Opinion of the Advocate General — ECLI:EU:C:2025:332
Date: 2025-05-08
Language of the case: Bulgarian
Procedure: Reference for a preliminary ruling
Origin: Bulgaria

summary, the key question to be answered by the Court of Justice is therefore: Is Article 2(1)(c) of the VAT Directive to be interpreted as meaning that a service provided by a law firm to its clients free of charge, but in respect of which a statutory fee is payable by the unsuccessful party in the event of success, is provided for consideration, or is it a supply of services free of charge which is either not taxable, or for which consideration is presumed by virtue of Article 26? 30. For the purposes thereof, I shall first explain that, in the context of a general tax on consumption, the concept of a supply of services effected for consideration must be interpreted broadly. It therefore follows that the decisive factor cannot be the question of who paid something for a consumable benefit (the other party to the contract or a third party), but only the question of whether something was paid to a taxable person for a consumable benefit (see the discussion under heading B.1). 31. I will then explain why ambiguity (or uncertainty) as to the amount of the payment is immaterial for the purposes of VAT law and does not call into question the fact that a supply of services is effected for consideration (see the discussion under heading B.2.a). Even the fact that, in the present case, the unsuccessful party is required by law to pay costs does not alter the situation; that is because the Court of Justice has now adopted a broad understanding of the legal relationship it considers necessary (in that respect, see the discussion under heading B.2.b). Neither the rather vague statements made by the Court of Justice in Baštová nor the fairly broad reasoning set out in Tolsma militate against that. While those statements are ultimately correct in principle, the reasons underlying them relate to completely different situations (in that respect, see the discussion under heading B.2.c). B. The existence of a taxable transaction 1. A supply of services for consideration or free of charge 32. Article 2(1)(c) of the VAT Directive states that a supply of services for consideration by a taxable person acting as such is to be subject to VAT. In the present case, it is undisputed that the law firm provided legal advice to its client. They are not supplies within the meaning of Article 14 of the VAT Directive and are therefore a supply of services under Article 24 of that directive. 33. The law firm is registered as a taxable person. There is nothing to indicate that the law firm does not carry out an economic activity within the meaning of Article 9 of the VAT Directive. Even in so far as it acted for its client free of charge, and was entitled to do so (see Article 38(1)(2) of the ZA), that is not the primary decisive factor for the purposes of VAT law. 34. As Article 9 of the VAT Directive states, any person who carries out an economic activity is a taxable person, whatever the results of that activity. The Court of Justice has, in the meantime, made it clear on several occasions that the decisive factor in that regard is whether the activity is carried out in a manner similar to that of a typical taxable person (typological approach). (8) That can easily be affirmed where the person concerned is a lawyer – as in the present case – especially since not only contingency fees, but also the fact that, as a general rule, the unsuccessful party pays the fees (directly or indirectly), are fairly typical in that professional sector. 35. It therefore follows that the legal advice and legal representation provided by the law firm is – as Poland also rightly argues – a service supplied by a taxable person. The only question that remains is thus whether the service was supplied for consideration. 36. That question appears to be somewhat idiosyncratic in view of the fact that the dispute before the referring court actually hinges upon whether VAT of 20% (in the present case BGN 80) is payable in addition to the minimum fee of BGN 400. It is therefore obvious that the law firm receives a fee for its activity as a lawyer. It is even referred to in national law as a lawyers’ fee, which the lawyer is entitled to claim from the unsuccessful party (see Article 38(2) of the ZA). It is therefore surprising that there should be discussion of a supply of services free of charge in such a situation. 37. That is apparently based solely on the fact that the client was in financial difficulties and therefore could, and did, receive advice free of charge. As agreed in the contract, the customer does not owe any consideration for the legal advice. However, that fact alone does not mean – as Poland rightly argues – that the services supplied by the law firm are services supplied free of charge for the purposes of VAT law. 38. Indeed, the Court of Justice has already expressly stated that it is not necessary that the consideration for the supply of services must be obtained directly from the recipient thereof. It may also be obtained from a third party. (9) If a third party pays something for the transactions, the amount paid would therefore also be included in the taxable amount. An assumption is therefore made under the VAT Directive that consideration is paid even in cases where a party other than the contracting party pays the consideration for the service provided. 39. In turn, that can easily be explained by the nature of VAT as a general tax on consumption. (10) VAT seeks, in effect, to tax the financial cost of obtaining a consumable good (that is to say a consumable benefit, whether that is a tangible good, as in the case of a supply, or a non-tangible benefit, as in the case of a service). In that regard, the decisive factor is that the consumable benefit is provided by a taxable person and that another person (usually the recipient of the service, but it can also be a third party – see Article 73 of the VAT Directive) has paid the taxable person something for that benefit. 40. However, it is not a requirement under the VAT Directive that the benefit is provided on a contractual basis, although that will be the case in 99% of all cases. VAT is not a tax on legal transactions, or even a contractual tax, but – as the Court of Justice has always and correctly pointed out (11) – a general tax on consumption that is intended to tax the consumer in proportion to his or her financial expenditure. However, in the present case, there is no doubt that the client consumed the legal advisory services. Although he himself did not have to bear any financial expenditure, Article 73 of the VAT Directive extends the scope of the financial expenditure subject to taxation to payments made by a third party for the supply. 41. Thus, if a third party (in the present case, the unsuccessful party) pays (or is required to pay) to the law firm a minimum fee (as formulated in Article 38(2) and Article 36(2) of the ZA, read in conjunction with the NMRAV) by operation of law, then such a service is supplied for consideration. It is simply the case that, at the time the service is supplied, there is still uncertainty as to whether or not the fee will be paid (by the unsuccessful party) because the fee is payable only in the event of a successful outcome. 42. Even in the case of a contractual contingency fee, which the client is required to pay only if the case is won, nobody would refer to a service supplied free of charge simply because the payment is made only at the very end and in the event of a successful outcome. Nor, if the case were unsuccessful, would anyone refer to a service supplied free of charge within the meaning of Article 26 of the VAT Directive. Furthermore, legal advice provided by a lawyer for a contingency fee does not constitute the supply of a service for purposes other than those of his or her business within the meaning of that provision. That would, however, be a precondition for a fictitious supply of services for consideration, as provided for in Article 26 of the VAT Directive, which is absent in the present case. 43. Consequently, such a service will not be taxed if the case is unsuccessful because no one has made a financial outlay to the taxable person (lawyer) for the advisory service, which means that the reason for charging VAT has not arisen. However, that does not also mean that no VAT should be charged in the event of a successful outcome. 44. The transaction at issue in the present case is 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 law (see Article 38(2) of the ZA). 2. Payment of consideration for a service 45. At most, the statutory payment to be effected by the unsuccessful party could be irrelevant for the purposes of VAT law if it was not paid in consideration for the legal advisory service but rather for a non-taxable transaction. 46. That would be conceivable if, for example, the payment (that is to say a person’s financial outlay) is not made in exchange for a consumable benefit, as is the case, for example, where compensation is effected for purely pecuniary losses (lost profit, (12) or losses or damage caused by delay). The same applies to a mere gift (or donation) of money, for example for altruistic reasons. (13) Even prizes, for example in a game of chance or a horse race, are not paid out for a service provided to another person but ‘only’ as a prize on the occurrence of an uncertain event. (14) 47. Consequently, the only question to be decided in the present case is whether a payment made by a third party (in this case, the unsuccessful party) is paid for the legal advisory services provided by the law firm to its client. That requires a specific link between the payment and the service. That link is discussed in the case-law of the Court of Justice under the heading of a direct link between the service and the consideration (fee) received. 48. Such a direct link is established if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for the service supplied to the recipient. (15) However – as is also rightly apparent from the recent case-law of the Court of Justice – the necessary legal relationship is to be given a broad meaning. (16) (a) The uncertainty as to the specific amount of the consideration 49. In particular, the direct link (or the legal relationship) is not called into question by the uncertainty as to the specific amount of the consideration (in this case 0, or 400 or 480). (17) The specific amount of the consideration is relevant only to the question as to the taxable amount, which is clear from Article 90 of the VAT Directive. That provision governs the consequences of and the adjustments to be made to the tax liability as a result of a change in the taxable amount (in this respect, price changes are covered in particular) and demonstrates that the VAT Directive does not require the consideration to be definitively established at the time of supply. Thus, (definitive) certainty as to the amount of the consideration is not constitutive for the existence of a taxable transaction. 50. That is even more clearly apparent from Article 66 of the VAT Directive, which authorises Member States to introduce, generally, a so-called ‘actual taxation’, whereby the VAT liability owed is determined solely on the basis of the consideration received. Thus, the uncertainty as to the amount of the consideration to be paid is then relevant only for the purposes of assessing whether a tax liability has arisen and not for establishing whether a service is supplied for consideration. Accordingly, Article 66 of the VAT Directive refers to the point in time at which the tax claim arises. (b) The need for and scope of a legal relationship 51. In providing for the statutory entitlement to a lawyer’s fee in the event of a successful outcome, the Bulgarian legislator has, in my view, already created a sufficiently direct link between the payment effected by the third party and the service provided by the law firm to its client. While that might not be a purely contractual legal relationship, but could also be a statutory one, that does not preclude the existence of a taxable transaction under either the VAT directive or the case-law of the Court of Justice, contrary to what the defendant appears to suggest. 52. On the contrary, the Court of Justice (18) has stated that the criterion relating to the existence of a legal relationship in the context of which the supply of goods takes place and the consideration for it is effected must be interpreted taking into account all of the circumstances of each individual case in such a way that the principle of fiscal neutrality is not disregarded. In that context – as the Court of Justice has expressly stated – that criterion must be given a broad meaning. If the client had paid the law firm directly, that would undoubtedly be an assessable and taxable transaction. If a third party pays the fee (in the present case, is required to pay it), that scenario can hardly be assessed differently. 53. Even the payment for stolen electricity by an electricity thief led to the existence of a transaction for consideration because the direct link between the unlawful consumption and the ‘compensation’ was regulated by law and the ‘compensation’ (or rather: the compulsory remuneration) was tied to the specific consumption. (19) Hence, there was no reason to treat an electricity thief differently from a normal consumer for the purposes of VAT law. In the present case, there is also no reason to treat the transaction (that is to say, the legal advice) differently depending on who has to pay the remuneration for the services provided by a lawyer. In particular, it is irrelevant that the unsuccessful party does not pay voluntarily but is instead required to pay by operation of law. 54. Likewise, the VAT revenue in Bulgaria – which is even said to have a direct impact on the European Union’s own resources (20) – cannot depend on whether the utilised consumer good is paid for voluntarily by the client or by a third party (or must be paid for involuntarily). In other words, subjective elements are, in principle, alien to VAT law. (21) 55. Thus, according to the Court of Justice, (22) it is sufficient that the remuneration for the provision of a consumable benefit is governed by law. First, it is precisely that legislative framework that establishes a direct link between the provision of those benefits and the payment of the remuneration. Second, Article 25(c) of the VAT Directive expressly provides that a supply of services may consist, inter alia, of the performance of services by operation of law. That reasoning is also relevant in the present case. In that respect, the sole decisive factor is the presence of a direct link between the monetary payment and a specific consumer good. (23) 56. Consequently, as the Commission also rightly emphasises, the minimum fee payable to the law firm by the unsuccessful party by operation of law constitutes consideration as referred to in Article 2(1)(c) of the VAT Directive. It is to be treated as a payment by a third party, within the meaning of Article 73 of that directive, for legal advice provided to the successful client. (c) The Baštová and Tolsma cases 57. That is not precluded by the aforementioned decisions in Baštová (24) and in Tolsma. (25) 58. The case in Tolsma concerned the case of a street musician to whom passers-by gave money, although the question as to their motives for doing so was left open. In any event, they were not bound to do so by contract. The Court of Justice considered it decisive that the passers-by did not request music to be played for them; moreover, they pay sums which depend not on the musical service but on subjective motives which may bring feelings of sympathy into play. (26) The payments are – the Court of Justice continued –entirely voluntary and uncertain. (27) 59. It is true that some of the passers-by may not have paid for the service (music performance) but rather, for example, out of sympathy. However, a gift or donation is not a payment for a service but simply a monetary payment that is independent of any ‘reciprocal performance’. However, it also appears inconceivable that none of the passers-by enjoyed the musical performance and therefore paid a sum of money for it. 60. Since – as explained previously in this Opinion (point 51 et seq.) – the basis (contractual, statutory or non-contractual) upon which a consumer has paid something for the receipt of a consumable benefit (it appears undisputed that the enjoyment of music constitutes such a benefit, as shown by every paid concert attendance) is not a decisive factor, it follows that part of the money should have been regarded as consideration for a supply of services. The question regarding the extent to which the money collected relates to the service (thus giving rise to an assessable and taxable transaction) and the extent to which it was a gift or donation of money (that is to say that there is no taxable transaction), which is certainly not an easy question to clarify, is not in fact resolved for tax law purposes on the basis of an ‘all or nothing’ principle, but usually by means of an estimate. (28) 61. If, however, it can indeed be assumed – as the Court of Justice states in paragraph 17 of the decision in Tolsma – that the passers-by paid all the sums not because of the musical service but for subjective reasons, which may bring feelings of sympathy into play, then there was in fact no taxable transaction on the part of the street musician in that regard. However, the present case is therefore not comparable with that case. The unsuccessful party does not pay for subjective reasons or based on feelings of sympathy. The payments by the unsuccessful party are neither voluntary nor dependent on chance. On the contrary, both their substantive basis and their amount is rooted in statute. 62. On the other hand, the case in Baštová concerned the question as to whether the prize paid to a winner (that case concerned a horse race) could be regarded as consideration for a service provided by the winner. The Court of Justice rightly answered in the negative. (29) Unfortunately, it based that conclusion almost exclusively on the fact that the award of the prize is subject to a specific competition result and to a degree of uncertainty. Such uncertainty would preclude the existence of a direct link between the supply of a horse and obtaining a prize. That is also ‘underpinned’ by the statement that the existence of a service must be assessed objectively and must be independent of the purpose and results of the transactions concerned. 63. As already explained (see points 49 and 50), the uncertainties associated with a consideration will, at most, be relevant for the purposes of determining the amount of a tax, or the time at which the tax arises, but are not relevant as regards the question of whether there is a supply of goods or services for consideration. Despite all the associated uncertainties, variable fees (for example 10% of an as yet uncertain purchase price), fees subject to certain conditions (for example, contingency fees) or implied fees (in the absence of a specific agreement, the law assumes that the customary fees are deemed to have been agreed upon) have no bearing on whether there is a supply of services for consideration, in relation to which the respective fee is paid. 64. The conclusion in the case in Baštová is correct 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. However, winning a game or race is not a service, that is to say, it is not a consumable benefit that the winner can provide to another person. This distinguishes a prize from a payment for participation in a race. Participation in a race may – as the Court of Justice rightly held in the same case (30) – constitute a service rendered to the organiser if, for example, the latter awards a payment for that participation in the race. 3. Summary 65. In the present case, the fact therefore remains that the law firm provided an assessable and taxable service to its client and must therefore, as a registered taxable person, collect the VAT and pay it to the Bulgarian state. Consequently, the unsuccessful party must also pay that VAT to the law firm. The rule laid down in Paragraph 2a of the supplementary provision, according to which ‘in the case of lawyers not registered under the ZDDS, the amount of the remuneration may not include VAT, whereas, in the case of registered lawyers, the VAT owed shall be levied on the basis of the remuneration determined in accordance with this Regulation and shall be deemed to be an inseparable component of the lawyer’s remuneration payable by the client, the VAT owed to be established in accordance with the provisions of the ZDDS’, is therefore in line with VAT law. VI. Conclusion 66. I therefore propose that the Court of Justice answer the questions referred for a preliminary ruling from the Sofiyski rayonen sad (Sofia District Court, Bulgaria) as follows: Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a service provided by a law firm to its clients free of charge, but in respect of which a statutory fee is payable by the unsuccessful party in the event of success, is provided for consideration and therefore constitutes a taxable transaction. Neither the uncertainty as to whether a fee will be paid, and the amount thereof, nor the fact that the fee is payable by operation of law, nor the fact that a third party is required to pay the fee, preclude the service provided by the law firm from being subject to VAT based on the amount of the fee actually received. 1 Original language: German. i The name of the present case is a fictitious name. It does not correspond to the real name of any party to the proceedings. 2 The value of the claim in the present proceedings therefore corresponds to approximately EUR 41. 3 See only the decisions of the Bundesfinanzhof (Federal Fiscal Court, Germany; ‘the BFH’), in which it was necessary for the BFH to emphasise that the judgment of the Court of Justice in Baštová was not relevant for a performance-related fee – BFH, decision of 30 March 2021 – V B 63/20, MwStR (Mehrwertsteuerrecht (value added tax law)) 2021, 723, paragraph 37 et seq.; in the same vein, see BFH, judgment of 13 February 2019 – XI R 1/17, BStBl II 2021, 785, paragraph 46 et seq.; on the scope of the CJEU judgment having even been expressly left open – BFH, judgment of 10 June 2020 – XI R 25/18, UR 2020, 830, paragraph 45. 4 Judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraphs 29 and 35), which concerned a prize won on a horse at a horse race. 5 Judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraph 37) refers to the case-law cited in paragraph 28, and hence to the judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 17 et seq.), which, however, concerned voluntary payments made by passers-by to a street musician. 6 Council Directive of 28 November 2006 (OJ 2006 L 347, p. 1) in the version applicable for the year at issue, namely 2023; most recently modified in that respect by Council Directive (EU) 2022/890 of 3 June 2022 (OJ 2022 L 155, p. 1). 7 In that regard, see only the case-law of the Court of Justice, in so far as it has already dealt with Article 28: Judgments of 30 March 2023, Gmina L. (C‑616/21, EU:C:2023:280, paragraph 31 et seq.); of 4 May 2017, Commission v Luxembourg (C‑274/15, EU:C:2017:333, paragraph 85 et seq.); and of 14 July 2011, Henfling and Others (C‑464/10, EU:C:2011:489, paragraph 34 et seq.). 8 Judgments of 4 July 2024, Latvijas Informācijas un komunikācijas tehnoloģijas asociācija (C‑87/23, EU:C:2024:570, paragraphs 47 and 56); of 30 March 2023, Gmina O. (C‑612/21, EU:C:2023:279, paragraph 35); and of 30 March 2023, Gmina L. (C‑616/21, EU:C:2023:280, paragraph 43). 9 Judgment of 4 July 2024, Latvijas Informācijas un komunikācijas tehnoloģijas asociācija (C‑87/23, EU:C:2024:570, paragraph 27). In that sense, see also the judgment of 30 March 2023, Gmina O. (C‑612/21, EU:C:2023:279, paragraph 26 and the case-law cited). 10 See, to that effect: judgments of 3 May 2012, Lebara (C‑520/10, EU:C:2012:264, paragraph 23); of 11 October 2007, KÖGÁZ and Others (C‑283/06 and C‑312/06, EU:C:2007:598, paragraph 37 – ‘it is proportional to the price charged by the taxable person in return for the goods and services which he has supplied’); and of 18 December 1997, Landboden-Agrardienste (C‑384/95, EU:C:1997:627, paragraphs 20 and 23 – ‘Only the nature of the undertaking given is to be taken into consideration: for such an undertaking to be covered by the common system of VAT it must imply consumption’). 11 Judgments of 3 May 2012, Lebara (C‑520/10, EU:C:2012:264, paragraph 23); of 28 October 2010, Commission v Poland (C‑49/09, EU:C:2010:64, paragraph 44); and of 3 October 2006, Banca popolare di Cremona (C‑475/03, EU:C:2006:629, paragraph 21). 12 Fully applicable: Judgment of 18 July 2007, Société thermale d’Eugénie-les-Bains (C‑277/05, EU:C:2007:440). 13 To that extent, see judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 17 – ‘subjective motives which may bring feelings of sympathy into play’). 14 To that extent, see judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855). See also point 62 et seq. of this Opinion. 15 Judgments of 4 July 2024, Credidam (C‑179/23, EU:C:2024:571, paragraph 36); of 15 April 2021, Administration de l’Enregistrement, des Domaines et de la TVA (C‑846/19, EU:C:2021:277, paragraph 36); and of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 14). 16 Judgment of 27 April 2023, Fluvius Antwerpen (C‑677/21, EU:C:2023:348, paragraph 31). 17 Contrary to what may have been suggested in the judgments of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 14 et seq.); of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 34); and of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraph 37). 18 Judgment of 27 April 2023, Fluvius Antwerpen (C‑677/21, EU:C:2023:348, paragraph 31). 19 Judgment of 27 April 2023, Fluvius Antwerpen (C‑677/21, EU:C:2023:348, paragraphs 32 and 33). 20 Unfortunately, that statement is repeated on numerous occasions in the case-law of the Court of Justice (see only judgments of 13 October 2022, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna Praktika’ (C‑1/21, EU:C:2022:788, paragraph 58); of 5 December 2017, M.A.S. and M.B. (C‑42/17, EU:C:2017:936, paragraph 31); and of 26 February 2013, Åkerberg Fransson (C‑617/10, EU:C:2013:105, paragraph 26), but it is incorrect, as the own resource based on gross national income (GNI) compensates for any expenditure not covered by traditional own resources and the VAT own resource. See only the EU Commission’s proposal for a Council Directive of 24 April 2019 amending Directive 2006/112 and Directive 2008/118 concerning the general arrangements for excise duty as regards defence effort within the Union framework, COM(2019) 192 final, page 10 – German version. However, for indeterminable reasons, this incorrect textual formulation is repeatedly used by the Court of Justice. 21 That appears to be the purport of the statement in the judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraph 38), according to which ‘the term “supply of services” is objective in nature and applies without regard to the purpose or results of the transactions concerned’. 22 Judgments of 4 July 2024, Credidam (C‑179/23, EU:C:2024:571, paragraph 40), and of 27 April 2023, Fluvius Antwerpen (C‑677/21, EU:C:2023:348, paragraph 32). To that effect, see also the judgment of 21 January 2021, UCMR – ADA (C‑501/19, EU:C:2021:50, paragraphs 36 and 37). 23 To that effect, see also the judgments of 20 January 2022, Apcoa Parking Danmark (C‑90/20, EU:C:2022:37, paragraph 37 et seq.), and of 27 April 2023, Fluvius Antwerpen (C‑677/21, EU:C:2023:348, paragraph 30 et seq.). 24 Judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855). 25 Judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80). 26 Judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 17). 27 Judgment of 3 March 1994, Tolsma (C‑16/93, EU:C:1994:80, paragraph 19). 28 On that point and on admissibility from the point of view of EU law, see my Opinion in P (Wrongly invoiced VAT to final consumers II) (C‑794/23, EU:C:2024:1049, point 42 et seq.). 29 Judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraph 36). 30 Judgment of 10 November 2016, Baštová (C‑432/15, EU:C:2016:855, paragraph 39).