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China customs clamps down on artful dodgers

BEIJING () -- A museum curator, an investment advisor and an influential auctioneer are among players in China's art-and-collectibles world nabbed as part of a government crackdown on tax-evading importers.

The campaign was set in motion by recent tax law changes designed to standardize what had been arbitrary customs levies on sculptures, paintings and other works of art, as well as antiques and collectibles bought overseas.

The law took effect in December and serious enforcement by the General Administration of Customs began in April, when police detained He Juxing, curator of the Minsheng Art Museum in Shanghai and the Yanhuang Art Museum in Beijing, and Huang Yujie, chairman of the Beijing Bangwen Modern Art Investment Co., on tax evasion charges.

An industry insider told Caixin the detentions stemmed from an investigation into imports handled by a customs station in Shanghai.

The probe initially focused on two companies that handle art shipments for Chinese clients -- Beijing Nuoya Artwork Logistics Co. and IFAS Artwork Logistics Co. The investigation later spread to galleries, art institutions, auction houses, collectors and investors across the country.

He and Huang were linked to a single shipment containing a large number of valuable items for which the customs fee was abnormally low, apparently around 0.1% of the actual buying price, according to an industry insider.

Hundreds of other buyers, investors and collectors in China have apparently been connected to the shipment, the contents of which have not been disclosed by authorities.

One collector told Caixin names and descriptions of the art were written on shipping company documents handed to customs officials. Those documents apparently gave officials the evidence needed to compile a list of about 800 people who may have violated tax laws.

He alone has been accused of dodging 6 million yuan ($944,882) (USDCNY) in taxes imported between January and April, a government official told Caixin. Authorities questioned and later released He, who according to officials had been targeted by a months-long undercover probe.

Huang's alleged crimes have not been described publicly.

Separately, Caixin learned, authorities recently ordered an influential art buyer named Liu Yiqian, who owns a major stake in Beijing-based Kuangshi International Auction Co., to pay tens of millions of yuan in back taxes and fines.

Liu's auction house recently handled the sale of an antique collection of books called Guo Yun Lou for an astounding 216 million yuan.

Clear boundaries

Before the law changed, a collector told Caixin, customs and tax officials levied with flexibility. Customs duties for an imported piece of art could be determined according to its age, collectability and who was carrying the piece into China.

An item that's more than 100 years old, considered collectible and/or imported by someone other than its owner could signal a lower levy. Moreover, officials could impose steep duties on a shipment that contained more than the "right number" of items, which usually meant more than 10.

Any item that did not raise a red flag would be subject to a basic 6% duty, with the value-added tax waived.

This flexible approach to taxing apparently led to misinterpretations, however, that the government hoped to end by setting clear limits under the new law.

Art collectors have generally welcomed the standardization that accompanied the new tax law, as well as the crackdown on tax evaders.

The vice-secretary of the China Association of Collectors, Zhang Zhongyi, said he expects the wave of tax investigations to have a positive effect on the art market.

One reason why officials say tax evasion became common among importers is that, before the flexible approach was adopted, art transactions could be taxed at 30% of value, astronomical compared to an average 5% in Britain and Taiwan, which charge no import duties. The rate was cut to 6% for a basic imported item last year.

"China is still a country that assesses high duties" on art and collectibles, said Zhang.

Large quantities of artwork apparently have been imported in recent years, and much of it has been taxed at low rates if at all.

The Chinese government says about 1.7 million euros ($2.13 million) worth of these goods were imported from Hong Kong in 2010, but a United Nations report pegged the value at nearly 13 million euros (EURUSD) .

Some art institutions, galleries and collectors apparently evading taxes by smuggling items into the country as short-term exhibit pieces or as a traveler's personal item. Others got around the levies by reporting inaccurate financial data, or by using auction houses as mediators.

"Several large auction houses hosted auctions for (Chinese) art being brought into the country from abroad," a source said. "Some works were brought back by auction houses and others by individual owners. If an auction company collects, packs and ships works from abroad but does not report them when passing customs, there's a problem."

Anyone caught could be forced to pay a "huge amount" in back taxes and fines, the source said.

To further control the market for imported art and collectibles, the Ministry of Culture has been drafting new regulations. The ministry's vice director of markets, Tuo Zuhai, noted for example that art galleries currently fall through the cracks of Ministry of Commerce business registration rules, even though they handle transactions worth tens of billions of yuan every year.