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Insights

08 January 2021

Brexit Deal: Impact on the UK Art and Luxury Market

Background

After four years of negotiations, on 30 December 2020 Parliament approved the long-awaited Trade and Cooperation Agreement (the Agreement), just one day before the end of the Brexit transition period. The Agreement, running to 2,000 pages, covers in detail arrangements for the trade in goods and services, movement of people across the EU-UK border and the framework for legal cooperation between the EU and UK. The Agreement came into effect on 1 January 2021, after the UK formally left the EU’s single market and customs union.

Detailed official guidance is expected on the practicalities of compliance with the Agreement in the forthcoming days and weeks, but in the meantime, what follows is our own high-level analysis of key aspects of the Agreement and how they will impact our clients that operate in the UK’s art and luxury market.

Movement of Goods

The Agreement forbids the imposition of tariffs, quotas, and import/export taxes at the UK-EU border. There will however be new customs and regulatory checks that are likely to cause delays and friction when moving artworks across the border, especially in the first few months of 2021.

From 1 January 2021, Arts Council England (ACE) will no longer issue EU export licences, and exporters will instead have to apply to ACE for a UK licence. No licence will be required to move works between Great Britain and Northern Ireland, and EU licences issued before 1 January 2021 will still be valid for export at UK borders.

Temporary EU export licenses will also remain valid for their duration, and can be extended (but only once). Temporary exports of cars and musical instruments previously covered by a Specific Open Licence will be covered by the UK Open General Export Licence for export to any destination, so there is no need to apply for an individual licence.

Movements of goods solely for the purpose of repair will not be subject to customs duties. Art restorers can therefore continue to make use of the Inward Processing Relief (IPR) regime, which allows for material alteration of imported goods (something prohibited under Temporary Admission).

The IPR regime does not however apply to goods imported in bonds or free trade zones that are then exported for repair, but not re-imported back into the respective bonds or free trade zones.

The UK and EU have committed to regulations concerning endangered flora and fauna by restricting their trade in line with the multilateral Convention on International Trade in Endangered Species of Wild Fauna and Flora 1973 (CITES) that both are a party to, which, along with the UK’s Ivory Act 2018, remains in place.

Value Added Tax (VAT)

VAT

Although exports are zero-rated under the Agreement (subject to proof of export), EU collectors wishing to purchase works of art or other luxury goods in the UK will incur import VAT at their respective country’s VAT rate.  Some current EU VAT rates are as follows:

EU Country

VAT Rate

Germany

7%

France

5.5%

Spain

10%

Italy

10%

The Netherlands

9%

As a result, art sales within the EU (and particularly France) may become more attractive.

Temporary Admission Authorisation (TA)

Art and antiques businesses are expected to continue to use the TA scheme, whereby import duties and taxes are not charged on works of art, musical instruments and other items imported temporarily for tours or display at fairs or exhibitions, on condition that these items are re-exported within two years of import and a proof of export is obtained. For the temporary admission of goods, an ATA carnet will continue to be issued.

VAT Margin Scheme

The VAT Margin Scheme only requires VAT to be accounted for on the profit margin of qualifying second-hand goods (including works of art, certain collectables and antiquities over 100 years old), rather than on the full sales price. This benefit will be lost for transactions involving EU sellers. As a result, UK purchasers will be required to account for UK VAT on a purchase as an import at the standard rate. Purchases will therefore now be 5% more expensive.

Deferring VAT

In order to reduce border congestion and help businesses with cash flow, the UK has introduced Postponed VAT accounting for shipments into the UK from the EU. Provided authorisation is granted, the importer defers the payment of VAT on the arrival of the goods with import duty being accounted for on the VAT return.

Authorised Economic Operator (AEO)

AEO certification demonstrates that a company’s role within the international supply chain is secure and that its customs controls and procedures are efficient and compliant. The Agreement provides for mutual recognition of AEO status, which means certain simplified customs procedures and waivers of certain obligations will be available for AEOs.

Movement of People

Free movement of people ended with the transition period. From 1 January 2021, all UK nationals who were already legal residents in the EU will retain the same rights they previously had, although they may need to comply with local registration requirements. The same applies for European citizens currently living in the UK, provided they obtain immigration permission through the EU Settlement scheme.

From 1 January 2021 UK nationals no longer have the same freedom to move to and start a business, work, study or live in the EU, and the same holds true for EU citizens looking to enter the UK.

Travelling for Holidays and Short-Term Stays for Business Purposes

The Agreements contain provisions on temporary mobility rights, but these are vastly limited compared to free movement and simply include a few more permissible activities for business visitors and create short term work visas for certain experienced workers and intra company transfers. The provisions relating to temporary business activities can be categorised into the following five areas:  

  1. Contractual Service Providers or “CSP”s
  2. Independent Professionals or “IP”s
  3. Intra-corporate transferees
  4. Business visitors for establishment purposes; and
  5. Short-term business visitors

Helpfully the agreement provides a definitive list of activities permissible under the short-term business visitor category. However, the precise eligibility requirements under each of the five categories differ slightly between Member States and, where differences exist, they are listed as country-specific ‘reservations’ within the relevant annexes to the agreement. It is therefore vital that UK business travellers check the domestic law of their destination EU country before carrying out any planned business visit.  Under the CSP, IP and intra-corporate category, permission must obtained in advance, which in effect means a visa application. 

Travel for holidays and short-term business visits remains visa-free (subject to certain exceptions). UK nationals will only need a visa for stays longer than 90 days in EU member states, in any 180-day month period. UK nationals will also need to make sure that they have at least six months left in their passport and should buy their own travel insurance.

Please contact us if you require more tailored guidance.

Long-Term Stays

From 1 January 2021, a new Points Based Immigration System will apply to EU citizens and non-EU citizens alike. Anyone wishing to come to the UK for work will have to meet a specific set of requirements based on skills and talent.  These changes will make it more difficult and costly to hire people from outside the UK’s borders.

Repatriation of Cultural Property

The UK decided not to proceed with the new EU Regulation 2019/880 on the Introduction and the Import of Cultural Goods, which prohibits the introduction of non-EU cultural goods into the customs territory removed from the country they were created in breach of the laws of that country. This means that high-risk objects (such as art, antiques and books more than 250 years old) will require an import licence to enter the EU, but now not to the UK.

The Agreement, however, provides that the UK will continue to work with the EU to facilitate the return of cultural property illicitly removed from the territories of either side, having regard to the principles enshrined in the 1970 UNESCO Convention.

This covers cultural property, which has been:

a) removed from the territory of a Party on or after 1 January 1993 in breach of that Party’s rules on the protection of national treasures or in breach of its rules on the export of cultural property; or

b) not returned at the end of a period of lawful temporary removal or any breach of another condition governing such temporary removal, on or after 1 January 1993.

Although the UK no longer participates in EU security agencies and access to the Schengen database ceases, the Agreement puts in place arrangements for strong cooperation between national police and judicial authorities of the UK and EU member states. Cooperative relations between Europol, Eurojust and the competent authorities of the UK will continue to strengthen action in preventing and combating crime and terrorism, including the illicit trafficking in antiques and works of art.

Digital Trade

The Agreement contains provisions aimed at facilitating digital trade and ensuring an open and secure online environment for businesses and consumers. The Agreement includes online consumer protection provisions giving consumers strong protections when engaging in e-commerce transactions. These include measures against unsolicited direct marketing communications.

Neither the UK nor the EU will discriminate against electronic signatures or electronic documents on the basis that they are in digital form. The Agreement ensures that contracts can be completed digitally, with a small number of exceptions (such as contracts that require witnessing in persons or contracts of collateral securities furnished by persons for purposes outside their trade, business or profession).

This is especially relevant bearing in mind auction houses’ and galleries’ move to online sales during (and, we expect, after) the Covid-19 pandemic.

Intellectual Property (IP)

The Agreement largely maintains the current EU levels of IP protection as a base line to which both the UK and EU remain committed, rather than introducing new measures. As such, international treaties such as the Berne Convention for the Protection of Literary and Artistic Works, the WIPO Copyright Treaty and the Agreement on Trade-Related Aspects of Intellectual Property Rights remain in effect.

Under the Agreement, each Party is required to adopt or maintain procedures under which right holders may submit an application to a competent authority take action in relation to goods, which are suspected of infringing IP rights. This means that custom authorities will play a vital role in detecting and enforcing cross-border breaches of IP rights.  

Copyright

The Agreement leaves the UK and EU free to determine the specific conditions under which copyright protection is conferred, provided they observe the minimum standards. These include adhering to the minimum duration of copyright (life of the author plus for 70 years). for the UK or EU is free to decide on longer terms of protection, though there is no indication this might happen.

Artist’s Resale Rights (ARR)

ARR is retained by Article IP.13 and the Agreement makes no changes to the regime.

Trademarks

The territorial coverage of EU trademarks (EUTMs) will no longer include the UK. Instead, the UK is putting in place a system to provide alternative UK protection to current EUTM protection in the UK.

Data Protection

The Agreement does not cover the vast flows of personal data between the UK and EU. Data transfers are authorised to continue during a six-month grace period pending the EU’s adequacy assessment of the UK’s data laws. The EU Commission intends to issue its decision in early 2021. Provided the EU deems the UK’s data protection regime equivalent, this should allow the continued transfer of personal data between the parties. In the meantime, there will be no change to the UK’s data protection standard and the GDPR will be retained, alongside the Data Protection Act 2018.

Anti-Money Laundering (AML)

The UK’s implementation of the EU’s Fifth Anti-Money Laundering Directive came into force in January 2020, significantly capturing “art market participants” in its purview. Article LAW.AML.127 in the Agreement deals with AML, and as expected does not indicate that there will be any deviation between EU and UK AML requirements, laws or approaches. To the contrary, the Agreement aims to strengthen EU and UK AML action, providing for cross-border cooperation and information exchange, and both the EU and UK committed in the Agreement to reviewing their respective regimes regularly with a view to enhancing their efficacy.

To that end, we predict that trade in classic cars, jewellery, musical instruments, and possibly antique furniture – currently excluded from AML requirements due to quirks in the UK’s VAT regime – will ultimately fall subject to AML obligations and so clients may be wise to start putting in place better protections and customer on-boarding processes in anticipation.

Dispute Resolution

The Agreement does not address cooperation on cross-border civil litigation, with Brexit mainly affecting disputes where one party is based in the UK, and the other in the EU.

The UK is waiting to find out whether it can accede to the Lugano Convention (which it was previously a member of by virtue of its EU membership), which governs reciprocal enforcement of judgments originating in jurisdictions which are signatories to the Convention. If the UK’s accession is approved uncertainties on the recognition and enforcement of UK judgments in EU member states stemming from the fact that from January 2021 the UK is not governed by the Recast Brussels Regulations will be greatly mitigated.

For cases commenced prior to 1 January 2021, the European regime (i.e. the Lugano Convention and Recast Brussels Regulation) will continue to apply, both as to matters of jurisdiction and enforcement.

For cases commenced from 1 January 2021 onwards, if there is an ‘exclusive jurisdiction’ agreement between the parties and the chosen court is a contracting party to the Hague Convention (which includes all EU member states), the 2005 Hague Convention (which determines which jurisdiction’s courts will take a dispute forward) will likely apply.

In the absence of this, decisions on the jurisdiction and enforcement of disputes will fall to domestic law. This could potentially cause difficulties when trying to enforce judgments, for example relating to breached contracts and unpaid debts.

We would advise clients to review jurisdiction clauses in current contracts and insert an ‘exclusive jurisdiction clause’ if there is not one already. Such is clause is likely to be respected by the courts of most jurisdictions.  

Trade in Wine

While there are no initial tariffs at the EU-UK border, both sides to the Agreement reserved the right to impose tariffs in the future should goods fail to meet local content requirements. This is potentially relevant to the wine trade. The Agreement upholds the practices published by the International Organisation of the Vine and Wine (OIV) as the “relevant international standards”, and states that the EU and UK shall each authorise the importation of wine provided the wine is produced in accordance with the “product definitions” authorised in the EU and UK, and the oenological practices and restrictions established in the EU or UK in accordance with the relevant OIV standards

Resources

 

Topic

Website

1

Government Summary of the Agreement

https://assets.publishing.service.gov.uk/government/uploads
/system/uploads/attachment_data/file/948093/TCA_
SUMMARY_PDF.pdf

2

Link to the Agreement and related documents

https://ec.europa.eu/info/european-union-and-united-kingdom-forging-new-partnership/eu-uk-withdrawal-agreement_en

3

Government guidance: exporting or importing objects of cultural interest from 1 January 2021

https://www.gov.uk/guidance/exporting-or-importing-objects-of-cultural-interest-from-1-january-2021#exporting-objects-of-cultural-interest-from-great-britain-from-1-january-2021

4

Arts Council England export licensing page (including link to ‘EU Exit FAQs’)

https://www.artscouncil.org.uk/export-controls/export-licensing#section-1

5

Government guidance on importing and exporting wine from 1 January 2021

https://www.gov.uk/guidance/importing-and-exporting-wine-from-1-january-2021

6

Government guidance on the UK’s points-based immigration system

https://www.gov.uk/guidance/the-uks-points-based-immigration-system-information-for-eu-citizens

7

Government guidance on cross-border civil and commercial legal cases

https://www.gov.uk/government/publications/cross-border-civil-and-commercial-legal-cases-guidance-for-legal-professionals

 

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