Briefing Document: Tolsma v Inspecteur der Omzetbelasting Leeuwarden (Case C-16/93) and VATupdate.com
1. Subject: Analysis of the European Court of Justice (ECJ) ruling in R.J. Tolsma v Inspecteur der Omzetbelasting Leeuwarden concerning VAT and street performance, and the VATupdate.com resource.
2. Sources:
- EUR-Lex document 61993J0016 (Judgment of the Court (Sixth Chamber) of 3 March 1994 – R. J. Tolsma v Inspecteur der Omzetbelasting Leeuwarden)
3. Background:
The Tolsma case concerns the application of VAT to a musician playing a barrel organ on the public highway in the Netherlands, soliciting and receiving voluntary donations. The core question is whether this activity constitutes a “supply of services effected for consideration” under Article 2(1) of the Sixth Council Directive (77/388/EEC) on VAT.
4. Key Issues & Arguments:
- Tolsma’s Argument: Tolsma argued that the donations received were not subject to VAT because there was no obligation on passers-by to donate, and the amount was determined by them. Therefore, the service was not provided “for consideration.”
- Inspector’s Argument: The tax inspector argued that there was a direct link between the service (the music) and the payments obtained, making it a supply of services “for consideration,” even if the remuneration was not determined in advance.
5. ECJ Ruling & Reasoning:
The ECJ ruled in favour of Tolsma, stating that playing music on the public highway and receiving voluntary donations does not constitute a “supply of services effected for consideration” within the meaning of Article 2(1) of the Sixth Directive.
The Court’s reasoning was based on the following:
- Reciprocal Performance & Legal Relationship: A supply of services is only “for consideration” 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 value actually given in return for the service supplied to the recipient.” In the Tolsma case, this relationship was absent.
- Absence of Agreement: “Firstly, there is no agreement between the parties, since the passers-by voluntarily make a donation, whose amount they determine as they wish.”
- No Necessary Link: “Secondly, there is no necessary link between the musical service and the payments to which it gives rise. The passers-by do 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.”
- Voluntary and Uncertain Payments: “The payments are entirely voluntary and uncertain and the amount is practically impossible to determine.” This lack of certainty and quantification is key to the decision.
- Reference to Previous Case Law: The court referenced previous judgments, including Case 89/81 Staatssecretaris van Financiën v Hong Kong Trade Development Council, highlighting that taxable transactions require a stipulated price or consideration. And Cases 154/80 Cooeperatieve Aardappelenbewaarplaats and 230/87 Naturally Yours Cosmetics which established that a provision of services is only taxable if there is a direct link between the service provided and the consideration received.
6. Implications:
The Tolsma case clarifies the definition of “supply of services effected for consideration” in the context of VAT law. It establishes that purely voluntary payments, without a pre-existing legal obligation or agreement, are generally not subject to VAT. This has implications for various activities involving donations, tips, and other forms of voluntary payment.
7. Conclusion:
The Tolsma case provides a crucial precedent regarding the application of VAT to activities involving voluntary payments. Resources such as VATupdate.com can be invaluable for professionals navigating the complexities of EU VAT law and staying informed about relevant case law developments, including understanding the ongoing implications of rulings like Tolsma.
See also
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
