are disruptive to some of the small businesses in the art market.



Regulations that apply to highly traded sectors of the market do cause more concern however, particularly those such as Artists’ Resale Royalties or ARR (discussed below) that specifically affect the most actively globally exchanged markets of Contemporary and Modern art. There is some evidence within these sectors that EU harmonisation has lead to greater trade diversion away from the EU, rather than achieving a more balanced internal market. Most importantly, the growth in the amount and complexity of regulations and charges that are exclusive to the EU over the last 20 years has done little to promote the art market as a cost-efficient place to do business. When asked about the effects on their business, 88% of auction houses claimed that import and export regulations were negative, as did the majority (51%) of dealers. The costs of doing business in Europe were seen as negative for 83% of auctioneers (with the remainder reporting no effect), while 41% of dealers thought they were negative (with 48% reporting no effect).



ART COLLECTING IN SPAIN7As a luxury good, art has a high income elasticity of demand, meaning that people tend to buy proportionally more art as their incomes rise. Art buyers are also often found in more affluent nations and there are strong links between the level and distribution of art sales globally and the distribution and level of personal wealth. The largest art markets worldwide tend to have the highest proportions of high net worth individuals (HNWIs), although some nations are important for buying art but not for sales (such as Japan in the early 1990s and the UAE at present). In international terms, Spain has a relatively high proportion of wealthy individuals as well as high average incomes, but a small art market, suggesting that if there are a substantial number of art collec-tors in the country, they buy a significant amount of art outside Spain. Interviews of Spanish collectors and those in the art trade suggests that while this is accurate (with most collectors holding collections mixing Spanish and international artists), another factor explaining the differential is that there are simply relatively few medium to large collectors in the country compared to other larger art markets, and some believe that the culture of art collecting has lagged lagged behind many of its other European counterparts. Wealth in Spain has been highly concentrated in other sectors, such as retail, industry and retail estate, and wealthy investors have concentrated most of their investing in real estate and the stock market, with some shifting capital outside Spain in recent years to areas where there is less economic turmoil and more tax-friendly nexus for investing. Some of the wealthiest millionaires (and billionaires) in Spain do have significant interests in art28, and most collect Spanish art alongside other categories, however there are some indications from experts in the art trade, that art collecting is less prevalent in the middle and wealthy classes either as an investment asset or for purely aesthetic interest.

Spain is classified as a high-income region, with wealth per adult in 2011 at approxi-mately $130,180, up from $73,325 in 2002, or an increase of 78% over 10 years29. Spain’s GDP per capita (a proxy for average incomes) has also climbed from $16,800 in 2002 to $32,17530. In terms of GDP per capita, Spain is in the 30 richest countries worldwide, and ranks 13th wealthiest in the EU. In 2011 Spain held a 2.13% share of world GDP and 2.1% share of world wealth. Its share of world wealth has ranged from 1.8% in 2002 and peaked at 2.6% in 2007. Although this is a small share relative to some of the major art centres such as the US, France and the UK, it surpasses many of the mid-sized markets in the EU such as Switzerland, the Netherlands, Austria or Belgium. The majority of Spain’s wealth is in non-financial holdings (largely land and property) which have averaged 60% of total wealth by value over the last ten years. The financial/ non-financial wealth ratio in Spain currently averages around 0.67 compared to countries such as the US with 2.0131, again reflecting the country’s domi-nance in property assets. Despite entering recession again in 2012, growth in Spanish GDP over the ten years from 2002 through 2011 was one of the fastest of the more established markets in Europe and it now has the fifth largest GDP in the EU31. HNWIs are critically important for supporting the art market and have been instrumental in its global recovery in the last three years. Art made up around 22% of all of the so-called “passion investments” of HNWIs around the world, and

THE SPANISH WEALTH CONTEXT



27% for those in Europe33. Table 12 shows the distribution of wealth in Spain in 2011. Although the majority (64%) of the Spanish population had net wealth of $100,000 or less, a substantial 36% had wealth in excess of $100,000, with 400,516 dollar millionaires and 11 billionaires34. This ranks Spain as the 12th largest home to million-aires in the world in 2011 with 1.3% share of the total global HNWI population.

FIGURE 20Percentage Share of the World’s Wealth

FIGURE 21Index of GDP Growth (Base Year 2001=100)

Source: © Arts Economics (2012) with data from Credit Suisse

Source: © Arts Economics (2012) with data from IMF

0% 2002 2007 2011

10%

20%

30%

125

120

115

110

105

100

95 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US

Belgium

China

France

UK

Germany

Germany

Italy

Italy

Netherlands

France

Spain

Spain

Switzerland

Switzerland

UK

Netherlands

US

Belgium

31.9

28.0

7.36.7 7.0

5.35.8 5.9 5.85.7 5.8 5.5

4.9

6.6 6.1

2.0 2.6 2.11.2 1.1

1.41.1 1.2 1.01.0 1.1 1.0

10.48.7

27.98





TABLE 13 Wealth Distribution in Spain in 2011

TABLE 14HNWI Population: Top 15 Nations

$10,000 - $100,000 16,564,896 45.17%

<$10,000 6,816,528 18.59%

US

Japan

France 2,536,736 68,472 780 9 2,605,997 8.8%

Germany 1,704,297 48,418 1,375 40 1,754,130 5.9%

UK 1,608,071 39,266 958 24 1,648,319 5.5%

Italy 1,515,837 28,187 524 10 1,544,558 5.2%

Australia 1,056,054 23,919 542 13 1,080,528 3.6%

China 1,054,068 50,523 2,475 132 1,107,198 3.7%

Canada 916,333 24,662 664 18 941,677 3.2%

Switzerland 590,556 31,224 699 4 622,483 2.1%

Sweden 470,659 13,802 316 7 484,784 1.6%

Spain 388,448 11,705 352 11 400,516 1.3%

Netherlands 346,830 9,748 204 4 356,786 1.2%

Belgium 345.199 6.281 114 2 351.596 1.2%

Taiwan 330.417 12.938 506 21 343.882 1.2%

Brazil 305.193 13.105 563 25 318.886 1.1%

$5m - $10m 22,567 0.06%

$50 - $100m 680 0.00%

$100,000 - $1m 12,887,000 35.14%

$10 - $50m 11,025 0.03%

$1m - $5m 365,881 1.00%

$100 - $500m 332 0.00%

$500 - $1b 20 0.00%

Over $1bn 11 0.00%

9,612,061 436,727 11,556 314 10,060,658 33.9%

3,066,133 55,311 998 18 3,122,460 10.5%

Income Range

$1m-$10m $10-$100m $100m-$1bn Over $1bn Total HNWIs Share of World’s Millionaires

Number of Adults Share of Population



Spain has a relatively high proportion of HNWIs and a significant number of impor-tant corporate collections, but the relatively small size of the market suggests that art collecting at a national or local level may be smaller than some markets with similar levels of wealth and/or that collectors in Spain buy a significant proportion of art out-side the country. Research into art buying in Spain suggests that both of these features exist to some extent. Given the private nature of individual collecting, it is not possible to offer comprehensive statistics on the amount of art purchased by Spanish buyers or offer generalisations on their key characteristics. However to better understand the motivations of art collectors in Spain and the processes through which they engage in the market, a number of in-depth interviews were conducted with art collectors by Arts Economics in 2012 with interests in a range of different sectors of the fine art mar-ket. The information gathered from these interviews, combined with information from dealers and a database of over 200 collectors in Spain compiled by AYM, gives some key insights into the culture of collecting in Spain and some common themes emerged.

In nearly all cases, collectors stated that their main motivations for collecting art were centred on aesthetic or decorative reasons, with many describing it as a “passion”. Many of the collectors also had a familial connection to collecting, either directly through an inheritance of works of art or indirectly from the stimulus for an interest in art from parents or relatives, with most being second generation collectors. Financial or investment motives were generally not the primary motive to collect art, although many collectors recognized the value of art as an asset. One of the main reasons for not seeing their collections as investments was a reluctance on the part of most of the collectors interviewed to sell works from their collections. The majority had never sold or sold very few works from their collection since it began. For those that had, most had achieved a large and positive return, and the primary motive for sales was that particular works no longer represented a fit with their collection, rather than attempts to generate profits. For those collectors that had their collection regularly valued for insurance and tax purposes, most commented also that it had generally increased in value, and in some cases substantially, over the last ten years. Experts from the art trade reflected that during boom times in the economy, many Spanish collectors, with some important exceptions, had focused on buying art purely for passion, status or decorative reasons without concerns for the intellectu-al and historical importance of building their collections, and many buying without taking professional advice. Some felt that while the crisis had reduced spending on art, it had to some degree caused a “shakeout” of the quality of works on the market and had promoted the growth of connoisseurship over fashion-driven purchases. Collectors also commented that while the economic climate had generally made people “feel less rich” and therefore not as inclined to buy art, it had also caused some people to move money into art as an asset: “People tend to buy art when they buy gold and property - it is when they don’t trust the financial markets. Many Spanish investors are not educated on art and therefore have not recognised it as the sophisticated safe haven asset that it is. Also, the ones that do only buy certain types of well-known, investment grade art that trades on the largest and most liquid art markets.” This focus on well-known or “brand-name”

ARTCOLLECTING

MOTIVATIONS FOR COLLECTING

“Collectors main motivations for collecting art were centred on aesthetic or decorative reasons, with many describing it as a passion”



art has caused some polarisation of the market with the most well-known artists in Spain achieving the most attention and widening the gap between them and emerging and mid-career artists trading at the lower value end of the market. Both dealers and collectors remarked that they felt there was generally a lack of a culture of collecting in Spain, and, on aggregate, a lack of interest in art by the public. Some explained this in a historical and political context. Under the dictatorship of Franco until his death in 1975, art and culture was given very low priority with some collectors describing the regime as “anti-Contemporary culture”. After the Civil War, in the late 1930s, many artists and cultural people left Spain, and with wealth severely depleted, it was deemed frivolous and unimportant to buy art, as Spanish businessmen focused on rebuilding and generating new wealth. This historical context was seen to have had an impact on collecting in two ways. First, those with wealth at present had generally amassed this over three generations at most, which some felt had not given enough time to educate people on collecting or build large collections. Second, it is only in the period since 1975 that the political regime has changed and culture has slowly been given greater focus, again causing Spain to lag behind other established markets such as the UK, France and US with longer modern traditions of supporting Contem-porary culture and visual arts. An interesting observation from one dealer also suggested a deeper geo-po-litical reason for the relative lack of private collecting, commenting that in Spain, as in Italy, there was an underlying social culture of people gathering in public and on the streets, rather than a higher focus on socialising within the home. He felt this had led to a focus on public art, but less emphasis on the importance of maintaining private collections at home. Many dealers and collectors noted that despite the lag in private collecting, during the last few years especially, the importance and social cache of having an art collection was increasingly being recognised by sections of the Spanish pubic, both privately and at a corporate and institutional level. The primary focus for newer collectors was well-established and recognisable art that offered the most obvious prestige and social elevation. Some felt the education process regarding collecting, particularly with regard to Contemporary art and new sectors of the market, was still not matured in Spain versus other major centres such as New York and London. Collectors and dealers also noted that the lack of institutional support and government stimuli had caused a decline in existing collectors while failing to gener-ate new interest in the art market, either culturally or as a financially attractive form of wealth holding. Some commented that there had been some programmes by gov-ernment to stimulate interest in Spanish art outside Spain, but felt these had been “politically motivated and with a short-term vision based on political election cycles”. Many collectors pointed out that while there were some incentives for older sectors and heritage art, there were few fiscal or other benefits for collecting in the Contempo-rary sector, and what existed for donations and private sponsorship of artists and arts institutions were not sufficient to motivate significant patronage. Those that did make regular donations or loans to public collections stated that they did so out of national pride and other non-pecuniary motives. Some collectors complained of the lack of



clear guidelines on lending to museums and incentives for donations in cash or art or how to make greater social use of their collections at present or for future generations. The lack of government support for smaller and regional museums in recent years was also noted, which had curtailed their purchasing abilities, and in turn resulted in a lack of education on art for potential collectors in regions outside the major cities. Some collectors felt that the lack of focus on the art market started early in education, with art not taking a significant role in education planning in Spain. This was reinforced by what was termed a “lack of cultural space” in the media, including online, print, television and other channels. Dealers complained about a lack of support from the press, particularly for younger artists and smaller exhibitions, which contributed to a general lack of awareness and disinterest by the general public. While the general feeling from interviews of both collectors and those working in the art trade was that Spain lagged many of its global counterparts in terms of collecting, when asked about the most positive changes over the last ten years in the art market, several dealers commented on the “cultural growth in Spanish society and the integration of art into daily life”, an increased interest in art collecting and a growth in collector numbers. One of the very positive features of the Spanish art market that was noted by several collectors and dealers was that it was young and dynamic, both in terms of new collectors and the gallery scene. Many felt however that this con-tinued trajectory of growth would be influenced by the economic situation in Spain over the next few years, particularly in relation to institutional collecting. Many felt that the economic context would also affect the degree to which the government was able to redress the lack of investment in the sector, both directly (through subsidies) and indirectly with policies that promoted culture as well as more specific legislation and incentives in the areas of sponsorship, patronage and private investment in art.

Although there are some very important collectors of ancient art and older fine art sectors such as Old Masters, the majority of collectors in Spain focus on the Contem-porary and Modern sectors of the art market. In the AYM database of around 200 collectors for example, 60% collected Contemporary art, and over 80% collected Con-temporary with another sector (mainly mixing it with Modern art). Many collectors held collections with two or more sectors of interest, and all of those interviewed collected both Spanish and international artists. Some dealers noted distinct changes in the pattern of collecting in Spain in this area, stating that 20 years ago most collectors concentrated on artists from Spain, but in more recent years they had shifted their focus to more international artists. Some noted that there was a feeling now with certain collectors that “what happens elsewhere is better” and an increasing exclusivity for buying works from foreign artists. Some dealers commented that this had led collectors to choose to purchase works from fairs or foreign galleries, even if a Spanish gallery stocked similar works by a particular artist. While most collectors focused on paintings, there was a relatively high level of interest in photography and video art in Barcelona and Madrid. Collectors in the less mainstream area of video art stated that they had been able to build high quality collections of international and national works buying from galleries in Spain, who they

KEY SECTORS FOR COLLECTING



COLLECTING PROCESS AND BUYING CHANNELS

felt had a strong presence in the sector. They pointed out a number of problems in this sector going forward including the lack of a secondary market, the risks of origi-nality and problems of conservation over time, although these were issues common to the sector globally. It was generally felt that newer collectors in Spain avoided sectors such as these as they were perceived as higher risk, more complex and had less social cache than 20th Century and Modern paintings. Dealers commented that, in general, many newer collectors in Spain tended to focus primarily on well established artists and well known works, viewing art mainly as an investment versus some of the older Contemporary collectors who were interested and engaged in helping living artists and promoting the importance of Contemporary art.

While some collectors have a defined collection plan and worked with museums and other institutions in realising distinct goals, most of the individual collectors interviewed said that they bought relatively randomly year to year, and without a fixed budget. Collectors commonly bought between three and 20 pieces per year, and private collections were relatively large by international standards, with most averaging over 200 works. Many were aware of the value of their collections and had them assessed regularly for insurance purposes, however there were also a significant number who did not have their collections insured, or only insured certain works, and were not aware of its aggregate market value. To research the market, collectors all conducted their own on- and off-line research (using magazines, journals, auction catalogues, price databases and other sources), as well as relying on the expertise of dealers and art consultants. Many noted the importance of dealers in terms of specific sector expertise and in stimulating their interest in new artists and finding important works of artists they already knew. Nearly all of the collectors interviewed (and those within the database) bought from both Spanish and international galleries. Collectors generally felt Spanish galler-ies had good programmes which included international artists, but they often bought elsewhere either opportunistically or deliberately, for example to avail of lower taxes in other EU states or the US. All of the collectors interviewed attended art fairs, both in Spain (mainly ARCO Madrid and Loop) and overseas (with the most commonly cited including Art Basel, Frieze London, Art Cologne, TEFAF and FIAC). Collectors tended to favour galleries and fairs for purchasing, although differed in whether they had more long-term and exclusive relationships or not. Dealers commented that a recent trend over the last few years was the reduction in exclu-sivity with particular galleries: “ Some big galleries held monopolies with the biggest collectors but this is changing. Collectors will no longer commit to a single gallery. There is more sharing and collaboration, but this also means less revenue per gallery.” Collectors and dealers cited that a lack of professionalism had been a prob-lem in the gallery sector in Spain in the past, but that this was changing with an increase in “professional dealers”, experts, knowledge and transparency in the sector. One collector noted two distinct dealer types that now existed in Spain: “Galleries’ roles are changing and now there are two distinct systems: the first are international, dynamic and externally focused galleries, with a high degree of global knowl-

“The majority of collectors in Spain focus on the Contemporary and Modern sectors of the art market”



edge who work proactively to stimulate new interests with their clients, while the other is very local businesses, where the dealers and artists have not changed for many years, they don’t have degrees, they don’t speak English, and their clients are gradually dying off, so they can’t compete well.” While most collectors had purchased at auction at some time, the major-ity did not use this as their main purchasing channel. There were a variety of reasons cited for this, including that the artists they wanted were not available at auction(particularly those collecting living artists) or that they generally found the range of works for sale at auctions in Spain were less relevant to their collections. None of the collectors interviewed purchased online, but used the online channel for research, communication and follow up purchases from offline vendors they were familiar with. Most collectors commented that this channel would increase in importance for commerce in future.

“Collectors buy from both Spanish and international galleries and favour galleries and fairs for purchasing”



TAXATION AND THE SPANISH ART TRADE8National governments use different policies to support the art market: direct funding or subsidy or indirect aid via tax and other fiscal incentives. Tax incentives help to en-courage private investment and retention of art within a nation by either encouraging individuals or companies to make donations to museums (which, like subsidies, means that museums can buy more art and retain it domestically), or encouraging people to hold their own wealth in the form of art and therefore encourage investment in art. Tax incentives in Spain are generally applied on the acquisition, possession and assignment of works of art and are regulated very diversely under a number of acts including the Spanish Historic Heritage Act (SHHA), the Act 49/2002, on the tax regime of non-profit entities and tax incentives to patronage, in the legislation regulating each specific tax, and in a variety of regional regulations. Some of the most relevant taxes related to private collecting are discussed below.

With regard to personal income taxes, there are three main areas of incentives in Spain, which relate to heritages assets or assets of national interest. The first is that under the SHHA, a deduction of 15% is allowed for income tax purposes for any investment or expenses made for: a) The acquisition of works of art of the Spanish Historic Heritage that are of cultural interest to the State, made outside Spain and introduced into the country, provided that they are declared of cultural interest or included in the General Inventory within one year and remain in Spanish territory and in the ownership of the holder for at least four years. b) The preservation, repair, restoration, dissemination and exhibition of as-sets which are declared of cultural interest, provided that they meet the requirements established in the SHHA, in particular with respect to certain duties related to public exhibition and access. c) The restoration, maintenance of buildings, properties and assets in Spain that are protected under Spanish law or declared as World Heritage by UNESCO. The base of the deduction may not exceed 10% of the base payable, and excess-es over this limit may not be carried forward to subsequent years for their application. Secondly, there is also a deduction of all qualifying donations for the preservation, repair and restoration of heritage assets. Traditionally, incentives linked to repairing and restoring such assets were limited to the actions carried out by their owners. However, because the State recognised the social function fulfilled by these assets, and because many owners had scarce financial means, incentives were developed to promote aid from the public. This new regime on donations does not specify what particular purposes the donations must have, and is set at 25% of the donation, which can be in cash or kind (in which case the base of the deduction will be the market value of the asset or right donated), and the base for the deduction cannot exceed10% of the payable base of the tax (alongside deductions for investments mentioned above). If the donations made fall within a priority patronage programme or action, the above percentages and limits of deduction can be raised by up to five percentage points. Finally, the same deduction of 25% is also applicable to donations of heritage works of art which are entered in the General Registry of ACI or the General Inventory

PERSONAL INCOME TAX

35



of Chattels and some donations of cultural assets of “guaranteed quality”36 in favour of certain museums and art institutions. Any capital gain obtained with the donation of the abovementioned assets, is also exempt from Personal Income Tax. The only other tax issue in relation to personal income taxes is taxes due on the transfer of works of art. The transfer of a work of art can produce a capital gain or loss, which is determined by the difference between the acquisition value of the piece (including the cost of the investment and improvements made and the expenses and taxes inherent to the acquisition) and the transfer value, reduced by any relevant ex-penses and taxes. Such capital gains are regarded as savings income and would be taxed at rates of 19% (up to €6,000) and 21% (over €6,000)37. In order to calculate the gain obtained for the transmission, the Personal Income Tax Law establishes a reduction (by application of coefficients of reduction) related with chattels acquired before 31 December 1994. This reduction would apply for the part of the gain generated up to 20 January 2006. However, if the individual is trading in works of art as a business activity, the income from the activity is taken into the general base for the tax, and will be subject to application of the progressive rate of burden, with a maximum rate that can reach 56% from 2012 onwards in several Autonomous Communities.

Corporations can also carry out preservation, repair, restoration, dissemination and exhibition of works of art that are part of the Spanish cultural heritage and are also allowed certain deductions under Spanish law. The current regulation on Corpora-tion Tax allows a deduction under the same terms as for personal income taxes. The percentage deduction will be 5.625% in 2011, 3.75% in 2012 and 1.875% in 2013, but is being phased out by 2014. The amount of the deduction is limited to 35% of the full corporate income tax due, but if this amount is not sufficient to allow application of the deduction, the excess can be carried forward for settlement of taxes for a successive period of ten years. With donations, when the donor is a company, the deduction from their corporate tax bill will be 35% of the amount donated, or the carrying value of the work donated. The base for the deduction may not exceed 10% of the taxable base for the tax period, although amounts which exceed this limit, or which cannot be deducted through insufficiency in the corporate taxes due for that fiscal year, can be applied for the next ten years. Finally, another tax consideration for companies that own art and art collec-tions is that, generally, works of art are not considered subject to depreciation for tax purposes. Unlike some other assets, works of art are deemed by the tax authorities to not necessarily suffer deterioration from simply physical use or the passing of time. The expenses used by the company for their preservation, repair and restoration are not considered deductibles, but must be added to the cost of acquisition of the work of art, as a part of the greater investment. This regulation has meant that, in some cases, the expenses of preservation and repair, instead of being attributed directly by the company owning the asset, are passed on for tax purposes to a non-profit entity (a foundation) that is dependent on the company, to which the management, preserva-tion and dissemination of the work is assigned.

CORPORATE INCOME TAX

“Tax incentives in Spain are generally applied on the acquisition, possession and assignmentof works of art”



Wealth taxes are progressive levies charged on the total net worth (assets minus liabili-ties) or wealth of taxpayers, or a percentage of their net worth exceeding a certain level. There is no EU-wide wealth tax, but these taxes apply in a few European countries such as Spain, France, Greece, and Switzerland. They have never been imposed in the UK or US and have been abandoned by a number of countries in recent years such as Sweden, Austria, and Germany. The arguments against them were that their existence often leads to double taxation (with capital gains and income taxes), as well as actively discouraging the creation of wealth. In Spain, net wealth is subject to a wealth tax on a progressive scale ranging from 0.2% through 2.5% for all those with wealth of over €700,000. Net wealth is understood as all the assets and rights of financial content owned by individuals, with deduction of charges and burdens which reduce their value as well as any personal debts and obligations. The government introduced a temporary 100% reprieve from this tax under Act 4/2008 of 23 December 2008, and therefore in practice, wealth taxes were not levied in Spain during the fiscal years 2008 through 2010. However, as the recession worsened in Spain and the government sought greater contributions to fiscal revenue, Royal Decree Law 13/2011, of 16 September 2011, approved the re-establishment of the tax temporarily and exclusively for 2011 and 2012. In many countries that apply wealth taxes, works of art are given partial or con-ditional exemptions in return for public loan or exhibition but in Spain, as a general rule, works of art must be included in calculation of net wealth at their market value on the due date of the tax. However, there are exemptions from taxation in three specific cases: I. When the works of art are included in the General Inventory of Chattels of the Spanish Historic Heritage or in the Registry of Assets of Cultural Interest, or when they are considered as assets belonging to the Historic Heritage of the Autonomous Communities. II. When their unit value is below the thresholds set in the regulation of the SHHA (for example less than €90,000 for paintings and sculpture less than 100 years old and less than €60,000 for paintings and sculptures that are 100 or more years old). The motivation for these value limits is to stimulate collectors with works valued at over these amounts to bring them to the attention of the cultural authorities in order to have them included in the General Inventory, which would enable them to receive an exemption. III. When they have been assigned on permanent deposit for three years or more to museums or non-profit cultural institutions for public exhibition, indepen-dently of their value, with the exemption only applicable while the assets are deposited. Although this does exempt a large amount of works of art and as such gives art a status as a preferential form of wealth holding for HNWIs, it does not go as far as exemptions in other countries such as France, where all works of art, whether antique or Contemporary, are exempt from wealth tax ( which is applied in 2012 at two rates 0.25% for wealth over €1.3 million and 0.5% for over €3 million). Although the tax has only been temporarily revived in Spain, it is still unclear regarding its fu-ture. The last year it was applied in 2008 it raised in excess of €2.1billion from 1 mil-lion people, and therefore despite its negative effects on wealth creation and political

WEALTH TAX



opposition, it has been touted as an attractive tool of policy to help Spain counter some of its extreme fiscal budget challenges.

Works of art, like other assets, are part of an individual’s taxable base and hence subject to inheritance and gift taxes when being transferred between people or through generations. When passing on works of art through generations after death, certain exemp-tions can apply to listed heritage works. When the taxable base relating to a donor’s spouses, descendants or adopted children includes assets that are deemed exempt from the Spanish Wealth Taxation and those assets are covered under the SHHA or the Historic or Cultural Heritage of the Autonomous Communities, a reduction may be applied of 95% of their value. The application of this tax benefit is however conditional on the works of art being maintained in the ownership of the heirs for ten years follow-ing the death of the testator. A similar reduction can be applied to inter vivos gifts of heritage works under the same conditions to a spouse, descendants or adopted children. Again, in order to consolidate the allowance, it is necessary for the donee to keep the art for ten years following the date of the deed of donation. The VAT treatment of works of art is distinctly different from the treatment of all other trade in the EU. As works of art are traded predominantly on secondary markets, ordi-nary VAT on the transaction volume would lead to a cumulative tax burden each time a work of art is traded. To account for this, in 1994, the 7th VAT Directive (Council Directive 94/EC) created a harmonised system of VAT on works of art and a margin scheme for the art trade which introduced taxation at the margin or profit level rather than full sales price (at standard rates that must be in excess of 15%). It also applied the origin principle to works of art (versus the destination principle for most other goods). VAT is applied in Spain at three different rates, the standard rate of 18% (up from 16% in 2010), the reduced rate of 8% and the super-reduced rate of 4%. In July 2012, it was announced that both the standard and reduced rates would be increased to 21% and 10% respectively from September 1, 201238. The standard rate of VAT applied to most art sales in Spain has been 21% since September 2012. This increase to 21% has made it among the five highest in Europe, and higher than the main art markets of the UK (20%), France (19.6%), the Netherlands and Germany (both 18%)39. A special super-reduced rate of 4% is applied to certain sales, such as books and newspapers and many in the art trade (in Spain and throughout Europe) think this should also be applied to works of art in recognition of its public good features and the positive externalities it produces. There are some exceptions to the standard rate of VAT for art sales. Sales of original works of art made directly by an artist were subject to the reduced rate of VAT at 8%. In this instance, if the buyer was a business, professional or company it should withhold 15% of the price as a withholding on account of personal income tax (and if the artist is non-resident, the rate of withholding applicable will be 24% from 2012 and 24.75% from 2013). In the new VAT regulations from September 1 however, artists must also charge the full rate of VAT at 21%, substantially increasing the taxes on these sales.

INHERITANCE AND GIFT TAXES

VAT



ARR (ARTISTS’ RESALE RIGHTS)

“As buyers are increasingly price sensitive in the current economic climate, dealers expressed concerns that if they increase prices in line with VAT, they would lose sales”

Also, if the work of art is sold by a private individual (other than the artist) it will not be subject to VAT, but to Capital Transfer Tax at 4% on the sales price. The taxpayer for this tax is the buyer, who is obliged to declare it and pay it. Finally, as mentioned above, under certain conditions, dealers and auctioneers can apply the margin scheme to sales of art. This scheme is available to resellers of second-hand movable goods, works of art, collectors items and antiques and to those sales on which the input VAT has not been deducted in the acquisition. In the scheme VAT is paid at the standard rate of 18% but only on the margin of the transaction and not the full final price. Dealers and auctioneers can opt to apply it (or not) transaction by transaction and it only applies to resales of “second hand” art and not first sales in many Contemporary galleries. There were many complaints from those interviewed in the Spanish art trade about VAT, which may be due largely to the series of recent increases from 16% to 21%. As buyers are increasingly price sensitive in the current economic climate, incremental price increases can be difficult to pass on, and dealers expressed concerns that if they increase prices in line with VAT, they would lose sales. Of the auctioneers surveyed, 66% stated it had a negative or very negative effect on their business while 91% of deal-ers reported negative effects. Despite the negative effects of VAT, looking at the wider European context, it is important to note that Spain has had one of the lower rates of standard VAT in the EU. The increase to 21% however, now puts Spain into the top half of EU VAT rates, along with countries such as Italy and Portugal (both also at 21%), and Sweden and Denmark (with 25% each). The government had previously indicated that the Spanish VAT rate would have to rise to 20% in 2013, however the worsening economic position forced the further increase ahead of schedule. There are plans for similar VAT increases in other member states during 2012 and 2013, including the Netherlands (from 19% to 21% at the end of 2012) and Italy (from 21% to 23% in 2013) as governments across Europe continue to deal with worsening debt crises. In the latest EU-wide data avail-able from Eurostat, despite collecting the fifth largest absolute amount of VAT in the EU, Spain had the lowest VAT receipts as a percentage of GDP of all states (at 5.5% versus the EU average of 6.9%). Also while member state governments can alter rates, they may only do so with reference to strict minimums and cannot change the structure of the tax and what it is applied to. Therefore a cultural VAT or new system such as this for art would not be possible to impose on a national basis only.

ARR or “droit de suite” are rights granted to artists and their heirs to receive a fee each time their works are resold (that is, on each sale subsequent to the first sale of work). ARR was introduced in France in the1920s because of the perceived injustice caused when the works of artists killed in World War One would resell for escalating prices after their deaths, while their families languished in poverty. This rationale was extended to the view that artists should participate in the increasing value of their art40. The European Commission first proposed a directive on ARR in 1996 in order to remove the distortion in the internal market caused by the different ways that the right was applied between states and its absence in others. Because the levy



was applicable in the country in which a transaction takes place, it had the potential to divert trade away from countries that had enforced the right such as Spain, France and Germany and towards those that did not such as the UK and the Netherlands. At this time in the EU, 11 of the original 15 member states previously had the right in place, although it was effectively enforced in only eight. The UK, Ireland, the Netherlands and Austria previously never had resale rights legislation. To create a level playing field, therefore, it was decided that ARR had to be either applied uniformly throughout the EU or abolished in all member states. The Commission decided to pursue the former option, as the latter option was unlikely to attract majority support. The Directive 2001/84/EC was adopted by the Council in 2001 and introduced on an EU-wide basis on 1 January 2006. In the original terms of the EU Directive, ARR entitles living artists in the visual arts, and the artists’ heirs up to 70 years after their death to a certain percentage of the resale price of their works after the original sale, whenever they are resold by commercial dealers or auctioneers. The right therefore only applies to the modern and contemporary markets, which are by far the most dominant sectors of the art market in Spain. The Directive allows for the introduction of royalties on the basis of a slid-ing scale starting at 4% for works of art over 3,000 to 0.25% on works worth over 500,000 or up to a maximum limit of royalties payable of 12,500. The ceiling on the royalty means that there is no additional levy when the sale price exceeds around 2 million. In Spain, the system is now applied to all works priced over 1,200 (which is lower than the highest minimum of 3,000 allowed under the Directive, hence making the levy applicable to a much wider range of sales). The Directive is applicable to all professional resales but does not apply to resales between individuals acting in their private capacity, without the participation of an art market professional, nor to private resales to museums that are not for profit and are open to the public. The deadline for the implementation of the Directive throughout member states was January 1st 2006, to benefit living artists, and it has been intro-duced on an EU-wide basis for heirs and estates of deceased artists in January 2012. As with a number of other EU directives, this legislation was designed to be a step towards global implementation of the royalty for artists, and Article 7 of the Direc-tive commits the European Commission to negotiate an international agreement on the resale right. However, the US, China, Switzerland and many other countries are firmly against the levy and are unlikely even to consider implementation in the near future40; therefore, an internal trade distortion within the EU art market has been replaced with an international one. ARR has come under severe criticism from economists, the main argument being that resale royalties only serves to lower the initial sales price for works of art. If a potential buyer knows they have to pay a tax on the work and that the artist is essentially holding onto rights to it, they will simply reduce the underlying price they are prepared to pay. This shifts part of the risk concerning what the future sales price might be back to the artist, and means that successful artists will gain while unsuc-cessful artists will lose from ARR. The majority of living artists never resell works of art, or do so only at the end of their careers, apart from the most successful. A number of artists have publicly opposed the introduction of ARR, as it

“ARR legislation was designed to be a step towards global implementation of the royalty for artists, however, an internal trade distortion within the EU has been replaced with an international one”



represents an intrusion into their right to sell their work on whatever terms they choose. The right is inalienable under the Directive so the artist is not free to waive the right, which prevents them from negotiating the terms of a sale, and puts them in an inequitable position compared to actors, novelists and other artists, who are free to waive their rights. Perhaps the main economic case against the royalty is that the artist receives an entitlement to a share in the resale, even if a work is resold at a loss. In other words, an investor may make a loss on the investment and sale of a work and still have to pay the levy. So, apart from enduring an opportunity cost from capital they have tied up in the investment over time, the seller is also forced to pay an additional tax regardless of whether or not they profit from the sale. This acts as a possible financial disincentive and could make buyers likely to invest less in art and more in other asset classes that do not attach similar levies. Finally, as mentioned above, another clear economic case against the levy is that while the intention of the Directive is to smooth out distortions of competition within the EU, it does so with the added disadvantage of leaving all of the member states in an uncompetitive position vis-à-vis countries outside Europe that do not apply the levy. There has been wide criticism of the levy by the art trade in Spain and throughout Europe, both in terms of its design and application as well as its effects, and fears now that its full extension to artists’ heirs throughout the EU in 2012 may deter trade from Europe, particularly for higher value works in the Modern sector of the fine art market to which it now applies. The costs to administer the right can be high, with estimates of around €200 per month42 which can be a heavy burden in both time and money for small businesses. These costs are proportionately higher in Spain on aggregate than in many other art markets in Europe due to its very high share of Contemporary and Modern sales. Dealers also complained of the so-called “cascade effect” of ARR, where each trans-action through an auction house or dealer is liable for the levy at the full sales price. Unlike the system of VAT which enables a dealer to offset tax paid on purchase against tax paid on resale, the resale royalty is payable on the full sales price each time and takes no account of the profit margin. Often the art market involves a chain of transactions between a sale by private individuals and the eventual purchaser. As things stand, a dealer in the EU who buys at auction pays the royalty on purchase and has to pay it again on resale. If he sells to another dealer, the royalty may effectively be paid three times on the same object. At 4% per transaction for sales priced less than €50,000, the ARR can add as much as 12% to sales and hence provides a disincentive for dealers to conduct sales within the EU. For all those affected by ARR43, 100% of auctioneers and 83% of dealers felt it had a negative effect on their businesses. Collectors also commented that although they agreed with some of the principle of the right (that artists should share in the increasing value of the works that they sold in future), its design resulted in a negative outcome that even if they made a loss on a subsequent sale of a work, they would be forced to pay a royalty back to the artist. Some felt this would sour the relationships between artists and collectors and patronage in the Contemporary market over time by demanding a cut even when collectors lost money.

“The main economic case against the royalty is that the artist receives an entitlement to a share in the resale, even if a work is resold at a loss”



Many of those interviewed in the art trade noted serious issues related to the illicit trade in art in Spain. The size of the undeclared market in Spain was estimated by an expert in the dealer sector as up to an additional 25% of the value of the legitimate transactions of the market. Auctioneers and dealers commented that in periods where the property market was booming in the past, many private and unreported cash transactions were carried out in the art market, however they felt the market had become more controlled in the last three to four years. In an attempt to control unregulated trade activity, maintain tax revenues, and prevent criminals from exploiting legitimate businesses to hide the proceeds of criminal activities, money laundering regulations are in place in most nations and at an EU level. While many of the regulations have specific requirements for financial institutions, with regard to the art market, the main focus for this regulation has been on so called “high value dealers” who accept cash payments over a certain amount for a single transaction. At an EU-wide level, there are due diligence obligations for any transactions in cash that are greater than 15,000 under the Third Anti-Money Laundering Directive of 2005. Some states such as the UK maintain this relatively high threshold, however in Spain, under the Law 20/2010 on the Prevention of Money Laundering and Terrorism Financing, regulations also apply at a much lower level: 3,000 for financial institutions and 8,000 for non-financial institutions44. Dealers in Spain are considered to be high risk for unregulated trade activity as they deal in a high value goods sector and are therefore subject to the lower threshold. Under this law, for any transaction greater than 3,000, a dealer needs to obtain and record identification from the buyer whether they pay in cash or credit. If a company is making the purchase, the dealer needs to obtain individual identifications, company papers and a written permission to purchase the work. These regulations can therefore act as a significant deterrent to many buyers if enforced, make negotiations difficult for dealers and add significantly to the paper work involved in transactions. Dealers are also obliged by the government to report any “suspicious trans-actions”. In Spain, a suspicious transaction is defined as any event or transaction that raises indications of being related to money laundering or those that do not fit with the nature, size or the pattern of transactions of the customers involved and for which no legitimate economic or business explanation is apparent. All such transactions have to be reported to Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capi-tales e Infracciones Monetarias (SEPBLAC). Reporting of these transactions by others has been both incentivised and dealers or employees can be prosecuted against for not reporting witnessing them taking place.

UNREGULATED TRADE



THE ECONOMIC IMPACT OF THE SPANISH ART MARKET9The art market makes a significant contribution to the Spanish economy in terms of the employment and skills that it creates and through related expenditure by the trade that it generates. The art and antiques market in Spain is made up of over 3,625 busi-nesses, with the core fine art sector comprising some 650 companies. The art market employs a conservatively estimated 11,625 people (with 90% of those in the dealer and gallery sector), but also supports employment in a range of ancillary businesses, many of which are specialised, niche services connected specifically to the market and which would not exist without it.

As stated above, while there are close to 125 auction houses that sometimes sell art, there are a core of around 50 established auction houses exclusively selling art and antiques. The average number of employees at auction houses in Spain according to the survey results was nine in 2011, although these ranged from one to 26 peo-ple. In the global market, the largest top tier auction houses such as Christie’s and Sotheby’s employ up to 2,500 people in their multi-national businesses worldwide, and the average number of employees in second tier houses was 24 people in 2011. Despite the poor conditions economically in Spain, with unemployment rising to 24% in 2012, three quarters of the auction houses surveyed had increased the number of people they employed from 2010 to 2011. The auction sector is gender balanced with 51% males and 49% females ver-sus the general active labour force, which is 55% male46. Workers in the sector tend to be predominantly full-time, with 65% full-time and 35% part-time. This rate of part-time employment is considerably higher than the general labour force (of 12%) but consistent with second-tier houses globally which had rates of 31% in 2011. It is also slightly higher than rates in the cultural sector in Spain, reported at just under 22%47. On average, 73% of those employed in the auction sector in Spain held a uni-versity degree or equivalent qualification. This is considerably greater than the general adult population where 27% held university level degrees, or 38% including higher level technical or professional qualifications. It is also higher than workers in the cultural sec-tor in Spain with rates of 55% and than the global averages reported for second-tier art auction houses of 57%. Despite the high levels of education, figure 22 shows that 88% of those employed in the auction sector earned less than €50,000 and 62% earned less than €25,000. The average wage in Spain is approximately €22,200 with slightly higher rates for professional services (€25,175)48, which means that the majority of those working in the sector earn at or below the average wage despite having a proportionately higher level of education.

AUCTION SECTOR EMPLOYMENT

45

Most dealer businesses in Spain are small companies employing three people on av-erage. (The range of employee numbers in the survey was from one to 11 people.) In 2011, 17% were sole traders and 42% either worked alone or in a partnership of just two people. According to dealers interviewed, it is common for the owners to work in the gallery and often for them to take responsibility directly for sales rather than delegat-ing these functions to a sales team or directors as is common place in larger galleries

DEALER SECTOR EMPLOYMENT



elsewhere. Despite the prevailing economic crisis and rising unemployment, most deal-ers (66%) had kept employment numbers stable from 2010, and 16% had increased the numbers employed in their businesses (most commonly by one person). Unlike the global dealer sector which is marginally male-dominated (with an average of 53% male), the gender balance in Spain is in favour of female participation at 53% (and 55% in businesses with more than one person). This is considerably higher than the general labour force in Spain as well as the dealer sector in other European coun-tries such as France and Italy ( with rates of 43% and 38% respectively in 2011). Like the auction sector, most dealers are employed on a full-time basis, with part-time employment at 25% on average in 2011. This average is on par with the global average for dealers in 2011, and again, higher than the general labour force in Spain. Dealers are highly educated with an average of 78% holding higher level uni-versity degrees. This average is considerably higher than the global average for dealers of 62% and, as noted above, much higher than the general labour force in Spain or the EU. The distribution of income for dealers shows that they are even more skewed towards the lower end than auction houses, with almost half earning less than €15,000, which is significantly below the average wage, and 87% earning less than €25,000. These findings therefore suggest that dealers are underpaid given high education levels.

FIGURE 22Wage Distribution – Art Auction Houses in 2011

FIGURE 23Wage Distribution – Art Dealers in 2011

Over 100,000

Over €100,000

€50,001 to €100,000

€50,001 to €100,000

€25,001 to €50,000

€25,001 to €50,000

€15,000 to €25,000

€15,000 to €25,000

€0 to €15,000

€0 to €15,000



0%

0%

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0.0%

10%

10%

20%

20%

30%

30% 40%

40%

50%

12.5%

0.9%

25.5%

12.3%

37.5%

37.7%

25.5%

49.1%



Apart from generating over 11,125 highly skilled jobs in galleries and auction hous-es in Spain, the art market also creates substantial revenue and employment though a number of ancillary industries and support services used by the trade. In 2011, it is estimated that the Spanish art trade spent €154 million in a range of external support services directly linked to their businesses. Figure 24 gives the breakdown on this spending between the different categories. Spending on art fairs, although only incurred by dealers, was the largest component at just under €40 million, followed by advertising and marketing at €39 million, 20% of which was accounted for by spending by auction houses. The combined employment impact of this ancillary spending in terms of full-time equivalent jobs is estimated to be around 7,000.

As noted above, the art market has become increasingly event-driven and is now also an important catalyst for local events such as art fairs which have very positive employment and revenue generating spill-over effects in the cities that host them. The figure of €40 million in figure 24 is an estimate of dealers’ spending on exhibiting at fairs but does not include the very substantial amount of related spending and economic activity generated by events such as ARCO Madrid in Spain, which brings a rapid influx of wealthy visitors with high expenditures not only within the fair itself but also on local amenities such as hotels, restaurants, transport and various retail and service outlets. The art trade also has many positive links with other high value sectors of the Spanish economy, notably tourism. Cultural tourism is one of the largest and fastest growing segments of the tourism sector, and the art trade is an impor-tant part of promoting Spain as a tourist destination. In 2011, including both direct

ANCILLARY ECONOMIC IMPACT

FIGURE 24Spending by the Spanish Art Trade on Ancillary Services in 2011


IT €17.0m

Conservation and restoration €5.4m

Packing and shipping€15.0m

Hospitality and travel €13.4m

Professional fees (auditors, lawyers, bank fees etc.) €11.7m

Insurance and security€12.5m

Advertising / Marketing€38.8m

Art fairs €39.9m



and indirect contributions, travel and tourism contributed €160 billion ( or 15%) to Spanish GDP, generating some 2.3 million jobs. While Spain has pursued the more traditional tourism model of sun and beach holidays for many years, more recently there has been increased interest in promoting the country as an important destination for high-spending cultural tourists. It is estimated that at least 51% of all international tourists performed some kind of cultural activity while visiting Spain, and 14% of international tourists (or an estimated 7.5 million people) cited cultural motivations as their main reason for travel to Spain. This group alone were estimated to have spent at least €6 billion in the economy in 201049. It is estimated that Spain holds over 8% global market share of cultural tourism50, and a vibrant art scene of both public museums, auctions, galleries and events is a key part of the cultural sector. As well as being a direct high value employer and indirectly supporting a number of jobs in ancillary industries, the art market also produces positive multiplier effects in the economy. When those in the trade and the indirect industries they use spend their earnings (wages, salaries, profits, rent and dividends) in goods and services in Spain, this also generates revenue and employment in a range of industries throughout the country. These positive ramifications throughout the economy work via a ripple or “multiplier” effect. That is, a result of the direct and indirect impact of the art trade is increased income throughout the economy (from increased employment), and a proportion of this increased income will be re-spent on other goods and services, many unrelated to the trade. So for every €1 of output from the art trade, more than €1 is generated in the economy. Estimates of the size of the multiplier vary in input – output analysis studies from two to three in the arts to over 10 for the high value tourism sector.

Another significant way in which the art market contributes to the Spanish economy is via the taxes and levies it pays directly to the State on sales, incomes and profits. Table 22 is a highly conservative estimate of the total tax revenue generated by the Spanish art market. In 2011, at least €128 million accrued to the government in corporation taxes, income tax and net VAT, up marginally on 2010 (by 0.4%) due largely to the increase in VAT from 16% to 18%.

FISCAL CONTRIBUTION


TABLE 15Estimated Fiscal Contribution of the Spanish Art Trade (€ million)

Income Taxes €64.0 €64.0

Corporation Taxes €31.4 €29.8

Total €127.6 €128.1

Net VAT (VAT on Sales less input taxes) €26.1 €27.4

Import VAT (Extra EU Imports only) €6.1 €6.9

Fiscal Contributions 2010 2011



OUTLOOK AND RECOMENDATIONS10Despite nearly doubling in size in the last ten years, the art market in Spain is relatively small compared to its European and international counterparts, with a global share of less than 1%. This share is also smaller than Spain’s “economic weight”(with more than 2% of world GDP in 2011). Despite having a relatively high number of wealthy inhabitants in the country, a recurrent theme noted by members of the art trade was that the “culture of art collecting” appears to have lagged behind more well developed markets over the last decade. In the recent past, the market has also had to endure a rapidly deteriorating economic backdrop, which has been dispropor-tionately more severe in Spain than in many other EU states. Dealers and auctioneers cited the near paralysis of the art market caused by the economic crisis in Spain as one of the biggest challenges of the last few years, with a chronic lack of liquidity leading to a demand-induced contraction. Buyers, who were uncertain about their economic futures, reduced spending on luxuries including art, while supply was still relatively plentiful, particularly in the Contemporary sector. While the global art market fared better than other industries during the economic crisis as investors sought assets with long-term and tangible value, some dealers commented that collectors in Spain had not yet fully embraced the view of art as a safe haven investment that could be used to diversify risk as some more “sophisticated” buyers had in other markets. In a context of factors such as rising VAT and falling discretionary income in Spain, without active programmes in place to encourage the ownership of art as a preferential form of wealth holding for individuals or those to stimulate investment in art at institutional or corporate level, the market could be in danger of continuing to stagnate despite its strong recovery globally. Art, by its nature follows money, but both art and money also follow tax incentives, which has made wealthy cities with the greatest tax incentives (or least tax burdens) the key centres for art such as New York, Hong Kong and London. While a few tax incentives do exist for collectors of older heritage art in Spain, the dominance of the Contemporary and Modern sectors means that these are generally inaccessible for most collectors. The art market is also dominated by sales through the most open market hubs or entrepôts, which in Europe has lead to the primary position of London as the epicentre of the European trade in art. The bulk of works of art traded interna-tionally are bought and sold in centres such as these despite the act that the eventual buyers of the imported works may exist somewhere else. Because works of art are traded predominantly between former and future consumers and less between artist and collector, the comparative advantage of a trading location is not chiefly founded on who can produce the best art, but on which locations allow an efficient and cost-effective interaction between buyers and sellers. While Spain arguably does not enforce the most restrictive trade regulations in the EU, it does apply heavy restrictions on certain older works which has in practice hindered a more flourishing trade for certain segments of the market. Some of these restrictions along with the real or perceived notion of a lack of demand internally has also driven the highest value sales of Spanish art to centres outside Spain, while the art traded internally remains predominantly at much lower average prices.



Apart from its own policies, membership of the EU has meant that Spain has also had to adopt and adapt certain legislation designed to harmonise regulations, taxes and other matters, which had affected the art trade. The growth in the amount and complexity of regulations and charges exclusive to the EU over the last decade has done little to promote the EU as a cost-effective place for art sales and Europe has increas-ingly lost share to external markets such as China. While the larger, high-end markets in Europe such as London and Paris have fared relatively well, smaller and mid-sized markets such as Spain have continued to struggle in a more cautious buying climate. Despite some of these structural and legislative issues, the Spanish market is a dynamic and evolving one, with a very vibrant local gallery scene, particularly for Contemporary art. Many galleries and auction houses have also embraced an increasingly international focus, and events such as ARCO Madrid have created a strong interaction between local and international galleries and collectors as well as promoting Spanish art to new global audiences. The internationalisation of the market is likely to bring both opportunities and challenges for the Spanish art trade going forward, as new channels for sales and a more transparent market place transform the way business is conducted and help determine those that will lead and lag in the market over the next ten years.



AUTHOR’S NOTES

The figure of 3,625 includes all publicly listed art galleries, antique shops, dealers of art, antiques and collectibles plus auction houses or auctioneers that sell art or antiques, either exclusively or only occasionally and any other vendors of art, antiques and collectibles. The figure is the number of businesses and includes branches of single businesses in multiple locations.

All figures for comparisons to the global art market and countries outside Spain, unless otherwise stated, are based on Arts Econom-ics/ McAndrew (2012) The International Art Market in 2011: Observations on the Art Trade over 25 Years. TEFAF: Helvoirt.

Spanish Consumer Confidence was close to an historical low by 2012 registering at 50 on the consumer confidence indicator (ICC) in April versus 98 in 2005. The ICC is derived by the Official Credit Institute (Instituto de Crédito) and has averaged 76 over the past eight years.

Data from the IMF and Eurostat’s Trade and Services database.

The data for the fine art auction sector comes from Artnet. Artnet record data from the largest 15 auction houses in Spain. They do not record sales below $500 however, and there are a significant number of these, particularly in some of the smaller auction houses. Research of a sample of auction catalogues from 2011 suggests that nearly all of these low value sales are works by Spanish rather than international artists, therefore the figures quoted for the share of Spanish artists in the value and particularly volume of sales may be underestimated.

For a more in depth discussion of the changes in the global market and in particu-lar the rise of China and its key drivers, see McAndrew (2012) ibid.

These results omit one online auction house which reported 100% sales online.

Small businesses are defined in the EU as those with turnover less than €10 million, with micro businesses turning over less than €2 million. Medium sized business turnover is €10-€50 million and large companies are those turning over in excess of €50 million. See Commission Recommendation 2003/361/EC of 6 May 2003 concerning the Definition of Micro, Small and Medium-Sized Enter-prises. [Official Journal L 124 of 20.05.2003].

This again excludes an online only auction house.

From a database of the 600 core dealers of fine art, approximately 500 were contactablethrough email or post. The response rate for the survey was 23%. Over 80% of the sampleeither solely or in combination with other categories. They survey therefore reflects the trends within this sector, however this is representative of the population of dealers in Spain, of which the majority are Contempo-rary dealers.

Research reported in the Spanish Response to the European Commission’s Consultation on the Resale Droit de Suite Directive.

It is worth noting that the auction data in recent years comes from the Artnet database which excludes sales less than $500 for all countries This may boost averages in Spain as there are a large number of lots at this level on the market each year than in some other centres.

The median is a measure of central tendency that is used when distributions are skewed to get a better idea of where the middle of market is. The median price is simply the price separating the higher and lower halves of the distribution of prices: if prices in the art market were arranged from lowest to highest, the median price is the middle price or centre point along the spectrum. If the median is less than the average, it indicates that averages are being pulled upwards by a small proportion of higher value sales.

Note that the share of artists in each region does not sum to 100% as the same artist may be represented in more than one price bracket.

According to Artprice’s ranking of artists by total auction revenue, Picasso was the highest selling artist worldwide from 2005 through 2010. In 2011, he was ranked fourth, however his net sales at auctions worldwide totaled €315 million, greater than the total size of the auction and dealer market in Spain.

The largest importer of art by value is the UK, followed by France, Germany, Austria, Italy, Belgium and the Netherlands. To offer some context, imports of art to the UK in 2011 were over 23 times greater by value than Spain and six times their value to France.

To put art in context, total imports into Spain grew 9% over 2011, their second year of positive growth although more moderate than the increase in 2010 of over 17%, after a fall in 2009 of 26% in 2009.

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To put art in context, total exports from Spain have had two years of positive growth over 2010 and 2011, increasing 18% and 16% respectively, following a year of decline of 15% over 2009.

Like imports, the largest exporter of art by value is the UK, followed by France, Germany, Italy, Austria, and the Netherlands. To offer some context, exportsof art fro, the UK in 2011 were over 41 times greater by value than from Spain, 18 times larger from France, and eight times their value from Germany.

These items are covered under the two laws: Royal Decree No. 111-1986 of 1986 and Law No. 16-1985 of 1985, Law on the Spanish Historical Heritage. Under Article 1.2 of the latter, the Spanish historical heritage comprises buildings and chattels of artistic, historic, paleontological, archaeo-logical, ethnographic, scientific or technical interest. It also includes the documentary and bibliographic heritage, archaeologi-cal sites and areas and other natural areas, parks and gardens, which have historic, artistic or anthropological value. The state offers three levels of protection of these as-sets: maximum protection to those deemed “assets of cultural interest”, a second level to those included in a general inventory by the Minister of Culture and the third to all others that can not be fitted in to either of those, but still require a series of duties, rights and restrictions on exports.

These inventories are published via the Ministry’s website at http://ipce.mcu.es. The latest year of acquisitions reported at the time of writing was 2007, during which 110 works were purchased by the State at a valuation of €10.6 million. According to the Ministerio de Cultura’s annual Compendium of Statistics (Anuario De Estadísticas Cul-turales) there were 25,171 items of movable or immovable property declared of cultural interest. hat can not be fitted in to either of those, but still require a series of duties, rights and restrictions on exports.

Reporting on this purchase, the New York Times cited: “The Spanish Ministry of Culture invoked national patrimony law, which… amounts to a kind of state-sanctioned blackmail, albeit in service to the public. The law meant the museum could prevent export and name its price. What might have gone for $100 million or more on the open market…went for $9 mil-lion, which the government, near financial

collapse, will take its time to pay.” When Overlooked Art Turns Celebrity. New York Times, December 13, 2010.

Information with sincerest thanks to Artur Ramon Art.

The financial thresholds vary between media, for example it applies to drawings and pho-tos over €15,000, watercolours over €30,000 and paintings over €150,000. See Council Regulation (EC) No 116/2009 of 18 De-cember 2008 on the export of cultural goods. From http://ec.europa.eu/taxation_customs/customs/customs_controls/cultural_goods/index_en.htm.

The sliding scale is applied on the following basis: 5% for works up to €6,000, 10% for values of €6,001 to €60.000, 20% on €60,001 to €600,000 and 30% for works greater than €600,001 in future: 30%. For example, if a work is being exported worth €10,000, 5% is due on the first €6,000 Euros and 10% for the remaining €4,000 rest, so that the amount to pay would be: €300 + €400 = €700.

Fiscal incentives are discussed in more detail in Chapter 8.

Although this is a substantially reduced rate compared to regular extra-EU imports, which are charged at rates between 15% and 25%, it has caused a strong disincentive for collectors who buy works outside the EU, especially in art centres such as New York, to bring them permanently into the EU. It was seen as a particularly detrimental move for Europe’s largest art market, the UK, which, prior to the Directive, did not apply any import VAT for art works coming in from outside the EU and now applies a 5% rate. Given the VAT rate differential remained in the EU between the UK and many other markets, its central position for trade within Europe was not affected, and, many works imported from outside the EU use a temporary import VAT exemption if they are to be re-exported within two years, thus avoiding payment.

For example, Art News’ annual top 200 art collectors list contained entries for four wealthy collectors from Madrid.

Credit Suisse (2011) Global Wealth Databook 2011. Credit Suisse Group AG: Zurich. Fig-ures are quoted in US dollars from source.

IMF (2012) World Economic Outlook April 2011 Edition. From www.imf.org.

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The ratio of financial to non-financial assets is typically higher in rich countries, with an aver-age just below 1, compared to 0.6 for emerging markets.

IMF data shows that Spain’s average growth rate for GDP (measured in USD) was 9.4% over these ten years versus 5.5% in the UK, 7.6% in France and 6.7% in Germany. Its absolute growth was 116% over the period, versus 53% in the UK, 88% in France and 74% in Germany.

Capgemini and Merrill Lynch World Wealth Report 2011.

In 2012, some 16 billionaires were mentioned in the Forbes annual list of global billionaires, including at least two well-known art collectors.

The information on the relevant Spanish taxation laws and regulations was kindly sup-plied by Eva Lasuncion Patus, an expert on art tax law at Ernst and Young in Barcelona.

The sufficiency of the work’s quality and its valuation for the purposes of donation must be certified by the Board of Classification, Valuation and Export of the Ministry of Culture (or where applicable that corre-sponding to the Autonomous Community).

These rates are being changed in the 2012 taxable year for the following ones: 21% for up to €6,000. 23% for €6,000 to €24,000 and 27% for over €24,000.

The new legislation is set out in the Royal Decree-Law 20/2012.

The minimum standard rate of 15% current-ly applies in Cyprus and Luxembourg. The highest rates of VAT are found in Hungary (27%) and Sweden and Denmark (25%).

Another motivation for the subsequent introduction of ARR in Europe was to remove the perceived inequity vis-à-vis authors and composers, who profit from increased value of their works through increased sales or performances of their works through various copyright laws. This belief was unfounded, however, as musicians and other artists ben-efit from performances of their work, not its increased value. The relevant analogy is that of a composer who, unlike an artist, does not gain the main economic benefit from selling the score of their new work, but from its performance. There is therefore no inequity between composers and artists, since the equivalent of a performing right for artists is copyright on the reproduction of an artist’s work which is already in place.

A Bill was proposed in the US in December 2011 to amend the US Copyright Law to in-clude resale rights for living artists, however it has been referred to Committee and is still not likely to be passed in the near future.

From the Spanish Response to the European Commission’s Consultation on the Resale Droit de Suite Directive.

That is, removing those that replied that it had “no effect”.

A new Royal Decree implementing article 10(3) of Law 10/2010 will lower the threshold to €1,000 in future.

Global comparators for employment in the art market are taken from McAndrew/ Arts Economics (2012).

Statistics on the general labour force in Spain are taken from the Economically Active Survey 2011 of the Instituto Nacional de Estadistica (INE).

Statistics on the cultural sector in Spain are from Ministerio de Cultura’s annual Compendium of Statistics (Anuario De Estadísticas Culturales 2011).

Estimates based on data from the INE’s Annual Average Wage Survey and Eurostat SILC database.

Ministerio de Cultura’s annual Compendium of Statistics (Anuario De Estadísticas Culturales 2011).

Instituto de Estudios Turísticos.

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Avda. Diagonal 62108028 Barcelona (España)[email protected]

the spanish art market in 2012

Documents

spanish fine art market

vat7 art

art industry

spanish wealth context

spanish trade

spanish artmarket

key findings1 art market

art imports exports