4 . The CNC points out that works of art generally have an unlimited economic life. Consequently, they cannot be amortized. On the other hand, the AcSB states that property, plant and equipment whose use is not limited in time are subject to write-downs in the event of a loss in value or permanent depreciation.

Read: Avis CNC 2011/6, Traitement comptable de l’achat d’or et d’œuvres d’art, 16 mars 2011, available at http://www .cnc-cbn .be.

The position of the administration

In Summary:

– the directive referred to in No. 61/233, Com. IR 92, is hereby repealed with effect from 1 January 2011;

– from the same date, works of art incorporated in professional buildings will be depreciated at the same rate as the building in which they are incorporated.

The circular reminds us that it is “understood that works of art which are not an integral part of the professional buildings in which they are located remain non-depreciable (cf. No. 61/58, Com.IR 92)”.

Read: FreDerik FoGli – Can the acquisition cost of a work of art be depreciated for tax purposes? – Patrimoine et œuvres d’art – Questions choisies – 1st edition 2016 – Larcier – P. 325.

Can you lease works of art and deduct these costs?

It can also be very advantageous from a tax point of view for a company to lease its works of art and therefore its NFTs.

Read: Advance ruling no. 2012 .308 dd . 06 .11 .2012 06 .11 .2012, available at www .fisconetplus .be.

Leasing, sometimes referred to as a “finance lease”, can be defined as a contract that grants a customer the right to use an asset for a specified period of time in exchange for a series of payments. The lessor remains the legal owner of the asset throughout the term of the lease. Ownership of the asset may or may not be transferred to the customer at the end of the lease. It is an extremely common mechanism in the business world, as it allows for external financing of investments in a more flexible manner than traditional bank credit.

Traditionally, the leasing contract is for means of production (machines, tools,…) or transport, Belgium still distinguishes itself by the favourable tax regime for company vehicles, which constitute one of the privileged sectors of the “leasing companies”.

In view of this favourable context, some imaginative taxpayers have obviously not been slow to wonder about the possibility of financing, by means of leasing contracts, the acquisition of works of art intended to embellish the premises of their companies.

And the SDA’s response is favorable…

THE FACTS

1. The company A is active in the art sector, in a general way. Its purpose is to advise artists in the development of their career, as well as private or institutional collectors in the creation of a collection. It also acts as an art dealer (purchase and sale).

2. In addition to the purchase and sale, part of its activity will consist in offering, on a rental basis, works to companies or individuals. It is this part of its activity that is the subject of the present request.

3. Company A proposes to its customers, within the framework of the development of its activities as an art dealer, a system of renting works of art, with an option to buy.

4. The leased work is thus intended to equip the lessee’s professional facilities to give them a prestigious appearance illustrating the quality of the lessee’s professional services. The work will of course also contribute to the beautification of the workplace.

5. Company A will offer its clients the possibility of renting an exhibition of works, an exhibition composed of one or more series of works (a series being composed of ten works).

6. In order to set up this activity, company A will first ensure the collaboration of numerous artists who will make available to it the works necessary for the art rental activity.

7. Company A will promote the works and their rental and, if the works are selected by a client, will produce (print and frame) the works for display to that client.

8. The artist benefits from a commitment from company A to acquire works, if they were to be selected by the clients for rental.

9. Company A’s customer, the tenant of the works, pays a monthly rent corresponding to the sum of the following two elements:

– a lump sum, per photographic work exhibited, determined according to the following terms and conditions;

– … % of the face value of the exhibition.

10. The lump sum due per photographic work is calculated on a sliding scale, depending on the number of consecutive quarters during which the work in question remains on rental from the lessee:

– For the first full quarter of the exhibition, the monthly fee is set at … euros per work;

– For the second and third quarters of exhibition, the monthly lump sum is set at … euros per work;

– For the quarters of exposure after the third quarter, the monthly lump sum is set at … euros per work.

11. The monthly rent, calculated on the basis of the exhibition retained by the tenant, is mentioned at the bottom of the inventory attached to the customer contract.

12. These rent amounts cover both the provision of the work and other ancillary costs, borne by Company A, namely:

– Transportation and installation of the work to the location indicated by the renter;

– Regular maintenance of the work;

– Removal of the work at the end of the rental contract;

– The establishment of a certificate of authenticity and an artistic note;

– The establishment of a quarterly report on the artist’s progress and the value of the work.

13. At the end of the initial term of the lease, clients are faced with three options: (i) return the works to Company A and let the contract expire; (ii) renew the rental contract, under the same conditions; or (iii) exercise a purchase option on one or more, or all, of the rented works.

14. The purchase option referred to is assigned to the lessee by the lease agreement and can in fact be exercised at any time.

15. The purchase option price is set at the value of the work in question, as determined by the contractual inventory, less 80% of the rents paid by the lessee. The rents here taken into account for the adjustment of the purchase price are the variable part of the rents, corresponding to …% of the value of the work and not the monthly lump sum.

16. In the event that the Work acquired by Lessee has been leased by Lessee for a period in excess of one year, the purchase option price shall be deemed to be the price as determined after the expiration of the first one-year period following the leasing of the Work.

17. In practice, the discount offered upon exercise of the purchase option will never exceed 14.40% of the value of the work. In other words, the price of the work upon exercise of the purchase option will be at least 85.60%, provided that the work has been leased by the client for a minimum period of one year. If the rental period is shorter, the price of the work will be higher.

DECISION

Production costs of the works

18. In accordance with article 49 of the CIR92, “as professional expenses are deductible the expenses that the taxpayer has made or borne during the taxable period with a view to acquiring or preserving the taxable income and for which he justifies the reality and the amount by means of evidentiary documents or, when this is not possible, by all other means of proof admitted by common law, except for the oath.

Expenses that are actually paid or incurred during the taxable period or that have acquired the character of liabilities or losses that are certain and liquid and are accounted for as such are considered to have been incurred or borne during the taxable period.

19. In other words, according to article 49 CIR 92, and the jurisprudence related to it, the gross professional income can only be reduced by expenses that simultaneously meet the following four conditions:

1° they must be necessarily linked to the exercise of the professional activity;

2° they must have been made or borne during the taxable period, it being understood that professional expenses are considered as such if, during this period, they have been paid or borne or have acquired the character of liquid and certain debts or losses and are recorded as such;

3° they must have been made or borne with a view to acquiring or retaining the taxable income;

4° they must be justified by the taxpayer as to their reality and amount.

20. As mentioned above, Company A offers different series of works for rent to its customers. When a series of works is selected by a customer, it is printed and framed by Company A for display on the customer’s premises.

21. The totality of the production costs borne by company A in the context of the rental of the works meets the conditions set out above and can therefore be deducted as professional expenses within the meaning of article 49 CIR92.

Rent paid to company A

22. Article 61, paragraph 1, CIR92 stipulates that “depreciation is considered to be a professional expense insofar as it is based on the investment or cost value, where it is necessary and where it corresponds to a depreciation that has actually occurred during the taxable period”.

23. 61/58 Com.IR92 states that “works of art (paintings, sculptures, antiques, etc.) which are not an integral part of the premises in which they are located are not eligible for depreciation on the basis of their normal useful life, since such objects do not generally suffer any depreciation as a result of the exercise of the profession”.

24. As mentioned above, Company A’s clients will pay a monthly rent to cover the availability of the work on their premises. This rent is broken down as follows:

• a lump sum per work calculated on a sliding scale according to the number of consecutive quarters during which the work in question remains rented from the customer;
• …% of the face value of the exhibition.

25. In addition, the lessee has, at any time, a purchase option on the works constituting the exhibition. The price of the purchase option corresponds to the value of the work in question, less 80% of the variable part of the rents paid by the lessee, i.e. 80% of the …% of the value of the work.

26. In principle, and without prejudice to the application of article 53, 10°, CIR92, the rents paid by the lessee of the works to company A will be deductible as professional expenses provided that the conditions of article 49 CIR92 are effectively met for each lessee.

27. In addition, it should be noted that if the purchase option is exercised, the acquisition value of the work will be equal to the price initially agreed between the parties at the time the lease contract was concluded.
The portion of the purchase price included in the rental payments previously recorded as expenses will therefore be credited to the income statement as follows:

• for the recognition of rents recorded under expenses in previous years, a revenue account will be credited;
• for the recognition of rents recorded under expenses of the current year, an expense account will be credited.

Having regard to the requirement of Articles 20 to 23 of the aforementioned Act of December 24, 2002, and having regard to the considerations set out above, the College of the SDA, in its meeting of November 6, 2012, decides that:

28. In the case of company A, the production costs of the works will constitute deductible operating expenses within the meaning of article 49 of the CIR92, as they are linked to the realization of the activity of renting works of art.

29. In principle, and without prejudice to the application of article 53, 10°, CIR92, the rents paid to company A will constitute deductible professional expenses for the lessee of the work, provided that the conditions of article 49 CIR92 are effectively met for each lessee. In this context, in order to obtain a complete legal security in this matter, any future tenant has the possibility to submit a request for an advance ruling to the SDA.

30. In the event that Company A wishes to refer to this advance ruling in any document intended for its customers, it must provide them with a copy.

Read: FreDerik FoGli – leasing works of art – Heritage and works of art – Selected issues – 1st edition 2016 – Larcier – P. 333.