In a ruling of November 2016, the European Court of Justice ruled that prize money received by the owner of a racehorse was not subject to VAT. This ruling is reason to take the view in respect of non-fixed fees that they are not subject to VAT.
Prize money
The judgment concerns Czech Ms Pavlína Baštová. Her horses participated in horse races. She received no participation fee or other direct remuneration for this. When her horses ranked well, however, she received prize money.
Ms Baštová is a VAT entrepreneur. Yet she does not have to pay VAT on the prize money. According to the Court, there is no direct link between making the horse available to the horse race organiser and the prize money received. It is not the provision of the horse that leads to the prize money. The prize money is paid when the horse achieves a good ranking.
Performance fee
In a ruling of Rechtbank Noord-Holland, an asset manager appealed to the above judgment. For managing assets of relations, the asset manager receives a fixed fee (a percentage of the value of the invested assets), referred to as the management fee. In addition, the asset manager charges a result-dependent fee (a percentage of the increase in value of the invested assets), the performance fee.
The court ruled that the performance fee is also subject to VAT. The performance fee is due under the agreements concluded with the investors against the asset management services. The fact that the amount of the fee depends on the result of the investments does not alter the direct link between the service provided and this fee.
To our knowledge, the aforementioned judgment is the first to address the application of the Baštová judgment. Perhaps the interested party will appeal. In any case, more rulings will follow before it will be clear when a non-fixed fee remains outside the scope of VAT.
No cure no pay
No cure no pay means not having to pay when a job does not produce the pre-agreed result. Also with regard to such fees, it is defended that they can remain outside the levy of VAT under the Baštová judgment. The judgment of the North Holland District Court does not, in our opinion, support that position.
Further case law is needed to provide full clarity. Until then, those who take the position that variable fees received are outside the scope of VAT should be aware that the tax authorities will want to take this to the tax courts.