TheArtLawReviewEdition1-1

Russia

If a piece of art is being exported by natural persons for private use, a licence is not required; nevertheless, it is necessary to provide a permissive document issued by a corresponding body of the state in the territory of which a declarant is registered (the Ministry of Culture).

Transfer of art objects over the state boundaries of the Russian Federation to or from countries that are not members of the EAEU is regulated by Law No. 4804-1 (revised on 28 December 2017).

Meanwhile, the Law differentiates the notions of cultural objects and cultural objects of special value. The difference is that free export of cultural objects of special value is prohibited from the territory of the Russian Federation without obligations on reimportation.

Criteria of classification of movable objects as cultural objects and classification as cultural objects of special value are provided in Decree No. 1425, of 14 September 2020, approved by the government of the Russian Federation. The document becomes valid on 1 January 2021.

When entering into an agreement, parties may independently define the applicable right for the entire agreement as well as for its parts. In the absence of such an agreement, parties apply the right of the country that is the residence or main place of activity of the party executing the agreement at the moment the agreement is concluded. For sale and purchase agreements, it is defined that such a party is the seller.

The term ‘tax resident of the Russian Federation’ is defined in the Tax Code as any natural person physically in the Russian territory for not less than 183 calendar days during 12 consecutive months. Therefore, the status of resident is assigned to a foreign citizen who has lived in Russia for the stated period of time.

Residents and non-residents pay taxes on income of natural persons obtained from the sale of property, in particular artwork. If a piece of art was sold in Russia, the tax must be paid. However, the amount of tax is different for residents (13 per cent of income) and non-residents (30 per cent of income). In other words, if a foreign citizen who is not a resident sells a piece of art owned by him or her, in Russia, he or she pays 30 per cent of the obtained income. Tax is not collected from a buyer of art. If a resident (whether or not a Russian citizen) sells a cultural object in the territory of Russia, he or she must pay the relevant tax (13 per cent of his or her income). The 13 per cent tax is also paid by Russian residents for sales outside Russia. In 2021, the 13 per cent rate will increase to 15 per cent for natural persons whose income exceeds 5 million roubles.

If more than three years elapse between the purchase and the sale of an art object, the income of the seller (natural persons) is exempted from taxation.

For a certain category of Russian and foreign legal entities making deals on disposal of property, the Tax Code defines the obligation on payment of income tax at 20 per cent.15 To avoid double taxation, the government and several foreign states have concluded corresponding double taxation agreements (of avoidance). Such agreements are applied to persons who are residents of one or both states party to the agreement, and relate to taxes

defined in the text of such agreements.

If cultural objects were purchased abroad, a buyer is exempt from VAT on import to Russia, irrespective of the status of a declarant and the purpose of the importation, including

15 Chapter 25 of the Tax Code.

287

© 2021 Law Business Research Ltd

Russia

for resale in Russia. The only condition for obtaining this benefit under the law is verifying the status of a piece of art by providing customs bodies with an expert statement containing conclusions on classifying such object as having cultural value.

iv Art finance

The Russian art market has not yet been developed to the level of a professionally structured finance market; therefore, purchases are made by buyers’ personal funds. Corporate collections do take place in Russia; large corporations and banking institutions historically invested in contemporary artists, although this is no longer the case due to the economic situation.

Loans secured by art are not common in Russia; however, there are a few professional art pawnshops. The process combines art appraisal and expertise provided by duly licensed third-party companies. Provenance verification is usually carried out either by experts or dedicated law firms.

Only a few insurance companies provide art insurance in Russia due to the comparatively small art market and the low number of players in the market. However, insurance companies are naturally involved in shipment services for art.

There are some art investment advice companies operating in Russia, which mostly deal with private individuals, private banking or family offices. Hence, the demand and the market volume has significantly decreased because of the covid-19-related economic crisis. Personal shopping services are not popular in Russia; these services, as well as curators’ services, mostly depend on personal relationships between art experts and their clientele.

In 2018, the EU tightened its anti-money laundering rules, directly targeting the art market by adopting Directive (EU) 2018/843. This signified the development of a global trend to enhance financial transparency in the art market. In January 2020, the new rules took effect in all EU countries. The Russian Federation legislation for anti-money laundering has been developing in line with global trends. In Russia, statutory provisions targeting anti-money laundering can be found in the Federal Law on Anti-Money Laundering and Countering Terrorism Financing (the AML Law) and in the Criminal Code. The AML Law is complemented by multiple regulations and by-laws issued by the Federal Financial Monitoring Service, the Ministry of Finance, the Bank of Russia and other governmental authorities. The AML Law specifies that measures against money laundering can also be found in other federal laws, including, but not limited to, laws on investment funds and non-profit organisations. Under the AML Law, due diligence for both legal entities and physical persons must be undertaken: companies, irrespective of their size, are to implement policies, procedures and controls, including KYC and supplier due diligence procedures.

The AML Law does not currently address specific issues in terms of the art market and artwork circulation. However, a number of Russian legislative acts provide that, among the business activities in which a client can be assigned ‘high risk’, are activities related to the sale, including commission, of art, antiques, furniture, cars and luxury items. Resolution No. 32 of the Plenum of the Supreme Court of the Russian Federation on judicial practice in cases of legalisation (laundering) of funds or other property acquired by criminal means, and on the acquisition or sale of property knowingly obtained by criminal means, dated 7 July 2015, classifies the sale of artworks and antiques as an activity with a high risk of money laundering.

288

© 2021 Law Business Research Ltd

Russia

VI ARTIST RIGHTS

i Moral rights

Since 2008, all the general provisions regulating legal relations in the sphere of intellectual property and exclusive rights have been defined in Part 4 of the Civil Code. Moral rights of authors of art, despite not being named so in the applicable Civil Code, are personal non-material rights, and include:

aright to being admitted as an author of an object (right of authorship);

bright to name, which means right for free use or permission to use an object or work under one’s name, under a pseudonym or anonymously;

cright to sanctity of an object or work – prohibition of amending or corrupting an object is reflected as a right of an author to the sanctity of works; and

dright for publication of a work. Meanwhile, an author may independently bring his or her new work into the world, and transfer this right under an agreement to another person, simultaneously with a disposal right.

Such rights cannot be alienated and are protected for an unlimited period. Waiving such rights is nominal. In practical terms, this means that transfer of right of ownership for a material carrier, in which a result of intellectual activity is expressed, does not lead to loss of personal non-property rights of authors of art objects.

Any transformation of the result of intellectual activity that discredits the honour, dignity or goodwill of an author, as well as attempts of these, empowers an author demanding protection of his or her honour, dignity or goodwill, recovery of damage and compensation of moral damage.

ii Resale rights

Together with personal non-material and exclusive rights, authors of art objects own the resale royalty right. The resale right may not be alienated but transfers to heirs of an author for the period of validity of an exclusive right for an object.16 The Russian Supreme Court has also stated multiple times that the resale right is a part of inheritance.17

In the Russian legislation, the resale right is regulated by Article 1293 of the Civil Code. From 1 June 2018, amendments made to the Civil Code are valid. Subject to the last update, the right for obtaining profit as interest rate of the price of resale of the original work occurs for an author at each resale of an original, in which the auction house, art gallery, art

salon or shop participates as a mediator, buyer or seller.

Subject to the previously applicable revision of item 1 of Article 1293 of the Civil Code, an author of an original work of art may expect to obtain profit from resale only where a legal entity or sole proprietor acted as a mediator.

The above-mentioned legal entities or sole proprietors are obliged to provide data necessary for payment of reward immediately to an artist, or an organisation representing his or her interests. UPRAVIS organises and manages these rights on a collective basis for creators of fine art. Due to UPRAVIS’ active efforts, Russian artists and heirs of late artists obtain rewards for the resale of original artwork and other art objects.

16Item 3, Article 1293 of the Civil Code.

17See Decree No. 9 of the Plenum of the Supreme Court on judicial practice regarding cases of inheritance, dated 29 May 2012.

289

© 2021 Law Business Research Ltd

Russia

iii Economic rights

Subject to the Russian legislation, the following rights are recognised:

apersonal non-material rights of an author; and

bexclusive rights, which means material rights allowing an author of an artwork, a right holder and heirs that obtain material, to profit from using such right.

While personal non-material rights may not be alienated, the law provides the possibility of alienating exclusive rights.

The civil legislation defines that initially an exclusive material right for an art object arises in its author, and is valid throughout his or her life and for 70 years after his or her death. An author may decide how to dispose of his or her work appropriately: to conclude an agreement on alienation of an exclusive right for an artwork, or transfer to another person a certain amount of rights for use of an artwork (licence agreement).

Subject to the laws of the Russian Federation, a right of authorship and a right of an author to name (i.e., personal non-material rights) may not be alienated or transferred, including by inheritance. Nevertheless, an inheritance includes exclusive rights for an artwork and a right for obtaining profit from using the result of intellectual activity (resale right).

Heirs obtain the right for publication of an author’s works, if the latter had not made it himself or herself. Exclusions are cases when publication is prohibited by an artist himself or herself through a will or other certain written document.

Along with rights, heirs who accepted inheritance are also obliged to keep authorship and the name of the author. A testator may select a certain person who will bear this obligation, and state him or her in a will.

VII TRUSTS, FOUNDATIONS AND ESTATES

Russian Federation legislation on the holding and administration of art collections can be found in the Civil Code, the Federal Law on investment funds, the Federal Law on limited liability companies, the Federal law on the museum fund of the Russian Federation and museums in the Russian Federation and the Tax Code. Private and corporate collections can be found in Russia and collectors may choose the appropriate legal structure, depending on the purpose of collecting and the tax implications. Ownership and management of art collections can be achieved via direct ownership by either private or corporate collections, non-commercial organisation (fund, non-commercial partnership), closed investment fund of artworks, limited liability company or inheritance fund after death of a testator. There is no notion of trusts in Russian law, although many wealthy Russians still prefer trusts operating in foreign jurisdictions. However, before settling a trust outside Russia, the resident should consult the Tax Code provisions in respect of a controlled foreign company (CFC) and ‘controlling persons’. Such provisions apply to taxation of non-resident organisations or structures without formation of a legal entity under the control of Russian residents recognised as tax residents. Taxation of CFC profit is made indirectly, through the company’s founders and controlling bodies proportionally to their share of participation in the structure. Regarding foundations, the Tax Code does not provide peculiarities of taxation. Calculation and payment of taxes is regulated by general rules defined for non-commercial organisations (NCO). One of the main requirements stated for NCOs is to keep separate accounts for commercial and non-commercial activity.

290

© 2021 Law Business Research Ltd

Russia

Russian art collectors acquiring art abroad are to consider the UK Unexplained Wealth Order, which is a legislative initiative governed by the Proceeds of Crime Act 2002. Such orders can be initiated outside any civil or criminal case in relation to a lifestyle that appears to the competent authorities to be incompatible with the known, official level of income of a respective person. In parallel with the Order, there is a procedure for freezing funds in bank accounts, personal property, etc., for which, again, only reasonable suspicion is required.

Russian law does not contain special provisions regarding the inheritance of artworks and art collections. Nevertheless, for estate planning it is worth seriously considering having a full inventory of inherited property, including works of art and cultural property.

In accordance with Russian civil law, inheritance is carried out by will, by inheritance contract and by law. Since 1 September 2018, the provisions on the inheritance fund have been in effect. With the help of the inheritance fund set after the death of the testator, it is possible to exclude the negative fragmentation of assets, as well as separating the collection from the business assets and preserving it, setting charitable aims. The fund can be established for a specified period or indefinitely in accordance with the terms of fund management. To set up an inheritance fund, it is necessary that the will includes the testator’s decision on the establishment of the fund and the charter of the fund, as well as the conditions for managing the fund.

Since 1 June 2019, inheritance provisions have been complemented with the joint will of spouses and any inheritance contract.

In Russia, the freedom of will is limited by the rules on the compulsory share attributed to certain persons, despite the will. Minors or disabled children of the testator and his or her disabled spouse or parents, as well as disabled dependents of the testator, can apply for the compulsory share; the latter, regardless of the content of the will, inherit at least half of the share that would be due to each of them in the case of inheritance by law.

There is no inheritance tax; pursuant to Article 217(18) of the Tax Code, income in cash and in kind received from individuals by way of inheritance is not subject to taxation (exempted from taxation), with the exception of remuneration paid to heirs (successors), authors of works of science, literature or art, and remuneration paid to the heirs of patent holders of inventions, utility models and industrial designs.

VIII OUTLOOK AND CONCLUSIONS

The art market in Russia clearly has a potential that is dependent on alteration of the legislation. Remaining closed for export and import, the market has obvious restrictions in terms of development of the private sector.

The release of Second World War art pieces will be resolved sooner or later as the dialogue at a government level continues.

291

© 2021 Law Business Research Ltd

Chapter 25

SPAIN

Rafael Mateu de Ros and Patricia Fernández Lorenzo1

I INTRODUCTION

The Spanish art market, with a sales value of almost €400 million, represents 2 per cent of the EU market and 1 per cent of the global art market. Spain is the fifth-largest contributor to the EU art market (behind the UK, France, Germany and Italy). With 650 art galleries and 50 active auction houses, it is estimated that 80 per cent of sales are made through the gallery channel and 20 per cent through auctions. Art fairs currently account for 40 per cent of gallery sales. Online sales have grown in recent years but represent less than 7 per cent, although it remains to be seen how this parameter will evolve as a result of the coronavirus pandemic. The sale prices of works of art and antiques are relatively lower than those of the surrounding countries. The cancellation of fairs, gallery closures and capacity limitations during the pandemic have had a strong effect on the Spanish art market, which is facing the challenge of reorienting its strategies and expanding its reach.

The resolution of disputes in contracts of sale of works of art, when between individuals, is governed by the general regime of the Civil Code and the Law on Civil Proceedings. This legislation also applies to transactions between professionals in a subsidiary manner to the Commercial Code, but if the buyer is a consumer, the special regime of the Retail Trade Law,2 designed, in principle, for auctions and extending to any sale of works of art to the public, must be taken into account. For the interpretation of contracts for the sale of works of art, case law refers to the principle of good faith and the standard professional practice in Spain.

With regard to transactions in cultural goods, the Spanish Historical Heritage Law3 is protective with regard to the classification of goods that form part of the Spanish historical heritage and the granting of export permits. Competencies are shared between the state and the regional governments. The public administration has a pre-emptive right to buy the works of art classified as assets of cultural interest and the goods whose exportation permission has been refused under the Spanish Historical Heritage Law. Owners of works of art must notify the public administration of their intention to sell the artwork, specifying the price and conditions of the transaction. Within a maximum period of two months, the public administration must inform the seller if the right of pre-emption will be exercised. In the case of sale at auction, the auctioneers must notify the competent administrations, within four to six weeks of auctions in which they intend to sell any object belonging to the Spanish historical heritage. The public administration may exercise the right of first refusal

1Rafael Mateu de Ros is a founding partner and Patricia Fernández Lorenzo is a consultant at Ramón & Cajal Abogados.

2Law No. 7/1966.

3Law No. 16/1985.

292

© 2021 Law Business Research Ltd

Spain

by the appearance of a representative of the Ministry of Culture in the auction. The right of withdrawal can be exercised when the private sale of any object belonging to Spanish historical heritage has not been correctly communicated to the state. This right must be exercised within six months of the sale being officially announced.

The Spanish Historical Heritage Law is in the process of being amended and the amended version is expected to be published in the first half of 2021. The new law will provide a unified regulation of cultural heritage, intangible treasures and industrial patrimony. It is hoped that some restrictions, such as the tax on exports of cultural goods outside the European Union, will be abolished or reconsidered.

II THE YEAR IN REVIEW

During 2020, the Spanish art market encountered some interesting matters:

athe effects of the new requirements concerning provenance and transparency before providers and clients derived from the EU Fifth Anti-Money Laundering Directive (5AMLD).4 5AMLD will soon be fully transposed into Spanish law; and

bthe consequences of the lockdown that the global pandemic has generated in all economic sectors, including art galleries and auction houses, specifically in terms of the regular development and execution of transactions and contracts related to the selling, loaning, deposits and insurance of works of art. Some signs of a partial market recovery can now be seen.

IIIART DISPUTES

i Title in art

The title of ownership of a work of art is acquired, in the first place, by transfer of possession of the work,5 although the Spanish system also contemplates transfers made by means of a symbolic delivery as valid, such as the delivery of the keys of the premises where the work is located.6 For greater security, a deed of sale can be made public. The Spanish system also establishes the acquisition of title by usucapion or acquisitive prescription in such a way that public, peaceful, uninterrupted possession of the work of art during the periods established by law confers the title of ownership on the holder. In ordinary usucapion, the law establishes a period of three years of possession to acquire ownership of the movable property when there is good faith and fair title in the acquirer. Extraordinary usucapion occurs when there is neither good faith nor fair title in the acquirer, who obtains ownership of the property after a six-year period has elapsed.7 Usucapion does not apply if the possession originates from an illicit or criminal action. The claimant will have to reimburse the possessor the amount paid for the artwork.

Neither the buyer nor the seller is obliged to conduct due diligence enquiries. Usually, the buyer carries out a legal due diligence on the ownership of the object, to establish whether it is free of encumbrances and its authenticity and provenance.

4Directive (EU) 2018/843.

5Article 1462 of the Civil Code.

6id., Article 1463.

7id., Article 1955.

293

© 2021 Law Business Research Ltd

Spain

ii Nazi-looted art and cultural property

There are no specific rules within the Spanish legal system for Nazi-looted art, so the rules of acquisitive prescription of the Civil Code are applicable (see Sections III.i and III.iii). Furthermore, there is no specific body to hear claims of Nazi-looted art.

The Cassirer v. Thyssen Bornemisza Foundation case, decided by the Court of Appeal of the State of California in application of Spanish law, has recognised the ownership of Camille Pissarro’s painting, Rue Saint-Honoré, dans l’après-midi. Effet de pluie, by the Spanish public collection at the Thyssen Bornemisza Museum, despite the fact that it was proven to be stolen by the Nazi regime from the Jewish Cassirer family.8 The application of the statute of limitations on acquisition of the Spanish Civil Code, the measures of diligence taken by the Spanish government in relation to the acquisition of the collection from Baron Thyssen and the non-binding nature of the Washington Principles of 1998, which have not been developed into a specific Spanish law, have led the judge to reject the Cassirer family’s claim. Nevertheless, the sentence confirms some kind of ‘moral condemnation’ against the Thyssen Bornemisza Foundation, according to the Washington Principles.

iii Limitation periods

In Spain, the limitation period for the action to claim is six years from the loss of possession of the property, unless the possessor had acquired the property title by means of usucapion (i.e., three years with good and fair title possession or six years without good faith or fair title).9 However, in the case of theft or robbery of the work of art, the acquisitive prescription cannot be effective in favour of those who stole or robbed, nor in favour of accomplices or accessories after the fact.10 In such cases, the statute of limitations does not expire after six years for actions to claim damages nor for actions to demand civil liability, born of the crime or misdemeanour. Therefore, when the heirs of the legitimate owner of a stolen or misappropriated work of art file a claim, the judge may consider that the six-year period for filing an action begins to run from the moment they have become aware of the location and identity of the illegitimate holder.

Furthermore, statutory limitations cannot be applied to crimes qualified by the Spanish Criminal Code as genocide, crimes against humanity, crimes against protected persons, assets acquired in armed conflicts or piracy.

iv Alternative dispute resolutions

The mediation system is barely used in Spain for the resolution of disputes. Law No. 5/2012 on mediation establishes the voluntary option of resorting to mediation in a series of civil and commercial matters and is currently being reformed through the 2019 draft law on the promotion of mediation, which is pending approval. There is no specialised institution for the mediation of disputes related to art matters. Arbitration is applicable for solving private disputes but conflicts with the government are out of the scope of the Law.

8Judgment of 18 August 2020.

9Articles 1962 and 1955 of the Civil Code.

10id., Article 1956.

294

© 2021 Law Business Research Ltd

Spain

IV FAKES, FORGERIES AND AUTHENTICATION

There are two possible legal pathways when dealing with fakes and forgeries, depending on the quality of the contracting parties: for transactions between merchants and private individuals, the Civil Code or the Retail Trade Law applies and, for transactions between art dealers, the Commercial Code applies. The Civil Code protects the purchaser, but in practice courts adopt a very strict approach when determining the satisfaction of the requirements for granting nullity, namely with regard to the excusable nature of the error, which ultimately means that in many cases the judicial practice fails to grant such protection. Pursuant to Article 1266 of the Civil Code, which regulates material error in contracts and its effects, the purchaser of a forgery or of an artwork whose provenance, authorship or value has been falsely determined can contest or void the sale by producing evidence of the following:

afirst, that the buyer has been falsely misled with regard to the authenticity or the features of the artwork;

bsecond, that the buyer’s defective consent was crucial to the acquisition (i.e., had the purchaser been aware of the forgery, he or she would not have entered into the contract); and

cfinally, that the buyer’s lack of awareness of the forgery is excusable because even through diligent actions (e.g., requesting an expert opinion), the forgery could not have been identified at that moment.

The action for annulment of the contract in cases of error has a time limit of four years from its execution, and the parties must reciprocally return to one another the assets that constituted the subject matter of the contract, including refunding the price to the purchaser.11 It is possible to resort to the application of the Retail Trade Law, which contemplates the specific case of public sales of works of art that, by establishing for the seller (whether it is an auction house or an art gallery) the legal obligation of providing a truthful description of the item, with identification of whether their qualities are true or, simply, assessed as being such (or not) by a certain expert,12 which makes the seller the guarantor of the quality of originality of the authorship of the work of art when it is sold as such.

In commercial law, the main focus is the protection of the seller (to the detriment of the purchaser) because the agreement is interpreted in accordance with the ‘custom of trade’. In view of the above, the purchaser of a forgery or of an artwork whose features have been erroneously determined can only be effectively protected against such eventualities when it has been so agreed, which is usually the case for artworks acquired in auction where the auction house guarantees the authenticity of the work.

VART TRANSACTIONS

iPrivate sales and auctions

Generally, the main auction houses offer a post-auction private sales service but only a few offer items for private sale. The works of art sold in public auction cannot be challenged – unless there is bad faith conduct either from the auction house or from the buyer – by the previous

11Article 1303 of the Civil Code.

12Article 58 of the Retail Trade Law.

295

© 2021 Law Business Research Ltd

Spain

owner or authorities. There is an exception regarding goods declared by law as ‘out of commerce’ because they belong to the state or other public or semi-public institutions such as religious institutions.

Special rules are applicable to public auctions of works of art.13 The offer for sale in public auction must include an accurate description of the relevant goods, including a reference to whether the specified features are certain or merely estimated, or if they have been assessed by an expert. In particular, where the object for sale in a public auction is an imitation, or a piece that appears to be a precious object but in reality is not, this fact must be expressly disclosed publicly, as well as in any invitations for bids. This obligation will also apply to the sale of works of art that are offered to the public other than in public auction.

Law No. 43/2007 for the protection of consumers in purchases of goods with an offer of restitution, will apply to the legal relations between the consumers and the businesses or professionals engaging in the sale of works of art, antiques, jewels and other goods, with the offer to return at a later stage, in one or several instalments, all or part of the purchase price settled by the consumer or an equivalent sum, with or without a provision for the appreciation of the amounts involved. Distance and off-premises sales, in which the purchaser is a consumer, are regulated by the applicable provisions of the Consumer Defence Act.14 Contracts concluded by electronic means are governed by the rules on distance contracts and by Law No. 34/2002, on information society services and electronic commerce.

Pursuant to the Retail Trade Law and the Consumer Defence Act, the consumer shall have a period of at least 14 calendar days, counted from the date of delivery of the goods, to withdraw from the contract. In distance and off-premises contracts, with the exception of contracts concluded at a public auction, the consumer will also have the right to withdraw from the contract within a period of 14 calendar days without giving any reason and without incurring any costs other than as specified below. The withdrawal period shall expire after 14 calendar days from the date on which the consumer, or a third party other than the carrier and indicated by the consumer, acquires physical possession of the goods.

ii Art loans

In 2011, Spain decided to accede to the United Nations Convention on Jurisdictional Immunities of States and their Property (2005). In 2015, Spain incorporated Law No.16/2015 on the privileges and immunities of foreign states, which regulates the immunity of foreign states from jurisdiction and execution, closely following the United Nations Convention.

iii Cross-border transactions

Licensing regulation for exports of cultural goods is regulated in the Spanish Historical Heritage Law. Cultural goods are structured in three levels according to their relevance, which directly affects the restrictions imposed on their movement and the obligation to apply for the corresponding export permit:

aproperty of cultural interest: non-exportable goods that can only be exported temporarily upon request to the Ministry of Culture;

bgeneral inventory of movable goods: the exporter must always apply for an export permit regardless of the age of the goods; and

13id.

14Royal Legislative Decree Law No. 1/2007.

296

© 2021 Law Business Research Ltd