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and the assessment of the donated objects will fall under the same legislation, will use the same criteria and will be by the same Board as the export applications.29 In fact, most of what the Board does today relates to tax certification for donations, rather than exports, despite the fact that the Board is known as an export review board.30 More than 90 per cent of the matters before it relate to tax certification, likely because the tax credits available are generous to the taxpayer.31 In addition, the federal government, in its 2019 budget, made it even easier to obtain cultural property certification for art donations by prospectively removing the requirement for national importance. Now, the donor only needs to show that the object is of outstanding significance for history or national life, its aesthetic qualities or the study of arts or sciences to obtain the benefit.

In relation to imports, the CPEIA also sets out the relevant rules. As a state party to the 1970 UNESCO Convention, Canada has implemented an import restriction for cultural property illegally exported from another state party to the Convention.32 As such, the restriction in Canada goes much further than the obligation arising out of the Convention, which only requires states to prevent the import of cultural property stolen from a museum, monument or similar institution and appearing on an inventory.33 There are also related criminal sanctions under the CPEIA for importing such material. These sanctions were challenged as being unconstitutional by an importer of Bolivian textiles in the case of R v. Roger Yorke,34 but the courts upheld the provisions.

A provision was added to the CPEIA in 2005 for Canada to comply with its obligations under the 1954 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict. This provision restricts imports of cultural property removed from an occupied territory, unless such removal was lawful or necessary for the item’s protection or preservation.35 There are also criminal sanctions associated with the import of such material.

VI ARTIST RIGHTS

The intangible rights of artists – for our purposes, copyright, moral rights and exhibition rights – are found within federal legislation: the Copyright Act. This is because intellectual property falls within the federal jurisdiction under the Canadian Constitution. As such, when it comes to copyright, no heed needs to be paid, in general terms, to provincial legislation. That said, there are statutes that exist to protect the ‘status of the artist’ at both the federal level and in certain provinces.36

29CPEIA, Section 33.

30Alexander Herman: ‘Court decision on Caillebotte export rocks the boat’, Institute of Art and Law (blog), 4 September 2018; ‘Caillebotte storm is quelled, twice over’, Institute of Art and Law (blog), 17 April 2019; ‘Caillebotte painting shines light on woefully out-of-date rules’, Financial Post,

17 September 2019.

31Alexander Herman, ‘Caillebotte painting shines light on woefully out-of-date rules’, Financial Post, 17 September 2019.

32CPEIA, Section 37.

33Article 7(b)(i) of the Convention.

341998 NSCA.

35CPEIA, Section 36.1.

36Canada’s Status of the Artist Act, 1992, c. 33; Quebec’s Act Respecting the Professional Status of Artists in the Visual Arts, Arts and Crafts and Literature, and their Contracts with Promoters, Chapter S-32.01; Status of Ontario’s Artists Act, S.O. 2007, c. 7, Schedule 39.

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Like all other countries party to the Berne Convention for the Protection of Literary and Artistic Works, Canada protects the copyright in artistic works as well as certain moral rights for artists. Likewise, Canada will provide these rights for authors that are nationals of another Berne Convention state or for works first published in a Berne Convention state. Under the Copyright Act, all ‘original’ artistic works are protected, though originality is defined by the Supreme Court of Canada rather differently than it is in the United Kingdom or the United States: in the CCH case, the Court defined it as requiring intellectual effort that is ‘more than trivial’, which treads a typical middle ground between the low UK threshold and the somewhat higher US one.37 Copyright duration in Canada traditionally stuck to the Berne Convention minimum of life of the author plus 50 years, though it appears that this will be extended to 70 years following the signing of the US–Mexico–Canada Trade Agreement in 2018, which requires the duration to be harmonised with that of the United States.

Under the Copyright Act, the moral rights of authors are also protected. These consist of the right to the integrity of the work and the right to be associated as the author of the work.38 The integrity right is infringed if the work is, to the prejudice of the author’s honour or reputation, either (1) distorted, mutilated or modified or (2) used with a product, service, cause or institution.39 Certain acts will not on their own constitute a violation (such as a change in location or certain preservation work), whereas, when it comes to paintings or sculptures, mutilation or modification will be presumed to cause prejudice to the author.40 These particularities are unique to Canadian law. As for the association right, it can be limited where ‘reasonable in the circumstances’. Moral rights last the term of copyright in Canada, so for the moment 50 years after the death of the author.

While there is no artist resale right in Canada, discussions have been underway for many years to introduce such a right. Nevertheless, the Copyright Act already provides Canadian artists with an exhibition right for works made after 1988. Such a right does not exist elsewhere and so is a particularity of Canadian law that affects the management of artists and their exhibitions. This usually involves paying a royalty to artists if their work appears in an exhibition, and these royalties are set by an artists’ rights organisation, CARFAC, with tariffs that are released each year.41 These benefit artists whose works are frequently shown, but can act as an unwelcome cost for museums and galleries putting on shows of contemporary art in Canada.

VII OUTLOOK AND CONCLUSIONS

As mentioned above, the most pressing matter at the moment in the Canadian cultural sector, as elsewhere, is the coronavirus pandemic. As a result, this matter looms large over all others when considering the future of art law in Canada. It is almost certain that the market for art will slow down, which will inevitably affect exports of cultural property from Canada, while also limiting the transactions for art in the country on the whole. The most notable changes occurred recently – the kerfuffle over the Heffel decision and the subsequent change to the law brought about by the government in 2019, and the favourable appeal for the buyer

37Law Society of Upper Canada v. CCH Canadian Limited [2004] 1 S.C.R. 339.

38Copyright Act, Sections 14.1, 14.2, 17.1, 17.2, 28.1 and 28.2.

39id., Section 28.2.

40id.

41CARFAC-RAAV Minimum Recommended Fee Schedule.

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in Hearn – and the dust has yet to settle on those. There also remains the always-present suggestion that copyright law may be overhauled, and this time in a way that could affect artists and their works, though such a suggestion has been in existence for so long that it is hard to imagine that anything will change, at least not for now. On the whole, the outlook in Canada appears to be ‘steady as she goes’ while everyone tries to deal with the fallout from the pandemic.

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Chapter 13

CZECH REPUBLIC

Filip Čabart and Vladek Krámek1

I INTRODUCTION

Virtually all legal aspects of the art trade needed to be reinvented and rebuilt for the new market conditions that followed the 1989 Velvet Revolution and the collapse of the communist regime in what was then Czechoslovakia. Because there was no real art market and virtually no specialised laws, professional art valuers or other art experts, the uncertainty in the art market was overwhelming. It took a very long time for professional and legal grounds to be established, and we are still facing remnants of that era in several outdated and insufficient laws today.

Despite these difficult beginnings, the Czech art market is quite lively and still developing rapidly, currently representing a value of over €50 million in annual auction turnover. Only €7 million is attributable to cross-border art transactions. The Czech art market is dominated by a small number of local auction houses, such as Adolf Loos Apartment and Gallery, Galerie Kodl and Arthouse Hejtmánek, while major international houses are not well established in the Czech Republic. A previous auction record is beaten almost every year: in 2020, a 1926 Toyen painting became the most expensive paining auctioned in the Czech Republic at nearly €3 million.

There are not many art disputes on public record, with the exception of a cultural heritage dispute regarding a 1913 Kupka painting, which was prohibited by court from being acquired by a foreign buyer under a 1987 law (see Section V.iii).

II THE YEAR IN REVIEW

There has been very little development in art legislation in the past year; however, an interesting proposal is due to reach the floor of the House, reinventing a surprisingly effective law from the communist era that would require a marginal percentage of any public building expenditure to be invested into art-related projects.

1 Filip Čabart and Vladek Krámek are partners at Havel & Partners.

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IIIART DISPUTES

iTitle in art

Direct purchase from the artist

From a legal point of view, this is the simplest and, at the same time, safest form of acquiring an original or an authorised reproduction of an artwork. The buyer concludes a contract directly with the artist, who guarantees its originality and determines its price. Sometimes, additional agreements can add other conditions to the deal (conditions of placement, exhibition and availability to the public, resale, loan for exhibition, etc.). These conditions tend to be in the nature of a licensing agreement, so in this particular case, this would be a purchase agreement (in its pure form) or a mixed agreement (purchase and licensing contract).

In such cases good faith is presumed. However, it is recommended that the conditions of sale include the issue of an authenticity certificate containing a representation of the work, its description (usually physical dimensions, background material and design) and the signature of the artist, who hereby declares that the artwork is genuine and original. It is recommended that the new owners of the work also keep records of the negotiations that preceded the purchase of the work (correspondence with the author, photographs of the work and the artist taken during a possible visit to the studio, etc.) and keep a catalogue in which the work was mentioned or even depicted. The above also largely affects the direct business relationship with the artist’s heirs.

If the authenticity of the work is not sufficiently documented during the purchase itself (e.g., due to the age of the work or other objective circumstances) and the buyer still decides to take a risk and purchase the work of art, it is appropriate to obtain an expert opinion or art historical and restoration expertise, at the expense of either the seller or the buyer. The buyer can agree with the owner that these documents will be obtained by the seller before the sale and, if the report confirms the authenticity of the work, the buyer will pay the costs associated with obtaining these documents (through which he or she will gain additional assurance that he or she is acquiring the authentic piece).

Purchase from a representative of the artist

These types of purchases are very similar to purchases from the author or heirs of the author. At the same time, it is necessary to take into account that the agent or representative is a person acting in the name and on behalf of the author, but is still a person or legal entity different from the artist or author of the work. This can have a major impact, especially on the exercise and enforcement of copyright (both property and personality rights). For this reason, the buyer should always verify that the representative is authorised by the author or heirs to enter into transactions with the work in question and is authorised to grant appropriate licences for the work.

Purchase through art galleries

This type of ownership transfer is a commission sale; the seller may be the artist himself or herself, the owner or a person who has no direct relationship with these persons. Most often, a commission contract is concluded when selling a work, but the contractual relationship can also be an agency or an intermediary contract. Sometimes the seller wants his or her identity to remain secret, sometimes it is the artist himself or herself, who sees the sale of his or her work merely as a time-consuming activity. Often, the seller is a gallery owner or antique

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dealer, who acts in the name of the artist, heir or the owner of the artwork and on their behalf. The seller collects a commission determined either from the sale price of the work or a fixed amount (or a combination).

One of the differences in the acquisition of ownership through private sale or auction is mostly recognisable in situations where the ownership is acquired from a person who was not the real owner of the artwork. In the case that the ownership right is transferred through the auction from an unauthorised person, the buyer becomes the owner of the work as long as the artwork was not entered in any public list of lost or stolen art and the buyer acted in good faith. However, the above does not apply to persons who acquire ownership under a contract, so the buyer must be careful and require not only documents and expert opinions that certify the authenticity of the work, but ideally also evidence of the seller’s ownership.

In general, good faith is presumed and therefore it does not need to be explicitly demonstrated at ownership transfer. However, when acquiring ownership, the new owner acquires not only the rights but also obligations associated with the object. In the case of paintings or other works of art the buyer acquires ownership, but the copyright remains with the author. The author can still decide on how his or her work should be used or displayed and the owner has no right to use the object beyond his or her personal needs unless he or she has obtained the appropriate licence rights.

There is no specific duty of inquiry into title by the purchaser upon purchase, just as there is no specific duty to prove title by the seller upon the sale. The lack of regulation in this area is largely criticised. However, prudent purchasers who do inquire into title of the acquired work do so in their own best interests.

ii Nazi-looted art and cultural property

The central problem of most lawsuits concerning confiscated property or artwork from Jewish or other families during the Second World War is that there are significant problems, namely the subsequent takeover of political power by the Czech Communist Party and the associated nationalisation of all property. Most property, including famous Czech works of art, was nationalised after the Second World War and the majority of litigation over it is conducted as part of restitution proceedings. However, such proceedings often end to the detriment of original owners, both in relation to art and property in general.

A well-known example concerns the restitution proceedings regarding the Waldes a spol factory. The company was originally owned by Jiří Waldes, a factory owner of Jewish origin. During the period of occupation, the Nazis looted not only the factory, but also a collection of almost 20 paintings, including several paintings by František Kupka, one of the most famous and best-selling Czech painters of modern times. Subsequently, all the company’s assets were nationalised based on the Beneš decrees (the decrees of former president Edvard Beneš concerning the status of ethnic Germans in post-war Czechoslovakia, which formed the legal framework for the expulsion of Germans from Czechoslovakia). The ownership of the company, including the art collections, was transferred to the Koh-I-Noor company. The claims Waldes’s original partners made during the nationalisation were not compensated by Czechoslovakia because the registered heirs were at that time ‘persons unreliable for travelling abroad without the consent of the Czechoslovak authorities’.

After the Velvet Revolution in 1989, the courts concluded that previous decisions of the Czech authorities did not constitute an obstacle to the restitution claims of the Waldes family. However, the Constitutional Court did not agree and annulled all previous verdicts in the restitution case. According to the Constitutional Court, the factory owners lost all

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their property before 1948, when the Beneš decrees came into effect, and were therefore not entitled to restitution. The final point behind the restitution dispute was subsequently made by the Supreme Court, which rejected the Waldes family’s appeal against the interpretation of the Constitutional Court.

iii Limitation periods

Because a special legal regulation is lacking, the general rules of Act No. 89/2012 (the Civil Code) apply. If a work of art is a forgery or has other legal defects, the purchaser has rights arising from defective performance.

The good faith possessor acquires title by acquisitive prescription after three years of qualified possession, and by extraordinary acquisitive prescription a possessor acquires title even if he or she cannot prove a legal ground of his or her possession, unless fraudulent intent can be proven.

No special limitation periods apply to art misappropriated during the Nazi era. As mentioned above, most of the art or property in general that was confiscated by the Nazis during the Second World War was subsequently nationalised. Such action was made based on the Beneš decrees, and it is therefore necessary to demand it through the restitution procedure. However, the regulation of the restitution proceedings themselves, which often end with reference to the fact that the property was confiscated before 1948, and therefore prior to the decrees coming into effect, cannot be applied in such case.

iv Alternative dispute resolution

Alternative dispute resolution, including arbitration and mediation, exist and can be used for art disputes, but they are not prevalent. There is no specialised alternative dispute resolution organisation for art matters in the Czech Republic.

IV FAKES, FORGERIES AND AUTHENTICATION

Under Czech law, if a buyer purchased a fake or a forgery, the purchase is considered to be defective due to the defect of performance, and results in, inter alia, the buyer’s entitlement to withdraw from the purchase agreement. The seller shall be liable for such defect unless the buyer could have recognised the defect with the usual levels of diligence associated with the purchase agreement. However, provided that the seller explicitly guaranteed the authenticity to the buyer, the seller’s full liability remains preserved.

In addition to defects liability claims, under certain circumstances the buyer may be entitled to claim the difference between the purchase price actually paid and the real value of a fake or forgery, if the seller knew or should have known, by its expertise, that such piece is a fake or forgery. Moreover, the buyer may further consider taking necessary steps to initiate criminal proceeding.

However, the most efficient and recommended strategy minimising any potential risks is undoubtedly thorough due diligence on the buyer’s part provided by thoroughly evidenced provenance and an expert’s opinion from a distinguished expert.

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VART TRANSACTIONS

iPrivate sales and auctions

In the Czech Republic auctions are quite common, for rare and antiquarian items, as well as artworks. Art can be purchased by both natural persons and companies. Both domestic and foreign persons may participate as bidders. The acquisition of art objects may take place directly or indirectly through an agent.

The main laws governing private sales and public auctions in the Czech Republic are: Act No. 26/2000 on public auctions; Act No. 71/1994 on the sale and export of objects of cultural value (the Export Act) and the Civil Code.

Public auctions of art conducted in an auction house or online are subject to the Act on public auctions. The persons involved might be physically present or use audiovisual or electronic means to attend the auction. The auctioneer must have a trade licence to conduct public auctions. In a public auction, ownership of the auctioned item is acquired by the fall of the hammer provided that the bidder has paid the price achieved in the course of the auction within the set time period. The auctioneer shall, without undue delay, hand over the auctioned item to the person who has acquired ownership and issue a written confirmation of its acquisition of ownership.

For private auctions only the general regulation of the Civil Code applies, with no application of the Act on public auctions. Such privately held auctions are governed by auction rules issued by the organiser of the private auction and must reflect the relevant provisions of the Civil Code for consumer protection.

As further described bellowed, the Czech Republic applies several measures to the export and sale of antiques and art. Objects of cultural value in the field of archaeology or of a sacral and cult nature may be auctioned or offered for sale only if accompanied by a certificate for permanent export. Professional organisations listed by the Ministry of Culture, including museums, galleries, libraries and the National Heritage Institute, issue such certificates.

ii Art loans

Art loans are not particularly widely practised in the Czech Republic and there is thus no specific regulation in this regard other than general laws regarding object leases. The practice is generally embraced by minor or alternative galleries who lease artworks of emerging artists to various office spaces on a short-term basis.

iii Cross-border transactions

Export

In addition to EU law, the export of cultural property from the Czech Republic is regulated by several local legal acts, depending on the type of cultural property in question. The most profound protection is provided to artworks classified as cultural treasure or national cultural treasure, for which exports from the Czech Republic are subject to approval from either the Ministry of Culture or the government.2 A similar regime applies to collections and collection items under Act No. 122/2000.

Furthermore, the sale and export of objects of cultural value is regulated by the Export Act. Objects of cultural value shall be exported from the Czech Republic only with an

2 Under Act No. 20/1987.

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export permit issued by certain cultural institutions or the Ministry of Culture. The owner of the artwork applies for either a temporary export permit or, if the artwork fulfils certain characteristics, a permanent export permit. Artworks that require a permit are classified by their age of origin and price. The respective professional institution shall decide within 21 days of receipt of the application to either issue the export permit or, if it refuses to grant the permission, to submit an application to declare the relevant artwork as a cultural treasure to the Ministry of Culture, which shall issue its decision within three months. Moreover, if the artwork is to be exported outside the European Union, an additional export permit needs to be obtained by the Ministry of Culture, which cannot be issued separately and is only complementary to the general export permit described above.

The case that resonated within the art community in the Czech Republic is the one of a prominent Czech gallery against the Ministry of Culture regarding František Kupka’s abstract The Shape of Blue, acquired by a foreign art collector for the very high sum of 55.75 million Czech korun. The Czech National Heritage Institute confirmed to the gallery via email prior to the auction that the respective abstract was not considered as cultural heritage. However, after the auction, to the new owner’s disappointment, the Ministry of Culture declared that The Shape of Blue could not be exported because it belongs to a set of works declared as cultural treasure in 1997 by the Ministry of Culture. The gallery applied for annulment of the declaration, which was denied by the Ministry of Culture and was followed by an action by the gallery against the Ministry of Culture. After several appeals, The Shape of Blue remains a cultural treasure and may be exhibited outside the Czech Republic only upon the Ministry’s consent.

Import

When it comes to import of cultural property to the Czech Republic, Czech legal regulation is far less restrictive and the import is subject to general conditions for import of goods as well as export conditions of the relevant jurisdiction of the country of origin.

In addition, the Czech Republic is a party to the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, the 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects and the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights.

When it comes to acquiring artworks from another EU Member State and its subsequent local sale, it is crucial to correctly cover the following aspects of Czech tax law:

avalue added tax (VAT);

bpersonal income tax (PIT) for natural persons; and

ccorporate income tax (CIT) for legal entities.

VAT

Generally, when it comes to artwork acquired by a Czech entrepreneur or a legal entity (VAT payer), the standard VAT regime shall apply to the acquisition of the artwork from another EU Member State and its subsequent sale in the Czech Republic whereby self-assessment of VAT (i.e., a reverse-charge mechanism) applies to the goods acquired from the Member State and the standard 21 per cent output VAT rate applies to the full selling price of the artwork in its subsequent local sale. However, subject to the conditions of the Act on value added

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tax, as amended (VATA),3 a VAT payer who is a ‘dealer of second-hand goods, artworks, collectors’ items and antiques’, pursuant to VATA may decide to apply a special voluntary regime (the Special Regime) in relation to such acquisition and its subsequent local sale. Under the Special Regime, the general 21 per cent VAT rate does not apply to the full selling price but solely to the art dealer’s margin on the local sale (the respective VAT payer does not have the right to claim input VAT). However, when considering the VAT aspects of a cross-border artwork sale, it is vital to bear in mind that the Special Regime shall be applied to both the acquisition of the artwork from the EU Member State and the subsequent sale of the artwork in the Czech Republic. Thus, it is not possible to combine the standard VAT regime when acquiring the artwork from another EU Member State with the Special Regime to its subsequent local sale.

Subsequent sale of the artwork in the Czech Republic

PIT

Under Czech tax law, the respective tax base (income from the sale of the artwork decreased by specified expenses) is generally subject to a 15 per cent PIT rate, provided that it is sold by a natural person outside his or her business activity unless the conditions for exemption of such income are met.

On the other hand, if the artwork is sold by an entrepreneur acting as a professional art dealer (or natural person within his or her business activity), the respective tax base (income decreased by specified expenses – ‘on a cash basis’) is subject to a 15 per cent PIT rate, as well as a potential solidarity surcharge of 7 per cent of the individual’s gross income, calculated on the amount by which his or her tax base exceeds 1,672,080 Czech korun.4 Social security and health insurance must be also considered.

It is necessary to distinguish these cases from cases in which an entrepreneur sells artworks in his or her own name on behalf of someone else (e.g., in the form of commission sales), in which case the entrepreneur’s taxable income consists only of remuneration for commission.

CIT

Under Czech tax law, if an artwork is sold by a legal entity, the respective tax base (revenues decreased by specified expenses – ‘on an accrual basis’) is generally subject to a 19 per cent CIT rate with no possible exemption for such income.

It is necessary to distinguish these cases from cases in which a legal entity sells artworks in its own name on behalf of someone else (e.g., in the form of a commission sale). According to the prevailing interpretations, in such case the taxable income of the legal person would consist only of remuneration for commission.

iv Art finance

The Czech Republic has a very unfortunate history in art-related lending from the 1990s, when several lenders, including major financial institutions, accepted forgeries or overvalued works as collateral. Due to several historical issues resulting from this, there is an overall reluctance to provide any finance against art works.

3Act No. 235/2004.

42020 rate.

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