News article

VAT Due on Pro Bono Services Paid by the Unsuccessful Party

A lawyer registered for VAT in Bulgaria provided pro bono legal aid (representation and assistance) to a client who qualified for free assistance under Bulgarian law. If the client wins the case, the losing party is required by law to pay the winning party’s lawyer a fee set by the court (legislation provides for a minimum fee to be granted).

When awarding that fee to the lawyer, the court did not include VAT. The lawyer then asked the court to award VAT on top of the fee. The court, however, questioned whether the fee is actually subject to VAT. The key question is whether the service can be regarded as being supplied for consideration.

The Court of Justice reiterates that a service is only subject to VAT if it is supplied for consideration by a taxable person (Article 2(1)(c) VAT Directive). A service is supplied for consideration only if there is a direct link between the service rendered and the actual consideration received by the taxable person. This is the case where there is a legal relationship between the service provider and the recipient involving reciprocal performance.

According to the Court, such a direct link exists here, arising both from the agreement and from the law. On the one hand, the lawyer and the client concluded a contract for legal assistance. On the other hand, since the opposing party lost the case, Bulgarian law obliges that party to pay the lawyer a fee determined by statute, based on the minimum lawyer fee schedule.

For such a direct link to exist, it is not required that the consideration be paid directly by the recipient of the service (the client). A third-party payment also qualifies. The fact that the fee is uncertain — because it is only awarded if the opposing party loses and the outcome of the trial is not guaranteed — does not break that link. Once awarded, the fee clearly constitutes consideration for the lawyer’s service.

Earlier case law regarding situations where a passer-by voluntarily gives money to a street musician (Tolsma, C-16/93) or where a VAT-taxable person wins prize money by entering a horse in a competition (Bastová, C-432/15) is not relevant in this context.

CJEU, C-744/23, T.P.T., 23 October 2025