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VAT due on remuneration for services on the base of ‘no cure no pay’

A lawyer represents clients in legal procedures and sometimes stipulates a fee based on ‘no cure no pay’. In that case, the remuneration consists of the (procedural) cost reimbursement that is granted to the client upon successful completion of the procedure conducted. This compensation is not regarded as turnover and no VAT paid. The interested party also represents clients in proceedings where he charges a fee the hours spent, and regardless of the outcome of the procedure. In such cases, the interested party charges VAT on the fee and that VAT is paid on the VAT return.

The question is whether VAT is due on the (procedural) cost reimbursement that the lawyer receives for the services based on no cure no pay agreements.

The court is of the opinion that there is a direct link between the legal assistance provided by the interested party and the possible payment of the reimbursements to his clients. The fact that the payment of the fee depends on the successful outcome of the procedure, does not alter this.

The interested party’s appeal to the Baštová judgment cannot lead to a different assessment. In that judgment it was stated hat when an entrepreneur makes a horse available to the organizer of a horse race, with a view to the participation of that horse in that race without receiving participation fees or any other direct compensation, this does not qualify as service against consideration. The prize money that the entrepreneur may receive if the horse is one of the winners of the race, cannot be regarded as a remuneration for making the horse available. To this end, the European Court of Justice considered that there is no direct link between providing the horse and the prize money. The receipt of the prize money is triggered by the ranking that the horse eventually achieved in the race.

According to the court, that is different from the present case. After all, there is a legal relationship between the interested party and the clients based on which the interested party provides legal services and receives fees. Under the agreements, the procedural costs reimbursement constitutes the reimbursement for the services rendered by the interested party. The inspector rightly included the fees received by the interested party in the additional assessment.

Source: rechtspraak.nl

Author: Joyce Westerveld, VAT Advisor at RED

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