The sale of a work of art by a natural person who does not trade in works of art is often treated as a tax-neutral act, on the argument that Greek legislation does not provide for a general capital gains tax on movable property. That premise is correct as formulated and insufficient as regards the conclusion drawn from it, since the taxation of any profit is not founded, in this instance, on a special rule concerning capital gains, but on the broader concept of the business transaction.
Under that concept, profit is taxed on every transaction carried out with a view to obtaining a profit, irrespective of the existence of any business organisation or of a declaration of commencement of activity. The tax administration has clarified, by way of interpretation, that works of art expressly fall within the scope of the rule, while no repetition of acts is required: subject to conditions, a single sale suffices.
The cases that are excluded
Two objective criteria are laid down, the presence of which excludes from the outset the characterisation of the sale as a business transaction, without the seller's intention being examined: acquisition of the work by inheritance or by gratuitous transfer from a relative of up to second degree, and its retention for a period exceeding five years.
The practical significance of these criteria is considerable, yet their application is not automatic. Both presuppose documentary proof of the time and the manner of acquisition, with the result that the exception becomes in practice a matter of evidence rather than of interpretation. It is not uncommon for a work to have remained in the possession of the same family for decades without any document capable of placing it in time.
The profit-seeking purpose as a question of fact
In the absence of an exception, what becomes decisive is whether, at the time of acquisition of the work, a profit-seeking purpose existed. This is a question of fact, falling within the auditing judgment of the tax authority and inferred from the circumstances in which the acts were carried out, in particular from the period elapsing between acquisition and sale in combination with the level of the price obtained.
The burden of proof lies in principle with the tax authority. Where, however, the systematic carrying out of transactions of a similar nature within a short period of time is established, the profit-seeking purpose is presumed in respect of each subsequent act and the burden is reversed to the detriment of the taxpayer.
Where that characterisation is upheld, the profit is taxed as income from business activity under the applicable progressive scale. Two consequences are systematically overlooked. First, the profit is taken to be the difference between the price and the substantiated acquisition value, which, if it does not appear from supporting documents, is deemed to be nil, with the result that the entire price is taxed. Second, the characterisation of the activity as a business one also draws in VAT obligations, together with penalties for failure to file a declaration of commencement of activity and to issue tax documents.
Substantiating the origin of the proceeds
The absence of a tax liability does not exhaust the seller's obligations. Irrespective of whether tax is due, the amount received must be substantiated and duly declared. A sum whose source is not proved may be characterised as an unjustified increase in wealth and taxed separately.
The relevant file comprises, as a minimum, the documents of the transaction itself, namely the consignment agreement and the detailed settlement statement of the auction house or, as the case may be, the sale agreement and the corresponding supporting document, the bank records of the payment received, and the documents of acquisition and provenance of the work. In the absence of a title of acquisition, prior possession may also be substantiated indirectly, in particular through insurance policies, photographic material, catalogues of exhibitions in which the work took part, restoration invoices, earlier valuations or expert reports, and relevant correspondence. That material serves at the same time the provenance check carried out by the auction house or the dealer before taking on the work, as well as the reasonable documentation requirements of a private buyer.
The private sale
The above applies irrespective of the manner in which the work is disposed of. The characterisation of the act as a business transaction does not depend on the intermediation of an auction house, but on the criteria set out above, namely on the manner and the time of acquisition and on the purpose served by the acquisition of the work. A direct sale to a private buyer, to a collector or to an institution, as well as a sale through a dealer or a gallery acting as commission agent, are treated in the same way.
It is advisable that a written sale agreement be concluded, identifying the work, the price and the time of delivery, that payment be made through the banking system, and that the buyer's identification details be retained.
The sale abroad
Carrying out the sale abroad does not differentiate the tax treatment in Greece, given that a Greek tax resident is taxed on their worldwide income. Double taxation treaties as a rule allocate the taxing rights over gains from the alienation of other property to the state of residence, while any tax withheld at source is credited against the domestic tax.
Certain jurisdictions nevertheless impose their own separate charges on sales of works of art carried out within their territory, with a scope of application that does not always coincide with the tax residence of the seller. It is advisable that this check precede the choice of the place and the manner of disposal of the work and the assumption of contractual commitments.
In conclusion
The tax treatment of the sale of a work of art by a private individual is determined by three parameters: the manner and the time of acquisition of the work, the ability to prove them in writing, and the overall picture of the seller's transactions. The question therefore shifts from the interpretation of the rule to the proof of the facts, which is where such cases are in practice decided.
In practice, the preparation of a sale requires these parameters to be assessed before the work is valued and not after the price has been received, as well as the coordination of the tax analysis with the other obligations triggered by the sale, in particular with the procedure for the export of the work from the country, the customs treatment of its return in the event that it is not sold, and the identity and provenance checks carried out by the counterparty or the intermediary. The order of the steps has independent significance, given that some of them must have been completed before contractual commitments are assumed vis-à-vis the buyer or the auction house.