Winners and losers in heritage tax scheme

Laura Noonan reveals further criticisms of the Heritage Tax Scheme, under which wealthy people donate heritage items instead of paying tax and then get publicly thanked for it

Lochlann Quinn, the chairman of the National Gallery, has endorsed the tax scheme that allows people to donate heritage items instead of paying tax. And a prominent Dublin art dealer has also told Village magazine that the scheme is "extremely good".

But the scheme is "wide open to abuse" according to several Dublin-based arts experts and an international arts source who all spoke to Village.

The scheme allows people to donate heritage items to national collections, and to get a tax write-off for the items donated. Items donated must be valued at over €100,000, and must be of significant national interest.

The system has been in place since 1995, and so far 41 items, valued at over €23 million have been donated. (The total value of items donated cannot exceed €6 million in any given year).

When the Dáil debated the relief in 1996, Síle de Valera, the then Fianna Fáil spokesperson on Arts, Culture and the Gaeltacht asked: "Would it be more effective to grant this money to individual bodies and allow them to increase their budgets by purchasing such items?"

But Lochlann Quinn rejected the idea that giving the money directly to the national collections involved would be more efficient. "This makes no sense as allocating scarce resources across all institutions dissipates the resource and does not allow for the major purchase, e.g. the Joyce papers."

Quinn himself has donated three items to the National Gallery, with a total value of over €4 million, since 2001. (Quinn was not chairman of the National Gallery when he made these donations.)

An international art source who spoke to Village said that the system was regarded as inefficient in UK art circles.

"Everyone would prefer if the money went straight to galleries, it would allow for a more sensible acquisition policy," he said.

He also said there were a number of dealers in the UK that sought out paintings that would make good heritage donations, and sought out wealthy Irish people to purchase them. He said that these dealers could make money from this.

People could also try to use the scheme to offload unwise purchases, the Dublin art expert said. "If someone buys something for €80,000 and then realises they won't be able to sell it on for that much they can donate it against tax instead."

But Lochlann Quinn told Village that he had agreed the donation of certain heritage items before purchasing them. "I believe the majority [of donations] are initiated by the cultural institutions," he added.

A prominent Dublin art dealer, who is a supporter of the scheme, said that, in his experience, the scheme does not result in people dumping unwanted art works on the national collections.

"If you have a tax bill of €80,000 you wouldn't race in and say 'look I have this tax bill, here's this painting'. It doesn't work like that." He added that he thought the scheme was "extremely good". This art dealer has been used several times by Revenue to value paintings that are being donated.

The valuations of items donated under the scheme is another problem, according to the scheme's critics. The valuer Village spoke to said that the presence of an independent valuer protects the system from abuses. "The valuer's role is to go out and ensure that the write-off value placed on the painting is fair and that the taxpayer isn't being fleeced."

When donations are made, the donor generally puts a value on the donation. Valuers are then brought in by Revenue to value the item. "Our value is the accepted one," he said. The independent valuers would not generally be made aware of what value the donor had put on the item.

But another dealer said that the valuation of Irish art by Irish dealers or auctioneers was not a sound method since it is in their interests to maintain high values for their main stock in trade, which is Irish art.

Revenue refused to give Village details of who had been engaged to do these valuations, saying "the legislation does not require the publication of details of valuers used".

Revenue confirmed that donors were allowed to withdraw items from donation if they were unsatisfied with the value placed on the item. But they said that this has never occurred. To date valuations have cost the Revenue just under €6,500.

The lack of transparency in the value and ownership of art works also poses problems for the transparency of valuations.

When paintings are sold publicly at auction the potential for abuse is lessened because the sale price is publicly known. But when paintings are sold privately the potential for abuse is higher because tracking their values and owners can be very difficult.

If two parties were colluding and bidding against each other at an auction they could inflate the price of a heritage item and then donate it to the state at the inflated price. There is no suggestion that this has ever taken place, it is merely suggested that it is possible that this could happen.

A spokesperson for Sotheby's in London confirmed that tracing the ownership and previous prices of paintings could be difficult, even for paintings sold at auction. She said that for paintings sold at Sotheby's they are only allowed to release the name of the buyer if the buyer agrees to it. The same goes for the seller as more often than not the sellers also prefer to remain anonymous, she said.

The valuer used by Revenue did concede that "if everyone was in collusion, of course somebody could end up getting a tax write-off that was too high".

Another issue with the scheme was the fact that it benefits only a small number of national collections. The National Gallery, National Museum, National Library, National Archives and Irish Museum of Modern Art are the only collections that can benefit from the scheme regularly. The Irish Architectural Archives and the Hunt Museum have also benefited from one-off donations, but these have to be approved by the Minister for Arts and the Minister for Finance.

And the National Gallery has also been criticised for the way it displays the items as "donations from [donor's name] under section 1003 of the Taxes Consolidation Act", when the donation hasn't actually cost anything and has effectively been made by the state.

When asked how much it cost him to make his €4 million donations Quinn replied, "I have no idea but there may have been some incidental costs."

A National Gallery spokeswoman said: "The description on the label follows the wording of the legislation, consistent with other national institutions."