ECJ judgments

CJEU judgment: The VAT treatment of attorneys’ fees awarded in cases of free legal aid

C 744/23. – Zlakov

A consideration subject to VAT also arises where a court awards a fee to a legal aid provider who has acted free of charge in the proceedings, provided that the party represented is successful.

In the case at hand, a Bulgarian law firm provided legal assistance free of charge to a client who was in litigation with a lending bank over a credit agreement. The client won the case, and the court – as part of the recoverable legal costs – awarded an attorney’s fee, the amount of which was calculated in accordance with the applicable statutory provisions. The bank treated the fee on a gross basis, while the lawyer treated it net of VAT, which gave rise to a further dispute. The national court referred questions to the CJEU for a preliminary ruling.

According to the CJEU, an attorney’s fee awarded retrospectively by a court constitutes consideration for VAT purposes even where the lawyer originally did not request remuneration for the legal service. A lawyer remains a taxable person for VAT purposes even if they occasionally provide legal assistance free of charge.

As regards a court-awarded attorney’s fee, the characteristics of “consideration” as established in the CJEU’s case-law are fulfilled. First, the fee is paid in return for a service and is directly linked to that service. It is irrelevant that the payment is made not by the lawyer’s client but by a third party – namely, the unsuccessful party in the proceedings. Second, although in Case C-432/15, Baštová, the Court held that the consideration must not be uncertain, no such uncertainty arises here. Under the Bulgarian rules of civil procedure, the legal representative is entitled to an ex post fee where the represented party succeeds in the proceedings, and the amount of that fee is determined by law. The consideration is therefore subject to clearly defined and objective conditions, even though the lawyer assumes a certain risk by providing legal assistance free of charge.

Full English text of the judgement

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