Publication date: February 17, 2025
A consignment agreement is a specific type of civil law agreement, regulated in the Polish Civil Code in articles: 765–773). In the context of the art market, it plays an important role, because it allows transactions to be carried out between the owner of the work and the client through the consignment entity. Particular attention should be paid to the specifics of taxation of these transactions, where a VAT margin invoice is used.
Construction of a consignment agreement
A consignment agreement allows for documenting the fact of transferring a movable item for storage in a specific state. Moreover, it regulates the principles of cooperation between the consignor (owner of the movable item, the principal) and the consignee (i.e. the consignment entity, the one who accepts the order), consisting in the consignee’s obligation to sell the movable item in his own name (but on the consignor’s account). It is worth noting that the consignee does not acquire ownership rights to the item, but only manages it in order to carry out the sale transaction.
One of the most important elements of the contract is to define its parties and subject, by indicating that the contract concerns a consignment, e.g. a work of art (such as a painting or sculpture) and describing between which entities it is concluded – who is the consignor and who is the consignee. It is also advisable to include additional information in the contract concerning a given movable item (e.g. in the case of a work of art, the provenience, period of creation, guarantees of originality, description of the state, any defects, past owners, etc.). Another important element of such a contract is to describe the terms of sale – such as the method of payment, payment deadline, or the minimum price below which the consignee has no right to sell the item. Moreover, it is also important to include in the contract a commission, which is remuneration for the consignee’s work, and the obligations of the parties (precise definition, e.g. responsibility for storage, technical condition, complaints and any other activities related to the sales process itself). Additionally, it is necessary to determine the deadline for the transaction, i.e. the duration of the contract, during which the consignee is to find a new buyer. At the end of the contract, there are its final provisions (these are, for example, clauses regarding the method of resolving disputes).
As a rule, a consignment agreement is concluded in writing. This allows to avoid any doubts of the parties as to its terms. However, the law does not specify any specific form, therefore an agreement concluded orally is also a valid agreement.
Application of the VAT margin procedure in the consignment agreement
A VAT margin invoice is a special type of invoice used when only the margin is taxed, i.e. the difference between the sale price and the purchase price. This procedure applies to used goods, works of art, antiques and collectibles.
The rules for issuing a VAT invoice margin for works of art are specified in Article 120 of the Goods and Services Tax Act. The key provisions are:
The VAT margin invoice offers a number of benefits for both entrepreneurs and the market as a whole. First of all, a lower tax burden, because it only covers the margin and not the full value of the sale, which significantly reduces transaction costs and improves profitability. According to art. 120. par. 3. item 1 and par. 11 item 3 of the Goods and Services Tax Act, a rate of 7% is applied to works of art acquired from their creators, heirs or imported by the taxpayer. As can be seen, lower tax burdens encourage trade, especially in works of art, which supports the development of this specific sector.
The sample transaction assumes that the consignee sells a work of art for PLN 50,000, which was previously purchased from the consignor at the sum of PLN 40,000. In this case, the margin is:
VAT is charged on the margin:
Net amount remaining in the commission after VAT has been deducted:
Amount to be paid to the commissioning party, assuming a commission agent’s commission of 10%:
Specifics of the VAT margin invoice
The VAT margin invoice is a unique document that not only simplifies the sales process (e.g. works of art) but also protects the privacy of the consignor and ensures compliance with tax regulations. In practice, this means that the seller can focus on the transaction without worrying about disclosing details regarding purchase costs or the amount of commission. Thanks to this, the buyer does not gain access to sensitive information, which is crucial in the context of trust in commercial relations. In addition, the commission agent, acting as an intermediary, is obliged to take care of the consignor’s property, which includes proper storage of the work and setting prices at the market level, which in turn promotes fair competition and stability of the art market. Regularly informing the consignor about the progress of the sale is also an important element that strengthens the relationship between the parties, and thus contributes to the efficiency of the entire process.
The consignee takes a significant risk related to the possibility of not selling the work within the agreed time, which may lead to the need to renegotiate the terms of the contract or return the movable item (e.g. the work) to the consignor, which in turn affects the reputation and business relations. The requirements for maintaining records and tax settlements are rigorous, which requires the commission agent to be very careful and attentive to detail. The art market is characterized by unpredictable prices and limited availability of unique objects, which further complicates the situation. The consignment agreement, combined with the VAT margin procedure, becomes a key tool that supports the trade in these goods, minimizing tax barriers and enabling professional sales management, which is essential in such a dynamic environment.
The consignment agreement in combination with the VAT margin procedure is an important regulatory and operational instrument in the art market. Thanks to precisely defined rules of cooperation between the consignor and the consignee and favorable tax solutions, it supports transparency, trust and efficiency of transactions. The VAT margin procedure reduces tax burdens, which favors the trade in works of art, while protecting the interests of the parties and increasing the attractiveness of this sector. Cooperation based on the consignment agreement, however, requires diligence and responsibility from the parties. The consignor must be sure that his property is properly secured and put up for sale on favorable terms, while the consignee bears the risk related to the necessity of selling within a specified time and compliance with complex tax regulations.
In the dynamic environment of the art market, the consignment agreement, supported by tools such as the VAT margin invoice, is becoming a key element facilitating the functioning of this sector. It provides flexibility, stability and a professional approach to sales management, which contributes to the development of the art market in Poland and strengthens its position on the international stage.