Bright prospects for the securitization of works of art in Luxembourg.
1. Development of the art market in Luxembourg
The establishment of a Luxembourg Freeport at the end of 2014 and the failure of the Art Exchange project (“SplitArt”) in 2012 has led many to question the viability and effectiveness of arts funding created in Luxembourg by different service providers to attract potential investors that are interested in an investment generally qualified as "emotional or aesthetic" in comparison with traditional financial investments.
2. Acquisition of works of art by a securitization vehicle
Whereas the acquisition of works of art has so far mainly been carried out by specialized investment funds, the use of securitization funds or companies is currently being considered. The use of this type of fund or corporation would have the advantage of requiring little or no supervision from the CSSF (Commission de Surveillance du Secteur Financier).
3. Difficulties in the acquisition of a work of art by a securitization vehicle
The use of such vehicles, however, raises many questions, in particular with regard to the method of evaluation of these art objects and the possible legal techniques to render these artistic assets more liquid. Many further attempts will probably be made to address the first question by the establishment of an Art Exchange. In the meantime, it is advisable to enlist the services of an expert in art and finance. In terms of rendering the assets more liquid, different contractual technical procedures can be proposed (a flexible investment period, open eligibility criteria for new assets, etc.).
4. Advantages of Luxembourg's financial centre
Should these difficulties persist, Luxembourg's financial centre is a hub for the establishment of such arts funding. The existing legal framework makes it possible for potential investors to benefit from enormous freedom in choosing the methods of assignment of artistic assets to the securitization vehicle (sale, assignment of a receivable, pledge, etc.) and the type of securities representing their investment, while maintaining a quasi-fiscal neutrality in relation to direct taxation of the securitization undertaking. Note also that, since 1 January 2015, a reduced VAT rate of 8% has applied to supplies and imports of works of art, waived in the case of art works lodged in the Luxembourg Freeport.