Resale Royalty Right for Visual Artists

The Australian Government in 2007 made an election commitment to introduce a resale royalty right for visual artists. A resale royalty, also called a droit de suite, entitles an artist to receive a royalty payment from subsequent sales of his or her artwork. The government argued that Aboriginal artists in particular will benefit from this resale right.

A resale royalty for visual artists has been debated in Australia for many years, with varying levels of support. It currently exists in up to 50 other countries (estimates vary). The idea of a resale royalty for the benefit of Australia’s Indigenous artists was proposed by ATSIC in 1997 and endorsed in 1998 by the Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS).

Royalty schemes in other countries vary in content and coverage. Some countries have a flat royalty rate (France and Germany) while others have a sliding scale (Belgium). Some countries have thresholds before the rate takes effect (United Kingdom) while others impose the royalty on the increased value of the artwork (Italy and Brazil). Some schemes only cover living artists (UK) while others cover the estates of artists up to 70 years after their death (France) (Source: House of Representatives Committee Report 2009).

Draft legislation was introduced into Parliament in November 2008 to create a resale royalty right in Australia and to establish a statutory scheme to enforce the right and collect and distribute royalties.

The legislation was passed by the House of Representatives on 8 September 2009 and comes into force on 9 June 2010.

The Australian scheme has the following features:

• $1000 threshold
• 5% flat rate
• Single collection agency
• No upper limit
• Does not apply to the first resale or transfer of artwork following the introduction of the scheme
• Does not include private sales between individuals, nor organisations not in the business of dealing in works of art
• Right continues until 70 years following the death of the artist

The resale royalty right will apply to the resale of all artworks acquired after the law comes into effect. Resales of existing artworks acquired after the right commences, including works by deceased artists, will be covered.

An example of the operation of the resale royalty has been given by the Commonwealth Arts Department:

In July 2011, a gallery owner negotiates with an Indigenous art centre the outright purchase of a range of works. One canvas is purchased for $10,000. The gallery owner puts the work up for sale at an exhibition in December 2011, and the canvas is purchased by an investor for $16,000. A royalty payment to the artist of $800 (less administration costs) is triggered as the gallery owner acquired the work following the introduction of the resale right.

Some of the important issues related to the resale royalty are discussed below.

Analysis of the draft legislation

The relevant House of Representatives Committee reported in February 2009 on the Bill establishing the resale royalty.

The Committee recommended that the Government should look further at Clause 11 which provides that the royalty will only come into force on the second and subsequent resales of art works. This was the main point of contention about the legislation, apart from those who oppose the whole concept.

The Government argued that Clause 11 is needed to ensure that the scheme does not operate retrospectively (and potentially encounter constitutional law difficulties). The Minister in announcing the scheme stated that it will operate only for future sales "to ensure that purchasers of artworks are aware at the time they make their purchase that a royalty may be payable to the artist if they choose to resell the work."

Critics of Clause 11 argued that by excluding existing artworks at the start of the scheme the effect will be to greatly reduce the number of artists benefiting and the value of royalties paid under the scheme. They believed that the exclusion would significantly reduce the royalties accruing to the current generation of artists.

The scheme includes all resales involving art market professionals, public institutions or organisations, and all resales subsequent to the first transfer of ownership, regardless of whether the first transfer was made by sale, gift or any other means.

The flat royalty rate of 5% is widely supported by those in favour of the scheme. A flat rate simplifies the scheme and avoids the complicated calculations necessary if a sliding scale is used.

Who benefits from the royalty?

A number of critics have claimed that the scheme will only benefit the most successful artists and their estates and there is some auction sales data to support this view.

In order to prevent any unintended consequences arising from the ‘secondary’ resale of Indigenous artwork, the Committee recommended that Indigenous art centres which pay their artists up-front for their work should be exempt from payment of the resale royalty for artwork purchased and resold within 12 months.

The government relied on modelling that was based on an assumption that all works resell at least once in a 10 year period. NAVA says that the government did not test this assumption against actual sales data and that few resales occur even within a 10 year period.

The Arts Law Centre of Australia and Viscopy both maintain that the average turnover of artwork is closer to 20 years. Analysis of the last 10 years’ auction sales by Viscopy shows that, for 94% of works, the period between resales is more than a decade: of works sold by auction in 1998, only 6% had resold by 2008.

If turnover of artwork is closer to 20 years, then the exclusion of existing artwork (clause 11) at the commencement of the scheme will result in only minimal benefits to most artists.

Other benefits from the royalty scheme

John Oster of Desart commented in evidence to the inquiry that:

"There will be now be a database that will be able to track the flow of works through the market, we’ll be able to see who is buying what and what they are paying for it. It’s not going to solve every problem that exists but the fact that there is more information in the market is going to help.”

The existence of this information will not only strengthen the operation of the royalty but also will be valuable for the operation of the Indigenous Art Commercial Code of Conduct.

Response to the Report by the Government

The Australian Government responded to the report of the House of Representatives Committee in late May 2009. Some of the recommendations of the committee were accepted but not all.

The Government considered the arguments in relation to Clause 11 but decided that: "If an artwork exists on commencement..., there is no resale royalty right on the first transfer of ownership of the artwork on or after commencement, even if the transfer of ownership is under a commercial resale."

This decision was made so that buyers of artworks are aware that a royalty may be payable if they choose to resell the work and to give the art market time to adjust to the scheme.

Another important issue was the possible exemption of the first resale under certain circumstances. The Committee report had recommended that Indigenous art centres which pay their artists up-front for their work should be exempt from the payment of the resale royalty for artwork purchased and resold within 12 months. The Government did not accept this recommendation on the grounds of administrative complexity and the fact that the $1000 threshold would eliminate many resales from qualifying for a royalty payment under the scheme.

Administration of the Resale Royalty

The Minister for Environment Protection, Heritage and the Arts has appointed the Copyright Agency Limited (CAL) to manage the resale royalty scheme.

The scheme will provide artists with a 5% royalty on commercial resales of $1,000 or more that occur after 8 June 2010. The sale price on the commercial resale of an artwork is defined as the amount paid for the artwork by the buyer on the commercial resale including GST, but does not include any other taxes or buyer's premium payable on the sale.

The royalty will apply to existing as well as new works, but will not apply to the first change of ownership after commencement, even if that is a resale.

CAL’s administrative fees will be 10% of the royalties collected. The Agency will set up two advisory panels – one representing artists and the other representing the art trade - to ensure that the administrative processes work with current industry practices.

Sellers, buyers, auction houses, commercial galleries and art dealers will be legally obliged to provide information to CAL about all commercial resales, including those that do not generate a royalty.

The information must provided to CAL, in writing, within 90 days of the resale. It must enable CAL to work out: whether a royalty is payable on the resale; the amount of the royalty; and who is liable to pay the royalty.

CAL envisages that the data collected under the scheme will be useful for other purposes, such as provenance.

CAL has provided fact sheets for artists and for the art trade.

Conclusion

The resale royalty right appears to be well supported in principle on the grounds that it extends to visual artists the right to gain extended benefits in their work which already exist for other artists.

The legislation has implications for both artists and sellers of artworks. Artists will need to become familiar with their rights and how the resale royalty operates. Dealers will also need to be aware of their obligations.

There are substantial practical issues for CAL to resolve about the way that the scheme is implemented. Parties to the commercial resale of an artwork are expected to work out who will actually pay the resale royalty. Sellers, buyers and art market professionals are jointly and severally liable to pay the royalty, so it will be important that buyers and sellers clearly record any agreement for the liability of payment of the royalty and that the collecting society CAL is notified each time a work is sold on the secondary market.

It appears that most Aboriginal artists are unlikely to gain much financial benefit from the scheme, apart from a very small number of the most successful artists or their estates, and there is some concern about the commercial impact of the scheme on some community-owned art centres.

On the other hand, the requirement for better and more transparent recording of initial and subsequent sale prices will be useful in supporting the operation of the Indigenous Art Code of Conduct.