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Concealed Masterpieces: The Intersection of Taxation and the Art Market

Posted on Sep. 26, 2022
Arielle Zhivko
Arielle Zhivko

Arielle Zhivko is in her second year at the Osgoode Hall Law School of York University in Canada and received her MA in art history from the University of Toronto in 2021. She thanks professor Ivan Ozai for his guidance, expertise, and encouragement.

In this article, Zhivko explores how the collection of art has morphed into a highly appealing outlet for tax evasion and avoidance and examines the evolution of art-related tax reforms and their adverse effects. She also weighs the global justice aspects of taxation and subsidies against the need for access to educational and cultural materials provided by art and museums.

This article was selected as the winner of Tax Analysts’ annual student writing competition.

Recent endeavors tackling tax evasion and avoidance have given rise to niche avenues for fraud to emerge. One such avenue has been the art market, which has materialized as a lucrative, ambiguity-ridden sector for those wishing to circumvent taxation. The art market has enabled the rise of free ports, like-kind exchanges, and fractional giving, which have functioned as effective tax loopholes. Although tax avoidance itself is not new, the advent of these new practices has dramatically raised the upper classes’ capacity to evade taxation at the expense of art’s accessibility and cultural significance. The importance of this precarious balance is not lost upon our popular cultural conscience — films such as Tenet have portrayed free ports as soulless vaults within which hide the very best works humanity has to offer. If you believe that art is meant to be experienced, then it is not difficult to perceive how this question of taxation transcends mere legal ownership and economic implications. Any discussion of the intersection between taxation and the art market is inextricably tied to art’s cultural significance and the moral question of its public accessibility that counterbalances an owner’s right to exclude and divide.

It may also be the case that these interests have benefited from one another. The ability to avoid tax has resulted in billions of dollars being poured into the art industry, and it is worth asking whether our art, art galleries, and museums would be as well maintained if this were not the case. The cultural and educational value that art possesses has benefited from an industry well-funded to meet those expectations. Even though much art remains hidden in free ports, there are also private owners who acquire these works for collections that are publicly displayed. In any case, much of this space remains unregulated, and investigation is warranted to determine the best arrangement between the interests of private owners, the public, and the state.

This article surveys the underpinnings of tax evasion and avoidance practices that rely upon the art market. In exploring how the collection of art has morphed into a highly appealing outlet for hiding assets, it examines the evolution of art-related tax reforms and their adverse effects. Brief consideration is also given to weighing global justice via taxation and subsidies against the need for access to educational and cultural materials provided by art and museums. This article demonstrates that tax evasion and avoidance through the art market is a live issue, affecting tax enforcement on an unprecedented global scale.

As a first step, this article explores the art market and its intersection with broad tax concerns, offering general insight into the private and secluded nature of the art market. Next, the core portion of this article lays out four mechanisms that are often abused for tax-related purposes and that circumscribe the prerogatives of the art market: deductions made under the guise of philanthropy, fractional donations, like-kind exchanges, and free ports. The article then surveys the detriments inadvertently caused by efforts to combat these four exploitative mechanisms. It then briefly surveys new forms of intangible art, such as non-fungible tokens (NFTs) and blockchain, which could easily tether themselves to tax fraud.

The final section of this article explores broader concerns about reconciling art, the market, and taxation. It looks at the arts’ role in relation to distributive justice pertaining to taxation and efforts to combat tax abuses. The constraints placed on these discussions hinge on the understanding that public access to art via institutions such as museums is a crucial underpinning of a globalized society. The public-facing function that is inherent in art, as well as its intrinsic value, furthers the notion that art and taxation can no longer be discussed, studied, or tackled in separate spheres.

I. The Art Market and Taxation

The traceable portions of the global art trade are valued at over $75 billion.1 Although this figure may seem minuscule in the face of other commercial industries, the unregulated nature of the art market means that it is a key stakeholder in the worldwide distribution of capital.2 Unlike in other sectors, there is no registry of ownership, leaving both the whereabouts of works and their owners entirely unknown.3 Also, upward of 50 percent of all art transactions are conducted privately, with auction houses appearing to be public-facing but concealing all information barring sales prices.4

This confidentiality, coupled with the exuberant monetary transactions involved, makes the art sector highly vulnerable to various unlawful activities.5 Those trends have led the market to be labeled a cult of secrecy, which is tailor-made for money laundering, tax evasion, and tax avoidance practices.6 Tackling the unregulated and secretive nature of the art market is no easy task. Historically, the minimal transparency of the art trade was rooted in societal image.7 Famous auction houses, such as Christie’s and Sotheby’s, were founded to create a discreet way for high-seated families to combat financial ruin through sales, while remaining anonymous.8 Buyers’ identities were also protected to preserve their reputations, preventing them from publicly profiting off the misfortune of their neighbors.9 As such, the confidentiality aspect of the art trade has been engrained into its accompanying market.

As the industry and its reputation for discretion has developed, so has the interest in art as a private investment commodity.10 The Deloitte Art and Finance Report noted that in 2014, upward of 76 percent of fine art buyers purchased pieces with investing in mind.11 With the growing instability of other financial assets, collectibles such as art have routinely outperformed stocks in the past decade on various valuables indexes.12 This breeds a new species of art collectors, who view Monet and Picasso in the same way they see Microsoft and Coca-Cola, “providing secure investments akin to blue-chip stocks.”13 It also indicates an increasing ideological trend toward the purchase of art as a financial commodity, without concern for its aesthetic or intrinsic value.14

These developments have sparked attempts to regulate the art market through taxation. Those reforms came with their own set of difficulties: for instance, regulators have found it difficult to distinguish between investors seeking tax benefits and true connoisseurs.15 Governments have attempted to mitigate how collectors may profit off their artistic property, but lawmakers inadvertently paved the way for underhanded alternatives.16 Although there are numerous avenues to abuse the art market for financial and tax-related purposes, this article focuses on the most common practices.

II. Mechanisms for Tax Abuse

A. Philanthropy’s Disguise

The first type of tax-related loopholes pertaining to the art market are various schemes of tax deductions offered for charitable donations to museums.17 These systems gained popularity in the United States and the United Kingdom under the assumption that these donations would either match or exceed the public funds from taxation and achieve the same public benefit.18 As a result, museums are granted an unusual standing under Anglo-American property law, which typically confers ownership of property to an individual and restricts long-term use of property.19 Museums, however, as institutional owners of property, are permitted special privileges and are often exempt from some income and tax expenses that would otherwise hinder catering to the public.20 For example, in the United States, art museums are tax exempt to foster their educational endeavors.21 This is where the semi-tolerance of tax-related schemes comes into play. Some governments recognize museums as institutions worthy of subsidizing with taxpayer dollars, and tax-related deductions help fuel various public policy initiatives.22

The advancement of these policy initiatives has given rise to three main subcategories of tax deduction methods: donations, like-kind exchanges, and fractional giving. Donations and gifts are historically the most common routes for tax deductions. In the United States, the IRS has deemed art donations and gifts deductible under the federal income, gift, and estate tax regimes. This allows donors to claim a full market value deduction for the artwork on their tax returns.23 A donor may also negotiate their donation as a gift through a contract, imposing conditions such as orders not to sell or display guidelines, in exchange for a deduction from income or transfer tax that does not deviate from the market value.24 This is not particularly unusual because “tax recognition for charitable gifts . . . is a standard feature of the income tax systems in member countries of the Organisation for Economic Co-operation and Development.”25

Unfortunately, museum donations evolved into an effective way to commit tax fraud, masking the perpetrators’ true intentions with the reputation of a museum.26 This scheme was first adopted by Robert Olson and Jonathan Markell of the Silk Roads Gallery in Los Angeles.27 In the early 1980s, Olson illegally imported Thai antiquities, including artifacts looted from Ban Chiang in Udon Thani, into the United States.28 Olson and Markell would then forge inflated appraisals and supply buyers with these artifacts.29 For a fee, the duo would then arrange for these buyers to meet with museum officials to donate an item and receive a tax deduction.30 This form of loophole is often referred to as an in-kind donation, and it creates an exploitative tax loop that was, at the time, hard to combat. Museum-based tax schemes thus became one of the earliest avenues to exploit art for tax purposes.

Perhaps the most famous scheme came from within the museum industry itself.31 Jiri Frel, the former antiquities curator of the Getty Museum, used the museum as a tax shelter, both for himself and Hollywood’s elite.32 During his tenure at the Getty, from 1973 to 1984, Frel established a tax scheme identical to Olson and Markell’s, but his artifact valuations averaged four and a half times the typical market price.33 U.S. taxpayers at the time could deduct charitable donations from their gross income before tax liability was calculated; the larger the valuation, the higher the tax break.34 A donor in the 60 percent tax bracket not only could receive a tax deduction but would make a profit.35 Frel’s scheme accrued tax-deductible art donations estimated at over $14 million.36

These two cases only scratch the surface of exploiting donations for tax benefits; such practices steadily gained notoriety. Donor offerings, inspired by tax deductions, boomed in the early 2000s.37 In the United States alone, in fiscal 2005, 110,632 taxpayers deducted over $1.24 billion for art contributions.38 Scholars began to scrutinize these deductions from a public policy perspective as their allowance formed a two-tier system for tax credits.39 The U.S. government gave little attention to these claims because over 90 percent of art and artifacts held in U.S. museums come from private donations.40 Any reforms on deductions were thought to potentially compromise the museum and art industry. As the 2000s progressed, scholars’ predictions of a two-tier system would eventually manifest. The lack of reform gave rise to a legal mechanism that utterly battered the U.S. tax system — fractional donations.

B. Fractional Donations

Fractional giving arose as a subset of qualified charitable tax deductions and is rooted in incremental donations to museums. This method was arguably the most exorbitant tax avoidance mechanism until it was reformed by Congress in 2006 because of widespread abuse. IRC section 170(o) and the Pension Protection Act limited tax deductions for art contributions.41 Before 2006, taxpayers exploited the fractional giving loophole to receive tax write-offs and avoid tax deduction caps.42 Taxpayers in possession of desirable pieces could donate a percentage of ownership to a museum for any number of years and reap tax benefits indefinitely.43 For example, if a taxpayer donated a 25 percent interest in a sculpture worth $2 million to a museum, the taxpayer would receive eligibility for a $500,000 tax deduction for this charitable donation.44

The 2006 reforms removed all of the problematic aspects of fractional giving.45 Previously, taxpayers had been able to retain partial ownership — and full possession — of the artwork, and receive enormous tax deductions.46 Although the museum would have had effective possession of the work, most museums display only about 5 percent of their holdings at any time;47 this allowed donors to retain possession of the work for an indeterminate amount of time before turning it over.48 When abusing fractional giving to its full extent, a donor could gift a fraction of the full interest of a piece to a museum.49 Under the fractional gift scheme, the donor could then “deduct an amount equal to the full value of the art multiplied by the portion donated” in order to circumvent capital gains taxes.50 Because art’s value appreciates over time, most donors would retain their works and transfer full ownership to the museum only after decades of abusing these deductions.51 Before the reforms, fractional giving could be done on a cyclical basis aligning with the fiscal year and could accumulate charitable tax deductions that eventually exceeded the art’s initial total valuation.52

C. Like-Kind Exchanges

With fractional giving for tax purposes becoming unpopular following the 2006 reforms, those adjacent to the art market began looking for new avenues to exploit for tax deductions. As such, like-kind exchanges emerged. This practice developed in the real estate sector to defer taxes from the “disposition of appreciated property” in return for a replacement of a similar kind.53 U.S. art investors adopted this in order to defer taxation on gains from the sale of appreciated art pieces.54 In including art and collectibles in like-kind exchanges, the policy goal was to encourage taxpayers to reinvest in the art market.55 One of the caveats to this allowance is that the taxpayer must acquire the work for investment and not personal purposes — works hung in a home would therefore not qualify.56 Also, these exchanges must be of the same class of property.57 An art investor in possession of a Bernini sculpture could use a like-kind exchange to acquire a Rodin sculpture, but not a Rubens painting.58

This scheme allows taxpayers to revitalize their investment holdings based on market trends without incurring any taxation on big-ticket items.59 The chief issue with this method is that, according to the IRS, the taxpayer must be an investor and not a collector. This causes a frenzied drive to acquire pieces and stash them in storage until they might be exchanged again.60 The hoarding of these works not only was a direct product of the 2006 reforms but also manifested as one of the key motivators for the creation of the next tax avoidance mechanism — the free port.

D. Free Ports

Colloquially referred to as the modern Swiss bank account, a free port is a storage facility that is highly secure and heavily insured.61 There is no restriction on what can be kept inside, but often it is some form of collectible (predominantly valuable art).62 The use of a free port allows for various temporary tax exemptions to be used for an unlimited amount of time.63 These tax exemptions are “designed to reduce barriers to trade by decreasing the number of transactional events at which . . . tax might be collectable.”64 Constructing free ports near or within shipping venues, such as airports, allows the facilities to exist outside the formal territorial jurisdiction of the state they are physically within.65 Property in free ports is seen as in transit, and owners may defer not only tax liabilities, but all customs duties as well.66 Because capital gains tax on art is traditionally activated when the asset is disposed of (defined as selling, gifting, or receiving insurance compensation), free ports prevent this from triggering.67 Also, because the owner of the property in question can sell the art or other collectibles without the property leaving the free port, they are further exempt from VAT — hence the name “free” port.68

It would appear paradoxical that a nation would create defined areas where taxation can be lawfully avoided, but these free ports are often integral aspects of attracting international wealth and key players in the global trade markets.69 Free ports have been seen as a materialization of the newly entangled dynamics of offshore capitalism and art.70 The free port, through the physical dissociation of the art from the owner/investor, creates what scholar Arjun Appadurai calls “enclaved commodities” — assets whose desirability comes from the ability to hide from economic transactions and taxation.71 Housing art in a free port thus commoditizes the value of art, not by the traditional means of being displayed, but rather by enclaving the art out of both sight and reach of the public.72

One of the most notable instances in which a free port was used to create an enclaved commodity was Russian billionaire Dmitry Rybolovlev’s sale of da Vinci’s “Salvator Mundi.”73 Rybolovlev purchased the painting for $127.5 million, and it was imported into the Geneva Freeport in Switzerland.74 Swiss tax law typically requires the owner to pay 8 percent import tax, which would have been around $10 million for this work, but by placing the painting in the free port, Rybolovlev avoided paying this Swiss tax. When the work was eventually moved to London, standard U.K. import duties of 5 percent were charged. Although the difference in percentages might seem relatively small, keeping the painting in the free port served Rybolovlev well from yet another financial standpoint.75 While the painting sat hidden in the free port, tax exempt, intrigue in the painting only grew. In 2017 Rybolovlev sold the piece through Christie’s auction house for over $450 million, making it the most expensive artwork ever sold.76 The creation of the free port has thus advanced a legal loophole for not only money laundering and tax evasion, but for profit increases as well.77 By sheltering a piece in an offshore depot, owners create legal art graveyards; burying a piece there is an effective strategy to build intrigue in a piece and increase its value while it remains tax exempt.78

E. Detriments of Reforms

The culmination of the previously discussed tax reforms and attempted regulation of the art market has involuntarily led to adverse effects and increased loopholes via the inception of these free ports.79 What were once speculative facilities and few in number, free ports have transformed into an offshore “archipelago of tax-free storage facilities that stretch from Singapore to Geneva to Delaware.”80 The burgeoning of free ports, alongside their attractive tax advantages, has transformed these facilities into nothing more than long-term holding zones.81 This has prompted more and more pieces of art to be removed from “circulation and deposited . . . beyond the view of regulatory authorities.”82

An illuminating iteration of this reality comes from the IRS’s Art Advisory Panel. In examining documentation produced by U.S. tax authorities for fiscal 2017, the panel reported that taxpayers only owned 365 artworks, with an aggregate value of $233.7 million.83 However, the total value of the art trade in the United States for that year was figured84 at over $25 billion.85 Through free ports, U.S. art collectors and investors can divert their property from being allocated to its correct taxable category.86 The discrepancy in the two figures is a result of art within the market being valued for insurance purposes, but under U.S. tax law, “it is not necessary for assessed values to be passed on to tax authorities unless it is part of a taxable category (income, gift, estate),” which free ports sidestep.87 In storing a piece of art in a freeport, an economic free-regulation zone, the object in question sits in limbo — it does not fit neatly into any of the above-mentioned taxable categories.

A similar picture can be seen in Switzerland, a nation that plays a key role in the global art market.88 Art critic Marie Maertens reported that there are over 1.2 million works of art in the Geneva Freeport alone,89 with a 2019 report estimating the value of these pieces between $50 billion and $100 billion.90 In contrast, the National Gallery in London has 2,300 paintings.91 As explored earlier, the secretive and unregulated nature of the art market makes these free port estimates very conservative at best; however, if one were to scale these figures to the number of these assets within free ports globally, the total value would exceed $139 billion on the low end.92

F. New Intangible Art

Although the discussion thus far has explored the most common forms of tax evasion and avoidance practices that rely on art as physical property, newly emerging intangible art poses unique problems worth examining. The rise of blockchain and NFTs has taken the world by storm. There is no consensus as to whether NFTs are truly art, but they “exist within a similarly nebulous, unregulated, and volatile market” as paintings and sculptures do within the art market.93 In the spring of 2021, Christie’s conducted the world’s first sale of an intangible work: Mike Winkelmann’s “Everydays: The First 5000 Days” sold for $69 million.94

Despite the potentially high value of these intangible assets, specifics regarding their taxation have not been established. The IRS has yet to determine whether NFTs should be taxed like art at a 28 percent rate, or whether they are more like cryptocurrency, which is taxed as standard property with capital gains tax rates up to 20 percent, depending on the taxpayer’s income. A further issue arises if NFTs are classified as “art and collectibles,” which would affect how they are sheltered and donated.95 The entire foundation of an NFT rests upon the premise of it being non-fungible — something unique that cannot be swapped or interchanged with other similar property.96 The monetary worth of art is an exaggerated example of assumed and applied value; the price tag hinges on what similar pieces garner at auction, prices at other sales, and the appraisals of experts.97 NFTs cannot be assigned a standardized fair market value for art-related tax purposes because of the lack of comparability.98 We have seen thus far that donors and collectors routinely attempt to inflate the market value of the art they aim to exchange for tax deductions. If such inflated valuations already occur with traditional art, which can be compared with others of its kind, it is bound to happen even more with NFTs, which cannot be.

A final concern regarding NFTs and blockchain is that they allow for multiple stakeholders to appear as collective owners.99 This has led several companies to adopt models that allow for the value of a work to be split up, traded, and moved around infinitely among investors, while the NFT retains its unique, lump sum value.100 Some of the most profitable of these companies include: Maecenas, an art-centered blockchain company that sells fractional ownership of artwork in storage, similar to purchasing stock in a company; and Malevich, which sells luxury art items completely virtually so that the individual does not come into physical possession of the work and can circumvent valuation and storage for tax purposes.101 These models have various implications for both the taxation of art and the decentralization of the art market.102 These schemes contribute to the trend exhibited by free ports — evading international regulation of assets and taxes while the “value is siphoned off elsewhere or reinvested into the art market.”103 Because this is a relatively nascent issue, very little has been said on the matter, and the prospects of the NFT as art and its subsequent taxation remain uncertain.

III. Reconciling Taxation and Art

As we have seen, art-related tax loopholes have received scrutiny on two fronts: These loopholes allow tax evasion to remain within the bounds of the law, and they restrict public access to art.104 The advent of free ports has regressed the art market to historical trends — placing antiquities in the hands of the wealthy to hoard away from prying eyes. Conversely, attempts at regulating donation-based tax deductions have driven market trends toward the desirability of art being rooted in profitability as opposed to cultural capital.105 Collectively, this amounts to a body of tax mechanisms that impede the enriching and educational mission of art and of museums as public-serving institutions.106 Cultural collectors, motivated by a philanthropic desire, have been superseded by financial collectors — those who “trade in cultural capital for the benefit of tax-free investment.”107 A question then arises as to where art and museums fit into the larger picture of tax-related distributive justice.

A. Museums and Distributive Justice

Tax scholars have debated the role of taxation concerning distributive justice on a global scale, asking whether various forms of taxation are the correct avenue to right various wrongs within the world.108 Central to these disputes is that many theories of redistributive tax justice do not provide persuasive duties or a motivation to act.109 Narrowing in on museums, scholars have further questioned the redistribution of these tax resources to unnecessary ventures (not necessities of life). One of the most notable works supporting this sentiment is John Stanton-Ife’s “Must We Pay for the British Museum?” which argues that compulsory state taxation to support “artistic, cultural, or esoteric purposes is a violation of [John Stuart] Mill’s harm principle.”110 Stanton-Ife argues that compulsory taxation for the arts triggers and fails to satisfy this principle because the arts could never rise to the level of preventing harm to others.111 In Stanton-Ife’s model, distributive justice is concerned more with the action of redistribution itself and not the substance of the subsidy in question. The primary flaw with this assertion is that it fails to consider that there is no coercive aspect engaged when a state chooses to allot taxation funds to the arts.112

One of the most accepted goals of a tax system is to implement a form of distributive justice that is reflective of what that society values.113 Grounded in economic theory, taxation thus subsidizes charities and other institutions that produce a service that would otherwise fail its market.114 Mapping this on to the current discussion, governments support the diversity and self-governance of their citizens by offering a variety of tax-subsidized services, including museums. This can be seen as a rotational form of tax justice, whereby those with no interest in services such as a museum will have their own “interests supported by taxation levied, inter alia, from persons who do not share those interests”115 (emphasis in original). In this sense, and contrary to what Stanton-Ife suggests, the intersection of taxation and the arts has a role to play in conceptions of distributive justice. Access to the arts as a product of tax-related mechanisms can prevent harm via stimulating public education and fueling scholarly production.

To justify to skeptics the support of museums through taxation, the societal value of art must be unpacked. Museums are often seen as the cultural face of a public body, allowing for a shared form of collective wealth.116 Historians and museologists have agreed that the most pertinent features of a museum are education and fostering community-commonality.117 Social impact studies indicate that museums and art have positive quantifiable impacts on their communities and tend to enhance both civic and economic aspects of localities.118 As a result, the collection of art by museums has evolved into not only a socially sanctioned endeavor but a public policy goal for many governments.119 Driven by this desire to further public access to art and antiquities, tax incentives are one of the simplest ways to inspire donations.120 The resulting structure of tax law that complements this comes full circle — it recognizes donations as replacements for state expenditures. This gives further legitimacy to the societal importance of art and museums, as well as the social value of these tax incentives.121

B. Combating Abuses

With the societal value of art and museums recognized by many governments as a worthwhile reason to spend taxpayer funds, the morality of allowing these deductions while tolerating tax fraud and other abuses presents a further problem.122 In considering global justice more broadly, it must be asked whether these legal tax deductions and other ambiguous loopholes encourage the protection of art and other cultural objects for their inherent societal value or trend toward the de-sacralization of art in the name of financial gain. It would appear, at least in the United States, the latter claim is true. Following the 2006 reforms, the American Association of Museum Directors reported a 40 percent reduction in donations.123

As with any discussion of global taxation, the ramifications of any action must be examined from the perspective of developing nations as well. Focusing on the global art market, developing nations continue to allow and remain susceptible to donation forms of tax abuse.124 Scholar Donna Yates premises this assertion upon the fact that tourism — chiefly related to arts and culture — is a desirable field for emerging countries to channel their resources.125 Art and culture are not cheap to subsidize, particularly for nations with emerging middle classes.126 But in allowing these types of tax deductions, these nations — and their national museums — may not only compete with wealthier, established institutions, but also partake and benefit from tax competition and a reallocation of the international tax base.127

A coordinated international front is needed to combat the commodification and privatization of art. Switzerland provides a crucial example. Although the Geneva Freeport serves as one of the largest black holes for tax-free art storage, Switzerland has attempted to regulate these facilities.128 Despite these efforts, the result has been the creation of anti-competitive conditions and the slow migration of tax-minded art collectors to less-regulated jurisdictions, such as Singapore.129 “Race to the bottom” concerns crop up because any attempts at tax reform seem to only encourage the proliferation of these loopholes and avoidance tactics in other locations.130

This migration presents a full-circle problem. If we zealously advocate for the subsidization of art while vouching for tax reform, emerging art havens, such as Singapore, pose a unique problem. While reliant on free ports as a part of its tax system, Singapore has effectively integrated these centers into the Eastern art market.131 Despite the Singapore government making enormous investments in museums and other arts-related developments, the art market in Singapore was initially slow and stagnant.132 To combat this, a program was adopted whereby collectors could lend art to Singapore museums and reap the same tax benefits they would as if storing the work in a free port.133 In doing so, Singapore revitalized its museum industry by relying on periodic exhibitions of blue-chip European works from private collections, rather than spending millions of dollars to purchase works piecemeal.134 These mechanisms have been dubbed a “diversification strategy” that allows smaller nations to accrue a competitive advantage through the establishment of art-reliant “enclave economies.”135 Despite the setbacks that tax loopholes and mechanisms have had on the art market, a total revocation could destroy this aspect of Singapore’s market and cultural livelihood. There is further potential to impede cultural exchanges globally.136

IV. Conclusion

Art and taxes share a cyclical relationship. The decentralized and secluded nature of the art market has provided an optimal milieu for the wealthiest to evade taxation. Governments have reformed their tax codes many times over in attempts to address these issues, but these reform efforts have often done more harm than good because they have inspired increasingly innovative tax schemes within the art market. These loopholes have evolved from simple donation-based deductions to a complex network of free ports. Each arrangement providing an increasingly creative circumvention has harmed the cultural value and sacredness of art. Art of all types and forms has been relegated from artifact to commodity. Future tax reform must regard this issue as not only a taxation problem but a fundamental threat to the cultural and educational roles of museums and their collections. The protection of art has therefore morphed from a purely cultural concern to one rooted in global tax justice.


1 Katie L. Steiner, “Dealing With Laundering in the Swiss Art Market: New Legislation and Its Threats to Honest Traders,” 49(1) Case W. Res. J. Int’l L. 351, 354 (2017).

2 John Zarobell, “Freeports and the Hidden Value of Art,” 9(4) Arts 1 (2020).

3 Ethan Stern, “Anti-Money Laundering Regulation in the Art Market,” Colum. Bus. L. Rev. (2020).

4 Id.

5 Fausto Martin De Sanctis, Money Laundering Through Art: A Criminal Justice Perspective 3 (2013).

6 Jan Dalley, “Can the Art World Clean Up Its Act?” Financial Times, Feb. 20, 2020.

7 Donna Yates, “Museums, Collectors, and Value Manipulation: Tax Fraud Through Donation of Antiquities,” 23(1) J. Fin. Crime 169, 173-176 (2016).

8 Id.

9 Id.

10 Ruya Worthy, “The Impact of Free Ports on the Art Market,” 25(3) Art Antiquity & Law 253, 256 (2020).

11 Id. at 262.

12 Steiner, supra note 1, at 358.

13 Id. See also Susan Adams, “The Art of the Deal,” Forbes, Dec. 7, 2007.

14 Worthy, supra note 10, at 262.

15 Id. at 256.

16 Id. at 1784.

17 Yates, supra note 7, at 179.

18 Id.

19 Anne Hilker, “The Legal Lives of Things: The Metropolitan Museum of Art at the Boundary Between Public and Private” (2021) (Ph.D. dissertation, Bard College) (on file with the Bard Graduate Center), at 13.

20 Id. at 17.

21 IRC section 501(c)(3).

22 Hilker, supra note 19, at 20.

23 Mary Varson Cromer, “Don’t Give Me That!: Tax Valuation of Gifts to Art Museums,” 63 Wash. & Lee L. Rev. 777, 781 (2006).

24 Hilker, supra note 19, at 20.

25 Daniel Sandler and Tim Edgar, “The Tax Expenditure Program for Charitable Giving: Kicking a Gift Horse in the Teeth,” 51(6) Canadian Tax J. 2193 (2003).

26 De Sanctis, supra note 5, at 177.

27 Yates, “The Global Traffic in Looted Cultural Objects,” in The Oxford Research Encyclopedia of Criminology 1, 10 (2016).

28 De Sanctis, supra note 5, at 178.

29 Id. at 180.

30 Id.

31 Michael Murali, “Black Beauty — How Schultz and the Trial of Marion True Changed Museum Acquisitions,” 7(2) Am. Crim. L. Rev. 55, 62 (2012).

32 Id.

33 Geraldine Norman and Thomas Hoving, “Spectrum: The Fine Art of Tax Avoidance,” The Times, Feb. 13, 1987, at 14.

34 Id.

35 Murali, supra note 31.

36 Id.

37 Alan L. Feld, “Revisiting Tax Subsidies for Cultural Institutions,” 32(4) J. Cultural Econ. 275, 277 (2008).

38 Id.

39 Sandler and Edgar, supra note 25, at 2193.

40 Emily J. Follas, “It Belongs in a Museum: Appropriate Donor Incentives for Fractional Gifts of Art,” 83(4) Notre Dame L. Rev. 1779, 1781 (2008).

41 Feld, supra note 37, at 277.

42 Yates, supra note 7, at 182.

43 Id.

44 Follas, supra note 40, at 1780.

46 Id.

47 E. Alex Kirk, “The Billionaire’s Treasure Trove: A Call to Reform Private Art Museums and the Private Benefit Doctrine,” 27(4) Fordham Intellectual Prop. Media & Ent. L.J. 869, 881 (2017).

48 Id.

49 Follas, supra note 40, at 1788.

50 Kirk, supra note 47, at 911.

51 Id.

52 Follas, supra note 40, at 1790.

53 Nina Krauthamer and Sheryl Shah, “Art for Art,” 2(5) Insights 17 (2015).

54 Id.

55 Id. at 19.

56 Id.

57 Id. at 20.

58 Id.

59 Id.

60 Id. at 21.

61 Worthy, supra note 10, at 258.

62 Id. at 257.

63 Id.

64 Steiner, supra note 1, at 356.

65 Worthy, supra note 10, at 257.

66 Steiner, supra note 1, at 356.

67 Martin Wilson, Art Law and the Business of Art 278 (2019).

68 Steiner, supra note 1, at 356.

69 Worthy, supra note 10, at 258.

70 Erik Post and Filipe Calvão, “Mythical Islands of Value: Free Ports, Offshore Capitalism, and Art Capital,” 9(4) Arts 100, 115 (2020).

71 Id. at 120.

72 Worthy, supra note 10, at 255.

73 Id. at 262.

74 Id.

75 Id. at 257.

76 Id. at 256.

77 Id. at 264.

78 Id.

80 Zarobell, supra note 2.

81 Id. at 4.

82 Id.

83 Id.

84 Clare McAndrew, “The Art Basel and UBS Global Art Market Report,” at 38 (2018).

85 Zarobell, supra note 2.

86 Id.

87 Id.

88 Steiner, supra note 1, at 354.

89 Marie Maertens, “Dans le secret des Ports Francs,” Connaissance des Arts, Jan. 16, 2013 (in French).

90 Deloitte and ArtTactic, “Art & Finance Report 2019,” at 237 (2019).

91 Worthy, supra note 10, at 261.

92 Zarobell, supra note 2, at 4.

93 David H. Lenok, “Are NFTs Really Art?” Wealth Management, Jan. 7, 2022.

94 Id.

95 Joshua Caswell and Leigh E. Furtado, “NFTs for Estate Planners: Not Just a Token Concern,” 35(5) Probate and Property 10 (2021).

96 Id. at 12.

97 Yates, supra note 7, at 177.

98 Caswell and Furtado, supra note 95, at 12.

99 Zarobell, supra note 2, at 8.

100 Id.

101 Id.

102 Tindara Abbatte et al., “Blockchain and Art Market: Resistance or Adoption?” 25 Consumption Mkts. & Culture 105, 116 (2022).

103 Zarobell, supra note 2, at 8.

104 Hilker, supra note 19, at 33.

105 Zarobell, supra note 2.

106 Hilker, supra note 19, at 26.

107 Zarobell, supra note 2.

108 Johanna Stark, “Tax Justice Beyond National Borders — International or Interpersonal?” 42 Oxford J. Legal Stud. 133, 159 (2021).

109 Id. at 160.

110 Monica Bhandari, Philosophical Foundations of Tax Law 1, 36 et seq. (2017).

111 Id.

112 Id. at 41.

113 Id. at 67.

114 Id.

115 Id. at 42.

116 Hilker, supra note 19, at 1.

117 Id. at 7.

118 Karlmico M. Tyack, “Community Art Ownership: Do Local Heritage Museums Enhance Civic and Economic Implications?” 1-2 (Nov. 2018) (master’s thesis, Harvard Extension School).

119 Robson, supra note 79, at 7.

120 Yates, supra note 7, at 173.

121 Robson, supra note 79.

122 De Sanctis, supra note 5, at 65.

123 Follas, supra note 40, at 1798.

124 Yates, supra note 7, at 182.

125 Id.

126 Id.

127 Id.

128 Steiner, supra note 1, at 358.

129 Id.

130 Id.

131 Kathleen Ditzig, Robin Lynch, and Debbie Ding, “Dynamic Global Infrastructure: The Freeport as Value Chain,” 2(2) Fin. & Soc’y 180, 183 (2016).

132 Worthy, supra note 10, at 269.

133 Id.

134 Id.

135 Catharine Wong, Markus Hess, and Thomas J. Sigler, “City-States in Relational Urbanization: The Case of Luxembourg and Singapore,” 43(4) Urb. Geography 501, 511 (2021).

136 Worthy, supra note 10, at 269.


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