On May 8, 2025, the ECJ issued the AG Opinion in the case C-744/23 (Zlakov).
Context: Reference for a preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Taxable transactions – Absence of consideration for a service due to the uncertainty of a contingency fee – pro bono legal advice given by a lawyer registered as a taxable person liable for VAT – Statutory minimum fee payable by the unsuccessful party in the event of a successful outcome
Summary
- Legal Context and Question: The case examines whether legal services provided pro bono by a lawyer, who is still entitled to a statutory fee from the opposing party in the event of success, constitute a “supply of services” for VAT purposes under EU law. The essential legal question is whether such services are taxable.
- Nature of Consideration: The Advocate General asserts that even if legal services are provided free of charge to a client, they can still be regarded as a taxable transaction if a statutory fee is payable by a third party (the unsuccessful opposing party) upon a favorable outcome for the lawyer’s client. This indicates that the payment does not need to come directly from the client for the service to be taxable.
- Direct Link Requirement: The opinion emphasizes that there must be a direct link between the service provided and the payment made, which exists in this case due to the legal obligation for the losing party to pay the lawyer’s fees. The uncertainty regarding the fee amount at the time of service does not negate the taxable nature of the transaction.
- Comparison to Previous Cases: The Advocate General distinguishes this case from earlier rulings (such as Baštová and Tolsma), where payments were deemed non-taxable due to their nature (e.g., voluntary donations). In contrast, the fee in the current case is mandated by law, establishing a clear basis for taxation.
- Conclusion and Recommendations: The Advocate General concludes that the legal services provided by the law firm, even if rendered pro bono, should be considered taxable under the VAT Directive as the statutory fee represents a consideration for the service provided. Therefore, the law firm must charge and remit VAT on the fee payable by the unsuccessful party.
Article in the EU VAT Directive
Article 24(1) of the EU VAT Directive 2006/112/EC
Article 24
1. ‘Supply of services’ shall mean any transaction which does not constitute a supply of goods.
Facts
The applicant is TPT, a sole proprietorship firm, and the defendant is ‘Financial Bulgaria’.
They have concluded a consumer credit agreement. The legal services are provided to the client free of charge, because a Bulgarian legal profession law allows a lawyer to provide legal services free of charge to persons in economic difficulties. The lawyer argues that the judge wrongly awarded him the costs of the lawyer’s fee without value added tax.
Consideration:
The referring court has doubts as to whether VAT is due on a lawyer’s fees where the work was carried out under the conditions of free legal services. He is not sure whether the provision of a legal service free of charge is a ‘supplied service free of charge’ within the meaning of Article 24(1) of the VAT Directive. The referring court also has doubts about who the tax entity (taxable person) is in this case, the applicant or the lawyer.
Questions
1) Must ‘services’ within the meaning of Article 2(1)(c), Article 24(1), Article 26(1)(b) and Article 28 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as including the following transactions:
1. the provision of legal services free of charge (pro bono) by a lawyer of a party in legal proceedings[?]
2. the provision of legal services (pro bono) free of charge by a lawyer of a party who has been successful in the proceedings, whereby the judge awards the lawyer the fee that he would have received if it had been done in the context of a agreement for legal protection and legal assistance had been agreed[?]
2. Must ‘the provision of services free of charge’ within the meaning of Article 26(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be defined as it is explained that it includes the following actions:
1. the provision of legal services free of charge (pro bono) by a lawyer of a party in legal proceedings[?]
2. the provision of legal services (pro bono) free of charge by a lawyer of a party who has been successful in the proceedings, whereby the judge awards the lawyer the fee that he would have received if it had been done in the context of a agreement for legal protection and legal assistance had been agreed[?]
3) Must ‘a supply of services for consideration’ within the meaning of Article 2(1)(c), Article 24(1) and Article 26(1)(b) of Directive 2006/112/EC the Council of 28 November 2006 on the common system of value added tax be interpreted as meaning that it includes the provision of a legal service free of charge (pro bono) by a lawyer for a party who has been successful in the proceedings , whereby the judge awards the lawyer the fee that he would have received if it had been agreed in the context of an agreement for legal protection and legal assistance[?]
4. Must ‘taxable person’ within the meaning of Articles 28 and 75 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning:
1. a lawyer (sole-law firm) who has provided legal services free of charge (pro bono) to a party in a legal procedure [?]
2. a lawyer (one-man law firm) who has provided legal services (pro bono) free of charge to a party who has been successful in the proceedings, whereby the judge awards the lawyer (one-man law firm) the fee that he would have received if had been agreed in the context of an agreement for legal protection and legal assistance[?]
AG Opinion
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.
Other ECJ Cases referred to
- Baštová Case (C-432/15): This case involved the question of whether a prize awarded to a winner of a competition could be considered as remuneration for a service provided. The ECJ ruled that the prize did not constitute consideration for a service due to the uncertainty surrounding the outcome of the competition, thereby affecting the link between the service provided and the payment received.
- Tolsma Case (C-16/93): This case dealt with a street musician who received payments from passers-by. The court determined that these payments were not made as consideration for a service but rather out of voluntary goodwill, thus not constituting a taxable transaction under VAT law.
Source
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