The Emerging Topic of 'Artwork and Cultural Property Tax Payment in Kind'

Last year's proposed amendment... Lost momentum due to tax revenue decline and liquidity issues
Low valuation levels remain the biggest obstacle "Government efforts needed for vault preservation and management"

[Image source=Yonhap News]

These days, the hot topic in museums and art galleries is the payment of inheritance tax in kind. Last year, the Kansong Art Museum, struggling with financial difficulties, put two gilt-bronze Buddhist statues from the Three Kingdoms period up for auction as a means to pay inheritance tax, bringing the issue to the forefront. According to Article 73 of the Inheritance and Gift Tax Act, the items eligible for payment in kind are real estate and securities (government bonds and stocks). Artworks and cultural properties are excluded.

If artworks and cultural properties are sold to private individuals, they can be exported abroad. If they have high artistic and academic value, this can restrict research activities as well as the public’s right to enjoy cultural heritage. Jeong Jun-mo, an art critic and former curator at the National Museum of Modern and Contemporary Art, argued, "It is illogical to include unlisted stocks as eligible for payment in kind while excluding artworks and cultural properties." He added, "The payment in kind system is the best way to bring hidden works into the light and assign them a role as public goods. It can prevent the export of cultural properties abroad while securing public assets."

Lee Kwang-jae, a member of the Democratic Party of Korea, proposed an amendment to the Inheritance and Gift Tax Act last November, which centers on introducing payment in kind for cultural properties and artworks. The Ministry of Culture, Sports and Tourism is also reviewing effective implementation measures with related ministries. However, the amendment will take at least a year or more to pass. It is widely believed that the system cannot be applied to the collection of the late Lee Kun-hee, chairman of Samsung Group, which has recently attracted considerable attention.

Discussions on payment in kind for artworks and cultural properties have occurred before. However, they have always fizzled out due to concerns about tax revenue loss and difficulties in price assessment and liquidity. Critic Jeong emphasized that payment in kind for artworks and cultural properties "actually increases national wealth." He said, "The government does not accept all artworks and cultural properties. Countries like the UK and Japan have very strict criteria for recognizing artistic and academic value. Such works tend to increase in price rather than decrease. There is a reason why these systems have been maintained overseas for over 100 years."

[Image source=Yonhap News]

The biggest obstacle is the valuation of artworks and cultural properties. When Japan revised its Special Taxation Measures Law in the past, it treated artworks and cultural properties as the lowest priority after government bonds, local bonds, and real estate. This led many heirs to sell the works, causing the loss of their public nature.

In Korea, financial institutions also undervalued artworks and cultural properties in the past. A representative example is the art financing collateral system implemented by Hana Bank in 1997. Because the loan amounts for antiques and contemporary artworks were limited to 40% and 30% of the appraised value respectively, only three collateral loans were made before the program was discontinued.

Recently, the situation has greatly improved. Active auctions have allowed artworks and cultural properties to form appropriate prices. The appraisal system is also regarded as having gained credibility. However, there are still criticisms that measures to enhance the reliability of auction prices, such as guaranteeing minimum liquidity, remain insufficient.

Art industry insiders said, "If the payment in kind system is introduced, controversies will arise over the scope and valuation of artworks and cultural properties," adding, "There is a possibility of overvaluation, and post-management costs are considerable, so accurate standards for the assessed value are necessary."

The implementation of the payment in kind system for artworks and cultural properties also requires consistent government efforts. Critic Jeong advised, "The costs for storage and management alone are not trivial," adding, "A high-level appraisal system must be established first. If professional public officials are not appointed, a related organization and committee composed of private members must be formed. Other countries also create and operate similar national institutions. We must fully trust the experts and entrust them with the task."

This content was produced with the assistance of AI translation services.