Rental of personal belongings of historical figures
September 8, 2011 | 30,00 EUR | answered by Oliver Burchardt
Hello,
I own an extensive private collection of clothing, costumes, documents, and items belonging to a very famous deceased US actress, an icon who will always be present and in the media.
Recently, this collection has been temporarily loaned to museums and galleries for public exhibitions through a rental agreement (leasing of movable goods).
There is great interest in this collection internationally, so it is urgent to know how to treat the income from this rental for tax purposes and what expenses can be claimed.
The goal is NOT to include purchase prices (acquired through auction houses) as I want to avoid the collection being treated as business assets due to annual appreciation in value, resulting in potential taxes on profits when activities are discontinued in a few years.
However, I am still generating revenue from this and even took out a very high loan with corresponding interest rates that I need to pay. Therefore:
What expenses can I claim from the acquisition, even if the collection is not considered business assets, such as auction house fees, interest on loans, acquisition costs?
And, is it correct that the VAT rate for renting out historical collections, cultural goods, etc. is 7% and not 19%? And how would it be treated if I not only rent out but also offer additional paid consulting services through a separate consultant contract (7% or 19%)?
(As of 2012, I am obliged to pay VAT due to the amount of revenue generated). Thank you for your help.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
Please note that the tax assessment is based on the information provided. Changing, adding, or omitting information may significantly alter the tax assessment.
By renting out the items, you are engaging in commercial activities within the meaning of § 15 of the Income Tax Act (EStG), so the items underlying the generation of income must be assigned to business assets. Unfortunately, the provision of § 21 (1) sentence 1 no. 2 EStG, which states that the rental of movable assets falls under rental income, does not apply in your case, as the provision only applies to the rental of assets of a discontinued business. In your case, you are renting out assets from the business, not the entire business itself. Likewise, the general rule of § 22 no. 3 EStG does not apply, as you are not renting out only occasionally (at least that is what I gather from your comments regarding turnover amounts).
Appreciation gains are also taxable when sold within the business. The method of acquisition is irrelevant for the question of assignment to business assets.
Unfortunately, I cannot provide a more positive answer regarding this aspect.
The acquisition costs of the items consist of the purchase price and all incidental acquisition costs, including auction fees, any customs duties, and all other purchasing expenses. These expenses are not immediately deductible as business expenses but are claimed through depreciation for tax purposes. However, you can already claim the interest on borrowed capital as business expenses.
The income must be declared in Annex GSE and determined as part of an income-surplus calculation (unless you exceed the limits of § 149 of the Tax Code and become subject to bookkeeping requirements).
In terms of VAT, the reduced VAT rate should apply to the rental of the items in your case. According to your description, the items have historical value and are thus covered in position 54b of Appendix 2 to the VAT Act. However, please note that the assessment of what constitutes historical value is subject to subjective judgment, so a different interpretation by the tax authorities could be possible during a tax audit. However, since museums are borrowing the items, it can be assumed that they are of historical relevance.
When it comes to professional advice, it is important to distinguish whether the advice is an ancillary service to the rental or not. I would deny this here, as you have a separate agreement for this service. Therefore, the normal VAT rate of 19% applies to this service.
I hope that my explanations have been helpful in assisting you with your query.
Kind regards,
Oliver Burchardt
Tax Advisor
