In 2017, we wrote in our article Performance fee subject to VAT about the Baštová judgment. In that judgement, the European Court ruled that prize money received for taking part in a horse race is not subject to VAT. The question is how far this judgement extends.
Direct link
The essence of the judgement is that there is no direct link between the service provided (participation in the horse race) and the remuneration received (the prize money). Consequently, this does not constitute a service subject to VAT.
In 2017, the District Court of North Holland ruled that, in the case of a performance fee, there is indeed a sufficiently direct link. The fee is therefore subject to VAT.
No cure no pay
The Court of Appeal in ‘s-Hertogenbosch recently ruled in the case of someone who represents clients in legal proceedings. He does so on a ‘no win, no fee’ basis. This means that his services are only paid for if the case is (partially) won and the opposing party is ordered to pay the legal costs.
The party concerned considers that there is insufficient link between his services and the (legal costs) remuneration received to warrant the payment of VAT. However, the Court of Appeal concurs with the District Court’s conclusion: VAT must indeed be paid.
The fact that it is uncertain whether remuneration will be received – because it is uncertain whether the proceedings will be won and whether the opposing party will be ordered to pay the costs of the proceedings – does not preclude the existence of a sufficiently direct link between the service provided and the remuneration. The fee was agreed with the client as consideration for the service provided to that client.
The same applies to the fact that legal costs are often paid directly to the interested party. It follows from the law that it is not the interested party, but their client, who is entitled to the reimbursement of legal costs.