Tax incentives for cultural heritage conservation

For debate in the Standing Committee — see Rule 15 of the Rules of Procedure

Doc. 9913 rev.

13 November 2003

Tax incentives for cultural heritage conservation

Report

Committee on Culture, Science and Education

Rapporteur: Baroness HOOPER, United Kingdom, EDG

Summary

As the cultural heritage (movable and immovable) is of intrinsic importance and its preservation is also of economic and social significance, the report argues that those responsible for its conservation deserve support from the wider community. Public funding alone is increasingly inadequate, in particular in countries with an especially rich cultural heritage or in those in transition from state-run economies. Encouragement should therefore be given to the private sector, whether corporate, institutional or individual.

Tax incentives is one way in which governments can provide such encouragement. These may take the form of reduced VAT, income tax, wealth tax, inheritance tax or gift tax. Other forms of tax incentives can apply to the activities of NGOs and in particular to action on an international level where national tax arrangements cannot apply. The report examines what has been done in this field and concludes that a new far-reaching country-by-country review is needed with the aim of identifying and publishing interesting examples of good practice.

The Committee of Ministers is asked to work directly with the EU authorities on the specific question of reduced VAT for conservation and with a view to introducing parallel schemes in non-EU countries.

A separate draft resolution calls for parliamentary action at national level and in co-operation with the European Parliament.

I. Draft recommendation

1. While recognising the intrinsic importance of our cultural heritage both movable and immovable, the Parliamentary Assembly would stress also its significance and value in economic and educational terms and in relation to creating international understanding and goodwill.

2. Historic buildings and other objects of historic and cultural interest have a major role in this context and therefore need to be protected, cared for and maintained for the benefit of present and future generations.

3. Responsibility for the conservation of any particular object or site rests first with the immediate owner. Where necessary that owner should be given whatever support and encouragement the wider community might be able to offer.

4. Public funding provided by governments and other authorities to fulfill these needs is increasingly inadequate. There are particular difficulties in countries with an especially rich historical heritage and in the former state-run economies.

5. The private sector can and does also play a role in terms of corporate sponsorship and fund-raising. Private owners can be encouraged by the power of example, assisted by information, and directly aided by sponsorship or the national lottery. Income from the use or display of cultural property can also be used to help in its maintenance (for example revenue from tourism, publications or film rights).

6. However, too much cannot be expected of the private sector without some form of incentive. The middle path of fiscal encouragement is urgently needed.

7. Fiscal arrangements can be flexible. They form part of cultural policy. They apply differently to property in public, institutional or private hands. Tax relief may be restricted to specific areas, such as the upkeep of rarely used churches or recently privatised property. It can be made conditional, for example on public access, proper maintenance or legacy to the state.

8. The Assembly has pressed in the past for fiscal incentives for heritage conservation on both national and European bases. The question has been frequently underlined by the European Ministers responsible for the cultural heritage. The Assembly welcomes the detailed proposals set out by the Committee of Ministers in its Recommendation R (91) 6 on measures likely to promote the funding of the architectural heritage and which include detailed reference to taxation. But many of these proposals have not been put into practice. A review of the situation in member states commissioned in 1994 has not been published.

9. The EU has itself been experimenting with reduced VAT for labour-intensive services and five countries are applying this to buildings. This could become a welcome move towards a cultural exception if it were to be explicitly applied to cultural heritage.

10. The Assembly therefore recommends that the Committee of Ministers

i. review the existing systems which apply tax relief and fiscal encouragement relating to heritage protection and conservation on a country-by-country basis and publish the results;

ii. make use of the new information technology, for example in the context of Herein (Heritage Information Network), to create a database as a guide to good practice in tax incentives and to identify interesting anomalies;

iii. consider ways in which tax incentives may be co-ordinated, for example along the lines of Transnational Giving Europe (TGE) so as to apply on a European or international level with a view to encouraging (a) the work of international non-governmental organisations in the heritage sector (as the private organisations working under Unesco auspices in Venice) and (b) international action and aid for the protection of heritage sites, buildings and objects of world wide significance endangered or damaged by war and conflict as in the Balkans and Iraq;

iv. encourage governments to recognise and support the role of intergovernmental bodies such as Unesco or the Council of Europe itself as well as NGOs such as Europa Nostra with regard to tax incentives for their activities;

v. engage in a direct dialogue with the relevant EU authorities to ensure that any future EU legislation on VAT includes specific recognition of heritage protection, particularly in relation to the regular maintenance and upkeep of properties thereby avoiding the greater costs of eventual major restoration work, and encourage the implementation of parallel arrangements in other European countries.

II. Draft resolution

1. The Parliamentary Assembly draws attention to its Recommendation …. on tax incentives for cultural heritage conservation.

2. It believes that the active involvement of parliaments is necessary to ensure that the various proposals for such tax incentives are introduced and applied.

3. It calls therefore on its members, individually or through all-party parliamentary heritage groups, to

i. initiate debate in their national parliaments to press their governments to take action on the recommendations outlined above and to co-ordinate that action and report back;

ii. in the case of EU member states, seek meetings with national members of the European Parliament that may be interested in this field and to co-ordinate national and EU action.

4. The Assembly notes that tax incentives is one of several aspects of the funding of cultural action on national and European levels that justify no less attention.

III. EXPLANATORY MEMORANDUM

by Baroness Hooper

Introduction

1. The general principle underlying this report and the motion for resolution, tabled by Mr Legendre and others on 3 July 2001 (Doc. 9158), is a recognition of and concern for our cultural heritage. The role that cultural heritage can play within the family of nations which constitute the wider Europe, and in relating Europe to the rest of the world, has unique value.

2. The Unesco Director General, Mr. Koichiro Matsuura, speaking in his capacity as the head of the UN organisation in charge of protecting, safeguarding and enhancing the world’s heritage said “heritage preservation is essential if we are to retain the wealth of our cultural diversity and ensure that the world is enriched rather than impoverished by globalisation”. This statement heralded 2002 as the UN Year for Cultural Heritage. One of the results expected from that year was to extend partnerships and mobilise financial resources.

3. In the Declaration of Dubrovnik, of May 2002, the Congress of Europa Nostra declared that ”The strength and coherence of European culture finds its finest expression in our common heritage which Europa Nostra is helping to preserve. It is an important element of the quality of life of European citizens. To preserve our heritage for future generations has, however, great economic and social significance”.

4. The Council of Europe through its conventions on cultural heritage and through numerous statements and recommendations from the Parliamentary Assembly and the Committee of Ministers has committed itself to support the principles and activities of the many bodies working in the cultural heritage field.

5. It is for these reasons that those with responsibility for the maintenance and conservation of any particular site, building or object that forms part of our cultural heritage deserve whatever support and encouragement the wider community might be able to offer.

6. Given that direct public funding appears to be increasingly unavailable for conservation and other like purposes, other ways need to be considered of supporting the owner of the property on whom the primary responsibility lies, whether a public authority, private foundation or corporation or, as in many cases, a private individual.

7. The private sector, whether corporate, institutional or individual, has a role in supporting work to maintain and preserve the cultural heritage by fund-raising, sponsorship and giving general support.

8. To encourage the private sector there are numerous ways and examples in which Governments can create incentives, in particular tax incentives.

Current examples of tax incentives in member states of the Council of Europe

9. Current examples of tax incentives in member states of the Council of Europe can be seen in:

Appendix 1: a briefing note on taxation and historic buildings by John Sell (updated May 2003)

Appendix 2: a memorandum on taxation of private individual owners of old buildings by the French Senate’s Division of Comparative Legislative Studies (February 2002)

and see Appendix 3: bibliography

Treatment of non-governmental organisations, private sector foundations and corporations

10. Attention should be given to the many organisations working in the field of conservation of the cultural heritage.

11. A series of Round Tables initiated by the Interphil Trust and culminating in the Barbados Declaration on the tax treatment of non-governmental and non profit organisations (Appendix 3) was convinced that “.. the tax treatment given to NGOs is a barometer of the high or low esteem in which States hold the voluntary sector and [was] concerned by the lack of sufficient incentives in national laws to transborder philanthropy”. It concluded that further research was required.

12. These are nevertheless examples of extremely important work carried out by non-profit organisations such as Europa Nostra, the Union of European Houses Associations and Icomos as well as many national organisations. In the United Kingdom, English Heritage for example has played a vital role in highlighting the VAT anomaly whereby substantial alternations to listed buildings are low-rated for VAT. Much new building is at zero % and there is a low rate of 5% for putting in energy saving measures. Repairs and maintenance however are charged at the full 17.5%, adding substantially to the bill. This amounts to a perverse disincentive which works against keeping buildings in good repair.

13. VAT rules are governed at EU level so it is a EU wide campaign for change that is needed. English Heritage is taking a leading role in this. But this means rewording the discretionary part of the relevant VAT Directive i.e. not just convincing the European Commission but getting unanimity among member governments. The Directive is due for a full review this year 2003.

14. Another United Kingdom example which has solved problems created by inheritance taxes in particular, is the National Trust. The concept of transferring the ownership of a property to the National Trust, a non-profit Foundation, whilst the family or owner retains certain habitation and association rights has proved invaluable for the maintenance and is some cases the salvation of historic buildings. The concept has been adopted in Romania by the Pro Patrimonio Foundation.

15. An arrangement has recently been established to enable tax relief on transnational funding to recognised charities (such as Europa Nostra) in certain European countries. The members of “Transnational Giving Europe” are the Charities Aid Foundation (UK), Fondation de France, King Baudouin Foundation (Belgium), Oranje Fonds (Netherlands) and Maecenata Int (Germany).

Treatment of Museums, Galleries and Churches

16. These institutions require special consideration and their status and ownership varies from country to country. However an interesting example of the effect of tax treatment arose in the UK in relation to national museums and galleries which historically gave free access to the public. Because of this they did not have entitlement to a repayment of VAT. It was only by introducing admission charges at a low rate that they were able to recoup a very large amount of VAT. Eventually the Government conceded that their desire to ensure free access to museum and galleries required the creation of an exemption.

Treatment of individuals

17. For those owning historic properties and sites it is clear that special treatment in relation to Inheritance taxes, Wealth taxes and Capital Gains Tax, provides the incentive to maintain and repair their properties on the principle of prevention rather than cure.

18. For those who make voluntary donations in support or particular projects or properties or to voluntary organisations working in the field, a gift aid scheme such as that currently operating in the UK can encourage a higher rate of contribution. It enables charities to reclaim basic rate tax deducted and also enables higher rate tax payers to claim relief on the difference between the basic and higher rates.

Conclusions

19. It is evident that further research is required to see the full picture of tax treatment and fiscal encouragement in the area of heritage conservation throughout all the member states of the Council of Europe.

20. The Council of Europe has an important role to play in co-coordinating activities in this area and in preparing guidance on best practice.

21. In considering issues relating to tax incentives, the wider issues of funding the conservation and maintenance of cultural heritage clearly require further investigation and research.

APPENDIX 1

Briefing note on taxation and historic buildings

by John Sell, consultant expert

(May 2003)

Introduction

All European countries have taxes which to a greater or lesser extent affect the ability of owners to care for historic buildings. In many countries, particularly those of the former Soviet bloc, the majority of historic buildings remain in state ownership and therefore taxation has less effect in their case than in those countries where there is a preponderance of private ownership. In western Europe something like 65% of historic buildings are owned by non-state bodies or individuals.

Information on taxation has so far been obtained from 26 of the 44 states which are members of the Council of Europe. No information has been obtained from Albania, Andorra, Armenia, Azerbaijan, “the former Yugoslav Republic of Macedonia”, Georgia, Latvia, Liechtenstein, Lithuania, Luxembourg, Moldova, Romania, Russia, San Marino, Slovakia, Turkey, Ukraine and Yugoslavia although information is promised from 7 of these countries and it is anticipated that information will be obtained from a further 5 countries in the near future.

Information has been obtained on 5 types of tax: VAT, Income Tax, Wealth Tax, Inheritance Tax and Gift Tax. No comparative information has been obtained on property or local taxes although some information is available for some countries.

Nearly all countries charge VAT on the supply of goods and services and in nearly every case VAT on works to historic buildings is charged at a standard rate somewhere between 15% and 25%. Some countries, particularly those within the European Union, make a distinction for VAT purposes between dwelling and other building types. A small number of countries have a lower rate of VAT for works to historic buildings.

All countries charge Income Tax and a significant proportion allow the cost of repairs and maintenance to historic buildings to be offset against income tax. Interestingly, Wealth Tax is more common in western Europe than eastern Europe.

Wealth tax concessions to owners of historic buildings are not common bur anecdotal evidence suggests that wealth tax is rarely significant. Inheritance Tax concessions to owners of historic buildings are common but, once again, anecdotal evidence suggests that, except in particularly unfavourable combinations of circumstances, inheritance tax is not significant. Fewer concessions are made to owners of historic buildings in relation to Gift Tax but, once again, there is a general impression that gift tax is not a significant consideration.

The above remarks point to serious gaps in the information available on taxation and historic buildings in Europe and the need for further research. Gathering information on the 5 taxes from those countries for which no information is currently available should be relatively easy; it probably needs only time and persistence. In many countries property taxes are local taxes and finding that information is likely to require significant research. As pointed out above, taxation has a greater effect on the care of historic buildings in countries with higher levels of private ownership and information on the relative proportions of ownership types in each country would therefore be useful. Tax avoidance as opposed to tax evasion is perfectly legitimate and it is reasonably clear that for 3 of the 5 types of taxation for which information has been obtained, the ability of owners to avoid significant taxation means that these taxes do not have a serious effect on the care of historic buildings.

The report which follows sets out a brief description of taxation as it affects historic buildings in each of the member states of the Council of Europe. This information is summarised in Table 1 at the end of the report. For those countries for which it has so far proved impossible to obtain information an indication is given of the likelihood of that information becoming available.

Country by country review

Albania

No information available. Information has been promised.

Andorra

No information available.

Armenia

No information available. With persistence it is expected that information will be available.

Austria

The standard rate of VAT is 20% with a lower rate of 10% on some products such as books. All kinds of work to historic buildings are charged Vat at the standard rate of 20%. The same rate is applied to building works and professional services.

It is possible to deduct the cost of repair or necessary alteration to historic buildings from income tax at up to 10% of income for companies and individuals.

There is no specific relief for historic buildings from wealth, inheritance or gift taxes but all buildings built before 1880 are valued at 30% Einheitswert (effectively at 10% market value).

Azerbaijan

The standard rate of VAT is 18% and applicable to all historic buildings. The same rate is applied to building works and professional services.

The cost of repairing historic buildings is deductible from income tax if the building is used as an investment or for development.

There is a concession on wealth tax if the building is used by government bodies or for certain social purposes such as science, health, culture and sports.

In the case of inheritance and gift taxes concessions are available if the inheritance or gift is received within the family. This is a general concession not just applicable to historic buildings.

Belgium

The standard rate of VAT is 21% and is applicable to all historic buildings. There is a lower rate of VAT at 6% for construction, renovation, rehabilitation, improvement and repair works to all dwellings which have been in use for more than 15 years. The same rates are applied to building works and professional services.

Bosnia and Herzogovina

Historic buildings law dates from 1986 and applies, where it can be applied, to the whole territory of Bosnia and Herzegovina. There is a federal law on excise tax for goods and services but no VAT. Each canton has its own law on administrative taxes and the only information in which any real confidence can be place is from Canton Sarajevo.

Owners of historic buildings within the Canton of Sarajevo are obliged to carry out repair and maintenance of historic buildings at their own expense. If costs exceed income from the property then the canton bears the expense.

There is no wealth tax. Inheritance and gift taxes are both payable at a rate of 10%. These taxes are not payable when the property is given to either the State of Bosnia and Herzegovina, the Federation of Bosnia and Herzegovina, the cantons, the municipalities or religious communities.

No information is available for Republika Srpska. With persistence it is expected that information will be available.

Bulgaria

No information available. Information has been promised.

Croatia

VAT is payable at a standard rate of 22% and there are no concessions for work to historic buildings.

Owners of historic buildings are able to offset the tax from income to the monument against its repairs and maintenance. Income tax is at a rate of 22%. There is no wealth tax. There are both inheritance and gift taxes but no concessions are available on either of these taxes to owners of historic buildings.

Cyprus

Owners can offset restoration costs and rents consequent upon restoration against their general income tax. There are no wealth, inheritance or gift taxes.

Czech Rep

No information available. Information has been promised.

Denmark

VAT is payable at a rate of 25% and there are no concessions for work to historic buildings.

Repair works are tax deductible from income tax under a special formula which assesses the average annual rate of decay. These allowances are indexed to inflation and can be carried forward from year to year. No concessions on wealth, inheritance or gift taxes for owners of historic buildings.

The valuation basis for property is ejensdomværdi, roughly equivalent to the German and Austrian Einheitswert, and this can result in a reduced value for older property. Local land taxes may be suspended in respect of historic buildings.

Estonia

VAT is payable at a rate of 18% and there are no concessions for work to historic buildings.

There is no wealth tax. No concessions on income, inheritance or gift taxes are available to the owners of historic buildings.

Finland

VAT is payable at a rate of 22% and there are no concessions for work to historic buildings.

Owners can set off income to a historic building, e.g. rent, against income tax.

No concessions on wealth, inheritance or gift taxes are available to the owners of historic buildings.

France

The standard rate of VAT is 20.6% and is applicable to all historic buildings. There is a lower rate of VAT at 5.5% for works to all dwellings more than 2 years old. The same rates are applied to building works and professional services.

Owners can set off repair costs against income to the historic building, e.g. rent or entrance charges if open to the public. In some circumstances these costs can be set off against the main income of the owner if the income to the monument is insufficient. In some cases, where maintenance costs are high, the valuation of the historic building may be lowered in assessing wealth tax liability. Inheritance tax can be reduced if the heirs to a property contract with the state to open the property to the public for an unlimited period. It is usually required that the property is open for 80 days per annum. No concessions on gift tax are available to the owners of historic buildings.

Georgia

No information available.

Germany

The valuation basis for property is Einheitswert, and this results in valuations for tax purposes at about 20% of market value. It is possible to reclaim expenses for works and maintenance against income tax at a rate of 5% for 20 years. It is possible to reduce the liability for wealth, inheritance and gift taxes in respect of historic buildings by 60% on condition of reasonable access for research or education or 10% on condition of proper maintenance, 10 years continuity of ownership and reasonable public access.

Greece

VAT is payable at a rate of 15% and there are no concessions for work to historic buildings.

Up to 30% of income derived from historic buildings can be deducted from income tax as set off against the costs of repair and maintenance. This is twice the amount allowed for other types of buildings. For wealth tax purposes, the valuation of historic buildings is set at 50% of the official, registered value.

Hungary

VAT is payable at a rate of 25% and there are no concessions for work to historic buildings.

No concessions on income, inheritance or gift taxes are available to the owners of historic buildings. There is no wealth tax. In certain circumstances import duties may be reduced on goods needed for works to historic buildings.

Iceland

VAT is payable at a rate of 24.5% and there are no specific concessions for work to historic buildings, however there is a 60% refund of VAT on works to dwellings resulting in an effective rate of VAT for dwellings of 9.8%.

No concessions on income, wealth, inheritance or gift taxes are available to the owners of historic buildings.

Ireland

VAT is payable at a rate of 21% and there are no specific concessions for work to historic buildings, however works to dwellings are charged at a lower rate of 12.5%.

Income tax relief is available to owner-occupiers of historic buildings, approved by the tax authorities and which are open to the public. This can include buildings used, for instance, as guest-houses and for bed and breakfast. Exemption from inheritance and gift taxes is allowed for historic buildings approved by the tax authorities where reasonable viewing facilities are available to the public and where the property is retained by the successor for at least 6 years.

Italy

VAT is payable at a rate of 20% and there are no specific concessions for work to historic buildings, however works to dwellings are charged at a lower rate of 10%.

Owners can offset 19% of the cost of repairs against income tax. Wealth tax is charged on property at a lower than market value, usually at a reduction of 60-70%. The gift of a historic monument, where a liability arises, is taxed a rate of 3% of its value. There is no inheritance tax.

Latvia

No information available. Information has been promised.

Liechtenstein

No information available.

Lithuania

No information available.

Luxembourg

No information available. With persistence it is expected that information will be available.

Malta

VAT is payable at a rate of 15% and there are no concessions for work to historic buildings.

If a historic building attracts income, for instance from rents, than associated costs may be offset against the owner’s general income tax.

If a historic building is used as the sole residence of a vendor for 3 years prior to sale then there is no capital gains tax liability; similar rules apply to inheritance tax. Gift tax only applies as a form of duty on documents relating to the gift of immovable property.

Moldova

No information available.

Netherlands

VAT is payable at a rate of 17.5% and there are no specific concessions for work to historic buildings, however for all dwellings over 20 years old VAT is reduced to 6% for painting and stuccowork.

All repair and maintenance work on historic buildings can be set off against income tax as can new works such as kitchens, bathrooms, plumbing and heating. Historic buildings open to the public are exempt from wealth tax. Gifts and bequests of historic buildings to certified social and cultural organisations are free of inheritance and gift tax.

Norway

VAT is payable at a rate of 24% and there are no concessions for work to historic buildings

Owners can choose to offset either repair or maintenance costs of historic buildings against income tax. These rules are said to be unclear and are subject to review in the near future. No concessions on wealth, inheritance or gift taxes are available to the owners of historic buildings.

Poland

There is no VAT on conservation works but VAT at the standard rate of 22% is chargeable on repairs and construction works.

The cost of repairs and maintenance to all buildings can be offset against income tax. There are no special rules for historic buildings. Inheritance tax on historic buildings can be 0% if the owner contracts to maintain in accordance with the law of historic monuments and with the confirmation of the district conservator. In all other case the rate of tax is 50%. Gifts of cultural property are charged tax at a lower rate of 15%. There is no wealth tax. Local property taxes for historic buildings not used for business purposes can be a rate of 0%.

Portugal

VAT is payable at a rate of 17% and there are no concessions for work to historic buildings

The method of property valuation automatically gives some relief from inheritance and gift taxes, and also from local property tax. No information is available on income or wealth tax.

Romania

No information available. Information has been promised.

Russia

No information available. Information has been promised.

San Marino

No information available.

Serbia and Montenegro

No information available. Information has been promised.

Slovakia

VAT is charged on all building work at 10% and on all services at 23%. There are no concessions for historic buildings but deductions are available to businesses.

There are no concessions for income tax, inheritance tax or gift tax.

The valuation basis for property is roughly equivalent to the German and Austrian Einheitswert, and this can result in a reduced value for older property.

The Slovakian parliament has made a declaration that the cultural heritage is a public benefit. Theoretically this should mean that some form of compensation is available to owners for providing that public benefit.

Slovenia

VAT is payable at a rate of 20% and there are no concessions for work to historic buildings. The only concession is a lower rate of 8.5% for works to dwellings for disabled people. Conservation and restoration works are not liable to VAT if they are carried out by a non-profit organisation; this includes state bodies.

The costs of works of repair and maintenance to historic buildings permitted by the historic monuments authorities are deductible from general income tax at a rate of 3%. Wealth tax is not applicable to historic buildings; it is intended that wealth tax will increase from the present low level and this concession will therefore become more significant in the future. There are no special concessions on inheritance and gift tax but charitable donations and donations to state bodies are free of these taxes; these taxes do not apply in the case of gifts or bequests to children or spouses.

Spain

All works to historic buildings are charged at a lower VAT rate of 7%.

Costs of acquisition, repair, restoration and opening of historic buildings can be set against income tax at up to 25% of the tax with a 4 year carry forward on condition of opening free of charge four days per month. Urban classified monuments and works of art are exempt from wealth tax and certain local taxes. There are no concessions for inheritance or gift taxes.

Sweden

VAT is payable at a rate of 25% and there are no concessions for work to historic buildings.

Valuations for historic buildings can be reduced in assessing wealth tax liability. There are no concessions for income, inheritance or gift taxes.

Switzerland

The tax situation in Switzerland is complicated by the fact that the country is a confederation of 26 cantons. Taxes in all cantons are charged on income and wealth and in most on inheritance and gifts. Local and church taxes are also charged at a communal level. It is quite possible for tax rates in one commune in one canton to be double that in another.

Federal VAT is payable at the standard rate of 7.6% and there are no concessions for work to historic buildings.

In general owners of historic buildings can offset the cost of repairs and maintenance against income tax but for each canton the rules differ. Most Swiss properties are mortgaged and mortgage interest can also be deducted from income although a hypothetical rent is added to the income of owners occupiers when assessing their income for tax purposes. In most cases the liability to wealth tax for the owners of historic buildings is reduced by agreeing a ‘reasonable market value’. There are no specific concessions for inheritance and gift taxes although the taxable value of a historic building may be reduced.

“the former Yugoslav Republic of Macedonia”

No information available. With persistence it is expected that information will be available.

Turkey

No information available. With persistence it is expected that information will be available.

VAT is payable at a rate of 17.5% for works of repair and maintenance to historic buildings. Approved alterations and improvements to dwellings, churches and charitably owned historic buildings are not charged VAT, nor are works of substantial reconstruction to dwellings and charitably owned historic buildings, and works of conversion to residential use. A special grant scheme for ‘listed places of worship’ allows the owners of such buildings to reclaim the equivalent of the difference between the standard 17.5% rate of VAT and the lower 5% rate of VAT.

There is no Wealth Tax, there are no specific concessions on Income Tax or Gift Tax as far as historic buildings are concerned. There is a concession for Inheritance Tax purposes for a very small number of the most important historic buildings in the country.

Ukraine

No information available. With persistence it is expected that information will be available.

COUNTRY

VAT

INCOME TAX

WEALTH TAX

INHERITANCE TAX

GIFT TAX

VAT CHARGEABLE

STANDARD VAT RATE

LOWER RATE FOR MONUMNETS

LOWER RATE FOR DWELLINGS

VAT ON PROFFESSIONAL SERVICES

OFFSET AVAIILABLE

WEALTH TAX

OFFSET AVAILABLE

INHERITANCE TAX

OFFSET AVIALBLE

GIFT TAX

OFFSET AVAILABLE

ALBANIA

ANDORRA

ARMENIA

AUSTRIA

YES

20%

YES

AZERBAIJAN

YES

18%

YES

BELARUS

BELGIUM

YES

21%

21%/6%

YES

BOSNIA AND

HERZEGOVINA

NO VAT

YES?

YES

BULGARIA

CROATIA

YES

22%

YES

CYPRUS

YES

13%

YES

CZECH REP.

NO VAT ?

YES

DENMARK

YES

25%

YES

ESTONIA

YES

18%

YES

FINLAND

YES

22%

YES

FRANCE

YES

20.6%

YES

5.5%

YES

GEORGIA

GERMANY

YES

16%

YES

GREECE

YES

18%

YES

HOLY SEE

HUNGARY

YES

25%

YES

ICELAND

YES

24.5%

9.8%

24.5%

YES

IRELAND

YES

21%

12.5%

21%

YES

ITALY

YES

20%

10%

20%

YES

LATVIA

LIECHTENSTEIN

LITHUANIA

LUXEMBOURG

MALTA

YES

15%

YES

MOLDOVA

MONACO

NETHERLANDS

YES

17.5%

YES

NORWAY

YES

24%

YES

POLAND

YES

22%

0% on part

22%

YES

PORTUGAL

YES

17%

YES

ROMANIA

RUSSIA

SAN MARINO

SERBIA & MONTENEGRO

SLOVAKIA

YES

10%

23%

YES

SLOVENIA

YES

20.5%

NO/8.5%

20.5%

YES

SPAIN

YES

16%

YES

SWEDEN

YES

25%

YES

SWITZERLAND

YES

7.6%

YES/NO

YES?

YES/NO

“THE FORMER YUG. REP. OF MACEDONIA”

TURKEY

YES

17.5%

YES

UKRAINE

APPENDIX 2

TAXATION OF PRIVATE INDIVIDUAL OWNERS OF OLD BUILDINGS

Memorandum by the French Senate's Division of Comparative Legislative Studies

(February 2002)

Overview

In France private individuals who own old buildings can deduct maintenance expenses incurred in respect of such property from their taxable income. This is the main tax incentive whereby owners are encouraged to ensure the proper upkeep of old properties.

Different rules apply according to the building's classification:

- properties listed as historic monuments, registered in the supplementary inventory of historic monuments or granted special ministerial approval on account of their historical or artistic characteristics, such approval being possible only where the building is open to the public;

- properties located in a conservation area under the Malraux Act of 4 August 1962 which are "of historical, aesthetic or other interest such as to justify [their] conservation, restoration and enhancement";

- properties awarded the Heritage Foundation seal of approval. The Heritage Foundation, which was established under Law No. 96-590 of 2 July 1996, focuses on preserving the non-listed, unregistered heritage. Award of its seal of approval may be taken into account for subsequent granting of ministerial approval.

Owners of buildings that are listed, registered or have ministerial approval may deduct not only expenditure incurred for restoration, maintenance and repair work, but also interest on loans taken out for either the purchase of a property or work relating to it. The deduction conditions depend on the building's status and its use by the owner.

Owner-occupiers may deduct expenses relating to the property (their share of the cost of any subsidised work, loan interest, property tax, etc.) from taxable income within the following limits:

- 100% for properties listed or registered as historic monuments, provided these are open to the public;

- 50% for such properties not open to the public;

- 50% for properties granted ministerial approval, by definition open to the public.

Where the property is leased, the owner may offset all expenses incurred against rental income received. If this results in a deficit for property tax purposes, that deficit may be set against the owner's overall taxable income, without restriction, whereas the general rule is that deficits for property tax purposes, excluding loan interest, may be used only to offset income from property over a ten-year period within a limit of € 10,700 per year.

Where the owner does not occupy the building, but the public has access to it for an entrance fee, expenses deductible from property income also include the cost of opening to the public. The owner is entitled to deduct a flat-rate amount of € 1,525, increased to € 2,290 if the property includes a park or a garden, without proof of expenditure being required, but this must not result in a deficit for property tax purposes.

The measures introduced under the Malraux Act are intended to promote collective property restructuring schemes. Owners of buildings located in an area designated a conservation area under the Act may deduct from their property income not only loan interest and expenditure incurred for upkeep, repair and improvement, as defined under the ordinary rules, but also the cost of demolition work, of reconstruction of the roof or outside walls or of conversion for residential purposes, in so far as such work is provided for under the conservation scheme. Membership fees paid to owners' associations founded in connection with restoration schemes are also deductible.

Any resulting deficit for property tax purposes is deductible from the owner's overall income, without restriction, apart from the share of the deficit corresponding to loan interest, which can only be deducted from property income over the next ten years. To qualify for this tax benefit, the owner must, within twelve months of completion of the work, lease the restored property, unfurnished, as the tenant's main residence for a six-year term.

Owners of properties awarded the Heritage Foundation seal of approval may deduct part of the expenditure incurred for the conservation or restoration of these buildings from their taxable income.

The work must concern parts of the building visible from the public highway (roof, frontage, gables, etc.), which rules out alterations to the building's interior, except where the property is non-residential and open to the public.

The deduction corresponds to:

- 50% of the share of expenses borne by the owner, where grants received amount to less than 20% of the total cost of the work;

- 100% of the share of expenses borne by the owner, where grants received amount to at least 20% of the total cost of the work.

Moreover, only properties listed or registered as historic monuments are exempt from gift or death duties, on condition that such properties are open to the public and the heirs, donees or legatees sign an indefinite agreement with the state providing that this shall remain the case.

This study analyses the main legislation passed by France's neighbours to encourage conservation of privately owned old buildings, whether listed or not.

Three questions were successively considered in respect of each of the countries concerned namely Germany, England and Wales, Spain, Italy and Switzerland:

- At the time of acquisition, whether for a consideration or free of charge, is there full or part exemption from registration fees and death or gift duties?

- During the period of ownership, is the owner entitled to deduct expenditure on the building's upkeep? Is rental income subject to special tax treatment? Does the owner pay wealth tax or annual property tax at a reduced rate?

- On reselling the property, does the owner benefit from any exceptional treatment, for instance in respect of capital gains?

This study shows that Germany, Spain and Italy have introduced a fairly broad range of tax measures benefiting owners of old buildings, whereas England and Wales and Switzerland have not.

First observation: in England and Wales, as in Switzerland, there are few tax measures in favour of owners of old buildings.

Although English law provides for zero-rating of VAT on certain work carried out on scheduled or listed buildings, this measure is not applicable to mere maintenance or repair work. Exemption from death duties is granted on a discretionary basis by the authorities according to the property's importance from a heritage standpoint.

In Switzerland maintenance expenses incurred in respect of listed buildings are deductible from income. Conversely, for non-listed buildings deduction is allowed only where the expenditure does not enhance the building's value. It is true that non-deductible expenditure may be added to

cost on resale of the building, thus reducing the capital gain by an equivalent amount, but the fact that part of maintenance expenditure is not deductible discourages private individuals from purchasing old properties in a poor state of repair.

Second observation: a much more varied range of measures in favour of owners of old buildings exists in Germany, Spain and Italy.

Legislation on the various categories of taxes provides for exceptions in favour of owners of old properties, generally confined to listed buildings.

Maintenance expenses are deductible in all three countries, but the rules vary. In Germany, expenditure is deductible from income over a ten-year period at a rate of 10% per year. In Spain and Italy, it confers entitlement to a tax reduction, respectively limited to 15% and 19% of the expenditure incurred. In addition, in Spain there is a limit on eligible expenditure, corresponding to 10% of taxable income. At the same time, Spain subjects expenditure for the purchase of listed buildings to the same tax treatment as maintenance expenses.

The three countries have also instituted full or part exemptions from a number of taxes or assess certain taxes on a reduced base.

For example, in Italy listed buildings are excluded from the inheritance tax base. In Germany, some buildings are fully exempt, whereas others are 60% exempt. In Spain, all qualify for a 95% exemption.

As regards taxation of gifts, in Germany and Spain the rules are the same as for inheritance tax, whereas Italy levies a lump-sum tax in a negligible amount (€130).

In Germany and Spain listed buildings are exempt from annual property tax, which is raised by the municipalities. In Italy listed buildings do not qualify for an exemption but a favourable tax base is applied, namely the lowest rateable value for the land register area in which the building is located.

Spain exempts listed buildings from annual estate tax, which does not exist in either Germany or Italy.

Conclusion

The tax measures taken in favour of private individual owners of old buildings vary considerably from one country to the next and are supplemented by direct grants. Where there are no tax advantages, this is frequently because the country has opted instead for a system of direct grants.

B. National arrangements

GERMANY

Heritage conservation is the responsibility of the Länder. Each Land therefore applies its own rules. In some Länder protected buildings are those which have undergone a classification procedure and have been listed by the regional conservation department. Elsewhere, protected buildings are those that meet the criteria laid down by law.

Owners of protected buildings enjoy favourable tax treatment, resulting from a number of exceptional measures scattered throughout the federal laws governing the various categories of taxes. Some of these provisions are applicable not just to protected buildings, but to all buildings which it is in the public interest to conserve.

1. On acquisition

The law governing registration fees does not include any specific provision in favour of purchasers of old buildings. On the other hand, the law on inheritance and gift taxes does introduce favourable measures.

Full or part exemption from inheritance tax

Some old buildings are excluded from the inheritance tax base and are completely exempt. Others confer a 60% exemption.

Exemption, whether full or part, is granted subject to the requirements that conservation of the building be in the public interest and that income generated by the property be lower than expenses. It is rescinded if the building is resold within ten years or ceases to fulfil the criteria.

a) Full exemption

This concerns:

- buildings whose owners have decided to open them to the public, without being under any obligation to do so;

- buildings whose owners opt to make them subject to the Land legislation on heritage conservation, where the property has been listed or owned by the same family for at least twenty years.

b) Part exemption

Part exemption is granted subject to the requirement that the owner should, as far as possible, give researchers or members of the public access to the building.

In addition, the inheritance tax base is often reduced. This tax is in fact assessed on the property's "unitary taxable value", a concept introduced under the 1991 Valuation Act so as to harmonise the asset values taken into consideration for assessing various taxes. The tax authorities can reduce the unitary taxable value of protected buildings so as to take account of the constraints imposed on owners of such buildings. As a general rule, the reduction is between 5 and 10%.

Full or part exemption from gifts tax

The inheritance tax rules are also applicable to gifts.

2. During ownership

Deductibility of maintenance expenses

a) Properties which do not generate an income

Owners of buildings protected singly or as part of a group may deduct expenditure on upkeep and rehabilitation from their taxable income.

The deduction concerns all expenses borne by the owner. It is spread over a ten-year period, at a rate of 10% per year from the year in which the expense was incurred, without any possibility of carry-over from one year to the next.

Owners are entitled to the deduction only where the following conditions are met:

- they have a document from the department of cultural affairs attesting that the work is necessary;

- they do not live in the building where the work is carried out;

- they do not derive any income (for instance entrance fees) from the building during the year in which the expenditure is incurred;

- they are not granted any other tax benefit for performance of the work.

This measure is specific to protected buildings.

The same deduction possibility exists for owner-occupiers. In their case deduction is allowed not only for buildings protected under Land law, but also where the building's historic, artistic or architectural interest has been certified by the municipal authority. Entitlement to the deduction is subject to the requirement that the owner should not receive any other tax benefit.

This deduction constitutes a real incentive, since owner-occupiers of old buildings subject to the ordinary rules are merely entitled to an allowance of € 1,278 per year over an eight-year period, provided that their income does not exceed a certain limit (€ 81,807 per year for an unmarried taxpayer).

b) Properties generating an income

The tax treatment of maintenance expenses depends on their classification by the authorities. Rehabilitation expenses are those which lastingly enhance the value of the property, whereas other maintenance expenses relate to general upkeep of the building (renovation of façades, redoing the plumbing, replacing windows, etc.). As a general rule, the tax authorities treat any expenditure not in excess of € 2,000 as routine maintenance.

Accelerated depreciation of rehabilitation expenses

Where the building is protected under Land law or is of historic, artistic or architectural interest, rehabilitation expenses can be depreciated on an accelerated basis: 10% per year over a ten-year period, which is equivalent to deducting these expenses from property income. This possibility also exists for buildings located in urban areas designated for rehabilitation.

This is a real advantage, since, in the case of buildings erected before 1925 governed by the ordinary rules, the depreciation period for major maintenance expenses is forty years, giving an annual rate of 2.5%.

Spreading deduction of maintenance expenses for leased buildings

Owners of leased buildings protected under Land law may spread deduction of maintenance expenses in respect of these properties over a two- to five-year period.

This constitutes a real advantage, since, under the ordinary rules, such expenses are deductible only from property income for the year in which they are incurred. A deficit for property tax purposes can be offset against other income and possibly be carried forward from one year to the next, but not in full where it exceeds € 51,500.

Exemption from municipal property tax or assessment on a favourable tax base

Along with business tax, municipal property tax, which is governed by general rules laid down at federal level, constitutes the municipalities' main source of revenue. The tax rate is determined by the municipality.

By law municipalities are obliged to grant a property tax exemption to owners of buildings which it is in the public interest to conserve on account of their artistic, historic or scientific interest, subject to the proviso that income from the property must be lower than the related costs.

In practice, to obtain the exemption, the owner must provide a certificate from the department of cultural affairs.

Where a building is not exempt from property tax, the tax base may be reduced, as this tax is assessed on the unitary taxable value.

3. On sale

If a property is resold within ten years of its acquisition any capital gain counts as miscellaneous income for income tax purposes. Capital gains on old buildings are calculated according to the ordinary rules, and the gain is equal to the difference between the selling price and cost, which may possibly be increased by any improvement expenses incurred. However, where the owner of an old building has benefited from accelerated depreciation or another form of deduction of maintenance expenses, improvement expenses are reduced by the amount of any deductions already allowed.

ENGLAND AND WALES

Tax treatment of old buildings differs according to whether they are protected or not. The legislation recognises two levels of protection¹:

- scheduling as a historic monument, which is reserved for the most noteworthy buildings;

- listing, which is based on the building's age and the interest in conserving it.

Scheduled buildings are those which must be protected above all else, whereas in the case of listed buildings the emphasis is on continuing use. Scheduling does not preclude listing. Where a building is both scheduled and listed, the rules applicable to scheduled monuments take precedence.

VAT legislation includes a number of favourable measures applicable solely to protected buildings.

1. On acquisition

Exemption from inheritance tax

Some old buildings are excluded from the inheritance tax base, since the tax authorities may decide on a discretionary basis not to tax properties which they deem of importance to the national heritage.

Exemption is subject to the heirs' compliance with certain requirements, in particular a commitment to maintain the building and open it to the public.

2. During ownership

Zero-rating of VAT on certain kinds of work

Work on protected buildings used for residential purposes can be carried out at lower cost as a result of zero-rating of VAT on:

- supply of materials;

- services, excluding architect's fees.

To qualify, work must be approved by the authorities. Moreover, the measure does not apply to mere maintenance or repair work, but to major alterations or demolition work, for example.

Zero-rating of VAT enables the beneficiary to recover VAT, whereas this would not be possible with an outright exemption.

3. On sale

Zero-rating of VAT on the sale of certain old buildings

VAT is zero-rated on the first sale (or rental for a term in excess of twenty-one years) of flats created by converting a protected building (scheduled or listed) not previously used for residential purposes.

This measure is applicable only where extensive restructuring work has been carried out, since one of the following two conditions must be met:

- only the outside walls of the building are preserved;

- the work is approved by the department of cultural affairs and accounts for at least 60% of the total cost.

The main aim of this measure is to encourage re-use of protected buildings, such as warehouses.

SPAIN

Under the Constitution "protection of the cultural, artistic and monumental heritage" is the sole responsibility of the state, but each Autonomous Community can assume responsibility for "the monumental heritage of interest to the Autonomous Community".

Law 16/1985 of 25 June 1985 on the national historic heritage, which was passed pursuant to the above constitutional provision, is aimed at protecting the most noteworthy elements of the national heritage, regardless of their nature. Buildings which come within the scope of this law are included in the General Register of Properties of Cultural Interest, which includes properties already listed in the national inventory at the time of the 1985 law and those registered subsequently under a decree issued by the Ministry of Culture.

In addition, the Autonomous Communities may pass their own heritage laws and protect buildings which fall outside the scope of the national legislation.

Owners of properties included in the General Register are granted tax benefits.

Under the 1985 law the following are treated on the same footing as registered properties: buildings in an archaeological zone or a conservation area, castles (protected under a decree of 22 April 1949), monuments over one hundred years old (protected under decree 571/1963) and hórreos and cabazos² in Asturias and Galicia if they are at least one hundred years old. Registered properties and those treated as such qualify as "properties of cultural interest". Some tax measures taken in favour of registered properties apply to all "properties of cultural interest".

Buildings belonging not to the national historic heritage but to the Autonomous Community heritage confer an entitlement to benefit from some of the tax measures applicable to registered properties, whereas other old buildings are subject to the normal rules.

Only nation-wide measures are described below. The Autonomous Communities' powers in tax matters enable them, firstly, to establish deductions in respect of the share of income tax due to them and, secondly, to set tax scales, within the conditions defined by national law, for inheritance tax, gift tax and estate tax, all three of which they collect.

1. On acquisition

Deduction of a share of cost

Expenditure incurred on purchasing properties included in the General Register confers entitlement to a tax credit³ equivalent to 15% of the amount of such expenditure. This tax credit is not only capped, but also comes into competition with that granted for donations to associations, since the cumulative total of the bases of these two tax credits may not exceed 10% of taxable income.

To qualify, the owner must keep the property for at least three years. Furthermore, under the law of 1985, researchers must be afforded access to it, and it must be opened to the public at least four days per month.

The above percentages, which have been applicable since 1 January 1999, result from the law of 9 December 1998 on personal income tax. Formerly, under the 1985 law on Spain's historic heritage, they were 20% and 30% respectively.

This tax credit constitutes a genuine advantage. Under the ordinary rules, the cost taken into account is capped at € 9,015 and the deduction applies only where the building is the taxpayer's main residence.

Reduction in the estate duties base

For the purpose of assessing estate duties, all buildings qualifying as "properties of cultural interest" under the law of 1985 and all those protected under the Autonomous Communities' laws confer an allowance equivalent to 95% of their value where the heir is the spouse or a descendant. The tax benefit is rescinded if the heir fails to keep the property for at least ten years.

This allowance is additional to the personal allowance, the amount of which depends on the degree of kinship with the deceased. For spouses and descendants, the personal allowance currently stands at € 15,362.

The Autonomous Communities, which determine the rates at which estate duties are payable, may also grant additional allowances. In the case of properties protected under regional heritage conservation law, some, such as Aragon and Catalonia, grant allowances to all heirs, irrespective of their relationship with the deceased.

Reduction in the gift duties base

Properties conferring entitlement to assessment of inheritance tax on a reduced base also qualify for an allowance equivalent to 95% of their value where they are transferred to a spouse or to descendants as a gift. The following conditions apply:

- the donor must be at least sixty-five years old and permanently incapacitated;

- the beneficiary must keep the property for at least ten years.

Gifts do not confer entitlement to the personal allowances granted in the case of inheritance.

2. During ownership

Deductibility of maintenance expenses

Owners of properties included in the General Register are allowed a tax credit equivalent to 15% of the amount of any expenditure incurred for the conservation, repair and restoration of these properties, on condition that the sum concerned has not already been deducted from property income. This tax credit is governed by the same rules as the tax credit pertaining to the cost of acquisition. It is also granted subject to the requirement that the building be opened to the public.

Exemption from wealth tax

All buildings qualifying as "properties of cultural interest" under the law of 1985 and those protected under the Autonomous Communities' laws are exempt from wealth tax.

Exemption from municipal property tax

All buildings qualifying as "properties of cultural interest" under the law of 1985 are exempt from the tax on buildings, which is an annual property tax collected by the municipalities and based on rateable value.

3. On sale

Capital gains realised on sale of buildings are taxable. The tax treatment varies according to the period of ownership, but there are no exceptional measures for owners of old buildings.

ITALY

Tax treatment of old buildings differs according to whether they have been recognised as being of special cultural interest under a decree issued by the Ministry of Cultural Affairs or whether they qualify as part of the "national historic and artistic heritage".

Listed old buildings receive favourable tax treatment. This is not provided for in the decree of 29 October 1999 on legislative measures concerning the cultural and natural heritage, which lays down the legal rules governing listed properties. It is the outcome of measures establishing exceptions from the general rules, scattered throughout the legislation concerning the different categories of taxes.

1. On acquisition

Reduction in registration fees on purchase

Registration fees generally amount to 7% of the market value of the property purchased. For listed buildings, this is reduced to 3%, which is also the percentage applied to taxpayers purchasing their first main residence.

The reduced rate applies subject to the requirement that the new owner respects the obligation to conserve the listed building. If the new owner fails to accept this responsibility within a two-year period following the purchase, the fees are recalculated at the normal rate and a penalty is applied.

Exemption from inheritance tax

Listed properties are excluded from the inheritance tax base.

This tax advantage is rescinded if the property is sold within five years of the succession or if the heir fails to comply with the legislation on listed properties.

Flat-rate taxation of gifts

If the property is transferred as a gift, the donee pays gift tax. In principle, this tax amounts to a percentage of the property's value (between 3% and 7% depending on the nature of the relationship between the donor and the donee). Listed properties are granted exceptional treatment, since they are subject to a flat-rate tax, set at € 130.

2. During ownership

Application of a favourable base for calculation of fictitious property income

All owners of buildings are deemed to receive property income, even where they do not lease the property concerned. The income is calculated on the basis of the average rateable value, which is in principle reviewed at least every ten years⁴.

For listed buildings the rateable value is assessed as the lowest for the land register area in which the property is located, such areas being defined so as to group properties of a similar nature.

Deductibility of maintenance expenses

a) Non-rental properties

Owners of listed buildings, who are subject to the obligation of maintaining, safeguarding and restoring their properties, are permitted to deduct 19% of their share of any upkeep expenses from their income tax, as assessed by applying the applicable tax rate to their taxable income.

After the gross amount of tax due has been assessed a number of deductions are applied to take account of the taxpayer's dependents and of certain expenses, confined to those listed in the relevant legislation, which include maintenance expenses for listed buildings. The justification for deductions at this level is that they have no link with any specific income. That is the reason why the corresponding amounts are not deducted from gross income.

Deduction of expenses for the upkeep of listed buildings is allowed only where the expenditure is required by law or the department of cultural affairs has certified the need for it.

b) Rental properties

Where the property is rented, maintenance expenses are deducted from rental income, not gross tax.

However, in this case deduction of actual expenditure is precluded. The General Code of Tax Law provides for a flat-rate deduction equivalent to 15% of the rent (or the rateable value if higher), and the owner has no possibility of making other deductions. For properties located in central Venice or on the islands of Giudecca, Murano and Burano the flat-rate deduction is 25%.

Moreover, in certain areas where rental property is at a premium (in particular the cities of Bologna, Florence, Genoa, Milan, Naples, Palermo, Rome, Turin and Venice and the surrounding suburbs), owners are entitled to a supplementary 30% deduction (in addition to the 15% or 25%).

Assessment of municipal property tax on a favourable base

Municipal property tax is payable annually at a rate which varies from 4 ‰ to 7 ‰ depending on the municipality concerned, and the tax base is proportional to the property's rateable value.

For listed buildings the rateable value applied is the lowest for the land register area in which the property is located.

3. On sale

Reduction in capital gains tax relating to properties

Where a capital gain is realised on sale of a property, the seller must pay municipal capital gains tax. This tax is being phased out⁵ following the introduction of municipal property tax as from 31 December 1992.

Until 1 January 2003 a capital gain realised on sale of a listed building is taxable. For such buildings, the capital gain is calculated according to the usual scale, but the tax payable is reduced by 75%.

SWITZERLAND

Article 78 of the Federal Constitution provides "the protection of nature and the cultural heritage shall be a cantonal matter". However, it reserves the right for the Confederation to intervene in this sphere, in particular with regard to "objects of national importance".

The federal law of 1 July 1966 on protection of nature and the landscape has covered conservation of historic monuments since 1996. This law draws a distinction between historic monuments of national importance, a list of which is drawn up by the Federal Council, and monuments of regional or local importance, recognised in accordance with cantonal legislation on heritage protection.

Heritage policy is primarily grant-based, with the result that the tax rules establish few exceptions in favour of owners of old buildings. The main measure, deduction of maintenance costs, applies to all buildings, irrespective of their historic monument status.

1. On acquisition

Inheritance, gift and transfer taxes are levied by the cantons, and also by the municipalities in certain cantons. No specific measures exist for old buildings.

2. During ownership

Deductibility of maintenance expenses

a) Historic monuments

Under Section 32-3 of the Direct Federal Tax Act, which relates to income tax collected at Confederation level, "where not subsidised, expenses incurred for restoration work on historic monuments, undertaken by the taxpayer pursuant to the legislation in force, in agreement with the authorities or on their orders, shall be deductible from income".

The cantons also levy income tax. The relevant cantonal law must obligatorily comply with the federal legislation on harmonisation of direct cantonal and municipal taxes. This federal legislation includes a provision concerning historic monuments, identical to section 32-3 of the Direct Federal Tax Act.

b) Other buildings

Under Section 32-2 of the Direct Federal Tax Act, "taxpayers owning private buildings are entitled to deduct expenses necessary to their maintenance …".

Such deductions are permitted only where the expenditure is incurred with the purpose of preserving the value of the property. This means that expenditure enhancing the property's value is disallowed.

This rule, which was first laid down by the Federal Tribunal in 1973 and is known as the "Dumont practice", has been incorporated in the relevant regulations.

Article 1 of the regulation ("ordonnance") of 24 August 1992 concerning deduction of expenses relating to private property for direct federal tax purposes provides that "Taxpayers owning private buildings are entitled to deduct expenses necessary to their maintenance. Expenses which a taxpayer must incur during the first five years of ownership for the upkeep of a newly purchased property, which was poorly maintained by the previous owner, shall be [excluded]."

A second regulation of 24 August 1992 concerning expenses relating to private buildings deductible for direct federal tax purposes specifies that expenses relating to repairs or renovation work are deductible, where these do not result in an increase in the property's value.

It adds "The following maintenance expenses shall in particular be non-deductible: expenses incurred by a taxpayer to restore a newly purchased building, which had been poorly maintained by the previous owner, during the period - generally the first five years - following purchase (practice of the Federal Tribunal concerning expenses incurred shortly after acquisition)."

In 1997 the Federal Tribunal varied the Dumont practice by ruling that routine maintenance expenses incurred in respect of a newly purchased building, which had not been left in a state of disrepair by the previous owner, could be deducted from gross income immediately after purchase of the property, provided that the expenditure did not enhance the building's value.

At present, although the Dumont rule is not applied in a standard manner throughout Switzerland, it is acknowledged that this practice constitutes an impediment to proper upkeep of buildings and, in particular, dissuades individuals from purchasing old buildings in a very poor state of repair.

3. On sale

Reduction of capital gains

Capital gains realised on sale of a property by a private individual owner are taxable. The capital gains tax is generally levied by the canton, but in some cantons it is collected at municipal level.

Most cantons allow owners to add to the property's cost any repair and maintenance expenses incurred to preserve the value of the building during the first years of ownership, which could not be deducted by reason of the Dumont practice. This therefore reduces the capital gain by an equivalent amount.

APPENDIX 3

Bibliography

Earlier Council of Europe work

- PACE Rec 258 (1960) on tax relief for the Council of Europe Culural Fund and the European Cultural Foundation

- PACE Rec 656 (1972) on tax treatment of non-profit organisations (see Doc 3052 report for AS/Jur by Mr Grieve)

- PACE Rec 880 (1979) para 12 A 1.2 (general reference to tax concessions) – (see Doc 4396 report by Lord Duncan-Sandys)

- 2^nd Ministerial Conference Granada (Oct 1985) Res 3.E (support to private owners)

- PACE Rec 1059 (1987) on the economics of culture – see para 16.iv (European arts fund, tax arrangements for private patronage and other initiatives for culture) and 16.v (European convention on fiscal aspects of sponsorship) – (see Doc 5749 report for AS/Econ by Mr Tummers and Doc 5750 opinion for AS/Cult by Mr Bassinet)

- CM Rec (91) 6 on measures to promote the funding of the architectural heritage based on a specialist study by the Steering Committee for the Integrated Conservation of the Historic Heritage (published Dec 1991)

- 3^rd Ministerial Conference Malta (Jan 1992) Res 3.D (international legal instrument to promote through fiscal or other incentives investment or sponsorship in other countries)

- “Conservation of the architectural heritage: VAT and sales tax rules” report commissioned from the International Bureau of Fiscal Documentation (Amsterdam) in Dec 1994 [draft circulating internally dated 1996]

- 5^th Ministerial Conference Portoroz (April 2001) Res 1.3 (encourage citizen participation by appropriate measures and incentives, sponsorship and investment) and Declaration 10-12 (financial measures to encourage voluntary organisations)

- PACE Doc 9158 motion for a recommendation by Mr Legendre and others (July 2001)

- “Policy and law in heritage conservation” (edited by R. Pickard, 2001) [a further study is announced on “Financing the preservation of the architectural heritage”]

Individual countries

France

- Comparative study by the French Senate on taxation of private individual owners of old buildings (Feb 2002) see Appendix 2

- Rapport sur la fiscalité du marché de l’art en Europe par M Lellouche (Ass Nat, Feb 2003) esp pp 35-43 and 61

- Loi en faveur du mécénat présenté par M Aillagon (Ass Nat, April 2003)

United Kingdom

- PQ by The Bishop of Norwich on a lower rate of VAT for repairs to historic buildings including Grade I parish churches (House of Lords, Jan 1995)

- PQ by Baroness Hooper (House of Lords)

Other

European Landowners Organisation (ELO)

- Article by Mr de L’Escaille (Nov 2002) – French only

Europa Nostra

- Resolution on the application of VAT to restoration and maintenance of historic buildings (Strasbourg, April 1994)

- Report by Mr Borley (June 1994)

- European Heritage Tax Group constituted (Bruges 2002) including ELO, EN, UEHHA, UEASMSE and AEERPA

- Draft report by Mr Sell on VAT campaign Nov 2002

Europhil

- Round Tables on the tax treatment of NGOs (Bratislava Dec 1996, Amsterdam March 1998 and Barbados August 2000)

Transnational Giving Europe (TGE) see : http://www.kbs-frb.be/files/img/en/TGE_en.pdf

Union of Europeam Historic Houses Associations

- Summary analysis of the situation in 13 countries (Jan 2001)

***

Reporting committee: Committee on Culture, Science and Education

Reference to committee:. Doc. 9158 and Reference No 2637 of 25.9.2001

Draft recommendation and draft resolution adopted by the committee on 23 June 2003 with two abstentions

Members of the committee: MM. de Puig (Chairman), Baroness Hooper MM. Prisacaru, Smorawinski (Vice-Persons), Apostoli, Banks, Barbieri, Berceanu, Braga, Buzatu, Mrs Castro (Alternate: Varela i Serra), MM. Chaklein (Alternate: Fedorov), Colombier (Alternate: Kucheida), Mrs Cryer, MM. Cubreacov, Dačic, Dalgaard, Mrs Damanaki, Mr Debono Grech (Alternate: Falzon), Mrs Delvaux-Stehres Mr Devinski (Alternate: Duka-Zolomi), Mrs Domingues, Mrs Dromberg, MM, Eversdijk, Mrs Eymer, Mrs Fehr, Mrs Fernández-Capel (Alternate: Mrs Agudo), MM. Gadzinowski (Alternate: Malachowski), Galchenko, Galoyan, Gentil, Mrs Glovacki-Bernardi, MM. Goris, Gündüz I, Gündüz S, Gunnarsson, Mrs Hadziahmetoviċ, Hegyi, Howlin (Alternate: Mooney), Huseynov R, Iannuzzi, MM. Jakic, Jakovljev, Jarab, Jurgens, Mrs Katseli (Alternate: Sfyriou), Mrs Klaar, Mrs Labucka, MM. Legendre, Lengagne, Letzgus, Libicki, Livaneli, Mrs Lucyga, MM. Lydeka, Malgieri, Marxer, Mrs Melandri (Alternate: Gaburro), MM. Melnikov (Alternate: Gostev), Mestan (Alternate: Pavlov), Mezihorak, Mrs Milotinova, Mrs Muttonen, Mr O’Hara, Mrs Ohlsson, MM. Podeschi, Rakhansky, Rockenbauer, Rybak, Mrs Samoilovska-Cvetanova (Alternate: Mrs Petrova-Mitevska), MM. Schellens, Schneider, Shybko, Sizopoulos, Mrs Skarbøvik, MM. Sudarenkov, Tusek, Vakilov (Alternate: Aliyev), Mrs Westerlund Panke, MM. Wodarg, ZZ (Andorra),

N.B. The names of those present at the meeting are printed in italics

Head of secretariat: Mr Grayson

Secretaries to the committee: Mr Ary, Mrs Theophilova-Permaul

¹ Scotland and Northern Ireland apply different protection rules.

² Traditional grain lofts built on stone pillars

³ Costs which in France are treated as expenses deductible from taxable income are taken into account under a system of tax credits in Spain, since, with the exception of losses attributable to given categories of income or carried forward, no expense is deducted from overall income.

⁴ Where the property is the owner's main residence, the tax is assessed on the rateable value. If the property is vacant, the tax base is reduced. Conversely, it is increased if the property constitutes a second home. If the property is leased, the tax base in principle corresponds to actual rental income, after deduction of standard costs.

⁵ Traditionally, the municipal tax on capital gains relating to property was payable irrespective of the reason for the change in ownership. It also applied to successions until 1 July 2000 and donations until 1 January 2001. This tax currently solely concerns property which changes hands for a consideration and is applicable only to capital gains realised prior to 31 December 1992. These transitional arrangements will remain in force until 1 January 2003, from which date no capital gains tax on property will be payable.