On 8 May 2025, Advocate General Kokott (AG Kokott) handed down her Opinion in the case C‑744/23, Т.P.T. v Financial Bulgaria’ EOOD on the Value-Added Tax (VAT) treatment of a contingency fee, paid in the event of a successful legal case.
In the case at hand, a one-person law firm provided legal services to a plaintiff client, for free, pursuant to Bulgarian law on assistance in legal matters. The law firm was a taxable person registered for VAT in Bulgaria. Following a judgment in the plaintiff’s favour, the national court ordered the defending party to pay the law firm’s fees, exclusive of VAT. The law firm requested a review of that order, arguing that the fee should not be subject to 20% VAT.
Following a request for a preliminary ruling, AG Kokott considered under what circumstances a supply of services by a taxable person without consideration may still be considered a transaction which is subject to VAT within the meaning of the VAT Directive.
First, AG Kokott considered that the fact that no fee is due in the event of an unsuccessful outcome does not imply that the supply of services is free of charge and outside the scope of VAT. On the contrary, AG Kokott concludes that the service in the present case was an advisory service supplied for consideration in the form of an as yet uncertain fee from a third party, to which the law firm is entitled by operation of Bulgarian law. AG Kokott added that in this case, there existed a direct link between the service provided and the remuneration, regardless of the fact that the remuneration was paid by a third party (the unsuccessful defendant). The payment therefore did amount to consideration for a service.
AG Kokott stressed that the direct link between a service and the remuneration is, in her view, not called into question by the uncertainty as to the specific amount of the consideration. Crucially for other transactions which may utilise contingency fees, AG Kokott makes clear that (definitive) certainty as to the amount of the consideration is not required for a taxable transaction to exist.
AG Kokott also took the opportunity to distinguish this case from the decisions in Baštová (C‑432/15) and Tolsma (C‑16/93). The Tolsma case concerned a street performer and the VAT treatment of the remuneration of his performances. AG Kokott highlighted the fact that while the payments by passers-by were voluntary and uncertain, the true distinguishing factor was that the passers-by’s motivations were unknowable and subjective, such as joy or sympathy. Thus, in the absence of a contractual or statutory link between the service performed and the remuneration, the street performance is not a taxable transaction and not subject to tax.
The Baštová case concerned the question of whether the prize paid to a winner of a horse race could be regarded as consideration for a service provided by the owner of the successful horse. AG Kokott criticises the reasoning of the Court of Justice of the European Union (ECJ) which found this prize was not subject to VAT on the basis of the degree of uncertainty. AG Kokott took the view that uncertainty does not determine whether there has been a supply of a service for consideration, as demonstrated in the case of the law firm’s contingency fee. Nevertheless, AG Kokott still argues that Baštová was correctly decided, even if for other reasons than those brought forward by the ECJ at the time, and that is because the prize does not relate to an activity (for example, participation in a race), but is solely an award or prize given for winning. According to AG Kokott, winning a race is not a service, that is to say, it is not a consumable benefit that the winner can provide to another person.
AG Kokott’s opinion is a welcome opportunity for ECJ to clarify the impact of uncertainty on the VAT treatment of certain transactions, either by rejecting AG Kokott’s reasoning in this case, by adopting the AG’s distinction between participating in and winning a race, or by taking this opportunity to overturn Baštová.
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