C-16/93 Tolsma

JUDGMENT OF THE COURT (Sixth Chamber)

Legal context and the dispute

3 March 1994 *

In Case C-16/93,

REFERENCE to the Court under Article 177 of the EEC Treaty by the Gerechtshof, Leeuwarden (Netherlands), for a preliminary ruling in the proceedings pending before that court between

R. J. Tolsma

and

Inspecteur der Omzetbelasting Leeuwarden,

on the interpretation of Article 2 (1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1),

* Language of the case: Dutch.

THE COURT (Sixth Chamber),

composed of: G. E Mancini, President of the Chamber, C. N. Kakouris, F. A. Schockweiler (Rapporteur), P. J. G. Kapteyn and J. L. Murray, Judges,

Advocate General: C. O. Lenz, Registrar: J.-G. Giraud,

after considering the written observations submitted on behalf of:

— the German Government, by E. Röder, Ministerialrat, Federal Ministry of the Economy, and C.-D. Quassowski, Regierungsdirektor in that Ministry, acting as Agents,

— the Netherlands Government, by A. Bos, Legal Adviser, Ministry of Foreign Affairs, acting as Agent,

— the Commission of the European Communities, by B. J. Drijber, a member of its Legal Service, acting as Agent,

having regard to the report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 20 January 1994, gives the following

Judgment

Grounds

1By order of 8 January 1993, which was received at the Court on 20 January 1993, the Gerechtshof (Regional Court of Appeal), Leeuwarden, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation of Article 2 (1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1, hereinafter referred to as 'the Sixth Directive').

2Those questions were raised in the course of proceedings between Mr Tolsma and the Inspecteur der Omzetbelasting (Inspector of Turnover Taxes, hereinafter referred to as 'the Inspecteur'), Leeuwarden, following the issue of an assessment to turnover tax.

3It appears from the case-file that Mr Tolsma plays a barrel organ on the public highway in the Netherlands. During his musical performance he offers passers-by a collecting tin for their donations; he also sometimes knocks on the door of houses and shops to ask for donations, but without being able to claim any remuneration by right.

4In respect of the period from 1 July to 30 September 1991 Mr Tolsma received from the Inspecteur an assessment to tax on the aforesaid activity in the sum of HFL 1 805 by way of value added tax ('VAT') and HFL 180 by way of a surcharge for late payment.

5Mr Tolsma's administrative complaint against the assessment was dismissed by the Inspecteur, and he brought proceedings before the Gerechtshof, Leeuwarden.

6Mr Tolsma argued before that court that sums he received for the music he played in public were not subject to VAT because there was no obligation whatever on passers-by to give him donations, whose amount they determined themselves. The service thus was not provided for consideration and consequently did not fall within the scope of the Sixth Directive.

7The Inspecteur argued, by contrast, that there was a direct link between the service supplied and the payments obtained, with the result that Mr Tolsma's activity constituted a supply of services for consideration within the meaning of the Sixth Directive. It did not matter that he was not entitled to a remuneration whose amount was determined by the parties in advance.

8In those circumstances the Gerechtshof, Leeuwarden, referred the following questions to the Court:

'1 (a) Must a service which consists of playing music on the public highway, for which no payment is stipulated but payment is nevertheless received, be regardedas a supply of services effected for consideration within the meaning of Article 2 of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes?

(b) Is it relevant for the purpose of answering this question that although the payment received is not stipulated, it is nevertheless solicited and, in view of customary usage, can be expected, although its amount is neither quantified nor quantifiable?'

9For the purpose of answering those questions, it should be noted that Article 2 of the Sixth Directive states that:

'The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

10To interpret the term 'supply of services effected for consideration' in that article, the article must be seen in its context, and account must be taken of the other provisions of the Sixth Directive and also of the Court's case-law, including its decisions on the Second Council Directive 67/228/EEC of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value added tax (Official Journal, English Special Edition 1967, p. 16, hereinafter referred to as 'the Second Directive'), which had the same objectives as the Sixth Directive and was replaced by that directive.

11Article 11 (A) (1) of the Sixth Directive provides that:

'The taxable amount shall be:

(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies ...'.

12The Court has already held with reference to the concept of the 'provision of services against payment' in Article 2 (a) of the Second Directive, whose wording is similar to that of Article 2 (1) of the Sixth Directive, that taxable transactions, within the framework of the VAT system, presuppose the existence of a transaction between the parties in which a price or consideration is stipulated. The Court concluded that, where a person's activity consists exclusively in providing services for no direct consideration, there is no basis of assessment and the services are therefore not subject to VAT (judgment in Case 89/81 Staatssecretaris van v [1982] ECR 1277, paraFinanciën Hong Kong Trade Development Council graphs 9 and 10).

13In its judgments in Case 154/80 Coöperatieve Aardappelenbewaarplaats [1981] ECR 445, paragraph12, and Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365,paragraph 11, the Court stated on this point that the basis of assessment for a provision of services is everything which makes up the consideration for the service and that a provision of services is therefore taxable only if there is a direct link between the service provided and the consideration received (see also the judgment in Case 102/86 v Apple and Pear Development Council Commissioners of Customs and Excise [1988] ECR 1443, paragraphs 11 and 12).

14It follows that a supply of services is effected 'for consideration' within the meaning of Article 2 (1) of the Sixth Directive, and hence is taxable, only 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.

15In a case such as that which is the subject of the main proceedings, it is clear that those conditions are not fulfilled.

16If a musician who performs on the public highway receives donations from passers-by, those receipts cannot be regarded as the consideration for a service supplied to them.

17Firstly, there is no agreement between the parties, since the passers-by voluntarily make a donation, whose amount they determine as they wish. 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. Indeed some persons place money, sometimes a considerable sum, in the musician's collecting tin without lingering, whereas others listen to the music for some time without making any donation at all.

18In addition, contrary to the arguments of the German and Netherlands Governments, the fact that the musician plays in public with a view to collecting money and actually receives certain sums in so doing is of no relevance for the purpose of determining whether the activity in question constitutes a supply of services for consideration within the meaning of the Sixth Directive.

19That interpretation is not affected by the fact that a musician such as Mr Tolsma solicits money and can in fact expect to receive money by playing music on the public highway. The payments are entirely voluntary and uncertain and the amount is practically impossible to determine.

20For all the above reasons, the answer to the questions of the Gerechtshof, Leeuwarden, should be that Article 2 (1) of the Sixth Directive must be interpreted as meaning that the 'supply of services effected for consideration' within the meaning of that provision does not include an activity consisting in playing music on the public highway, for which no remuneration is stipulated, even if the musician solicits money and receives sums whose amount is however neither quantified nor quantifiable.

Costs

Costs

21The costs incurred by the German Government, the Netherlands Government and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the Gerechtshof, Leeuwarden, by order of 8 January 1993, hereby rules:

Article 2 (1) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, must be interpreted as meaning that the 'supply of services effected for consideration' within the meaning of that provision does not include an activity consisting in playing music on the public highway, for which no remuneration is stipulated, even if the musician solicits money and receives sums whose amount is however neither quantified nor quantifiable.

Mancini Kakouris

Schockweiler Kapteyn Murray

Delivered in open court in Luxembourg on 3 March 1994.

R. Grass G. F. Mancini

Registrar President of the Sixth Chamber

OPINION OF MR ADVOCATE GENERAL LENZ delivered on 20 January 1994 * Mr President, Members of the Court,

A — Introduction

1 In this request for a preliminary ruling the Gerechtshof, Leeuwarden, asks about the definition of a 'supply of services for consideration' within the meaning of Article 2 of the Sixth VAT Directive. 1 That article provides inter alia that:

'The following shall be subject to value added tax:

1The supply of ... services effected for consideration within the territory of the country by a taxable person acting as such;

* Onginal language: German.

2In the main proceedings the plaintiff Mr Tolsma challenges a decision in which the respondent Inspecteur der Omzetbelasting (Inspector of Turnover Taxes, hereinafter referred to as 'the Inspecteur') charged certain sums as turnover taxes on the plaintiff's activity as the operator of a barrel organ.

3The plaintiff uses that instrument to play music on the public highway, on which occasions he solicits 'remuneration' from passers-by by rattling his collecting tin.

4In support of his case in the main proceedings, the plaintiff argued that he did not supply services for consideration, since he did not demand any 'consideration/remuneration'. The remuneration he received was given voluntarily.

5The Inspecteur maintained on the other hand that the service was indeed supplied for consideration, since the passers-by who paid remuneration did so because the taxpayer provided them with music. There was therefore a direct link between the service provided and the remuneration received, so that the service was effected for consideration. It was irrelevant that no remuneration had been stipulated.

6In the circumstances the Gerechtshof, Leeuwarden, requested a preliminary ruling on the following questions:

1 (a) Must a service which consists in playing music on the public highway, for which no payment is stipulated but payment is nevertheless received, be regarded as a supply of services effected for consideration within the meaning of Article 2 of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes?

(b) Is it relevant for the purpose of answering this question that although the payment received is not stipulated, it is nevertheless solicited and, in view of customary usage, can be expected, although its amount is neither quantified nor quantifiable?

B — Opinion

7I. To answer those questions, it appears to me to be important to examine in its context the concept of the 'supply of services for consideration' within the meaning of Article 2 of the Sixth Directive.

8The Sixth Directive, as part of the common system of value added tax, fits into the scheme of the First Directive. 2Article 2 of the latter directive provides as follows in its first two paragraphs:

'The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of goods and whatever the number the services, of transactions which take place in the production and distribution process before the stage at which tax is charged.

On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.

9It was precisely that concept which found expression in Article 11 (A) (1) of the Sixth Directive with respect to the taxable amount. Under that provision the taxable amount is the 'consideration' which has been or is to be obtained by the supplier from the purchaser, the customer or a third party.

10Both texts show that the common system of value added tax relates to the stipulated exchange of mutually dependent services — supply of goods or services on the one part, consideration on the other part. Thus in the Court of Hong Kong Trade Justice held that:

'services provided free of charge are different in character from taxable transactions which, within the framework of the value added tax system, presuppose the stipulation of a price or consideration'. 6

11Consistently with this, Article 22 of the Sixth Directive obliges taxable persons inter alia to issue invoices or equivalent documents, in other words to document the 'consideration' he is entitled to under the terms agreed.

12As to the article in question here, Article 2 (1), its provisions on the scope of the tax must be interpreted in the light of the above considerations. In the Hong Kong Trade case (in which what was lacking was not an agreement but the payment of consideration by the recipient of the service) the Court noted the importance of the provisions on scope for the interpretation of the value added tax system. It was held that:

'if [the economic activities of taxable persons] are free of charge in all cases they do not fall within the system of value added tax, since they cannot, according to Article 8, constitute a basis of assessment'.

13It follows that, contrary to the opinion of the Netherlands Government, it is not sufficient in order to fulfil the requirement of 'consideration' that an individual actually receives income (possibly subject to income tax) for his activity and thus takes part in economic life. Despite the indisputably wide scope of the Sixth Directive, 9to which the Netherlands Government draws attention, in principle that requirement is met, in view of its context, only in the case of operations which contain an element of contractual exchange in the above sense.

14II. Certain criteria have been developed in the case-law to define this principle more closely:

— There must be a direct link between the service supplied (which in this case would be the music provided) and the consideration received (in this case the payments by passers-by). 11 The link must be such that a relationship can be established between the level of the benefits which the recipients obtain from the services provided and the amount of the consideration.

— The consideration must be capable of being expressed in money.

— It must be a subjective value, since the taxable amount is the consideration actually received and not a value estimated according to objective criteria. A service for which no subjective consideration is received is consequently not a service 'for consideration'.

15III. (1) On this basis I first address Question 1 (a) of the Gerechtshof, Leeuwarden.

16In this question the Gerechtshof assumes that 'no payment is stipulated but payment is nevertheless received' for the 'service' consisting in playing music on the public highway.

17In my opinion, it is not possible in such circumstances to speak of a service 'for consideration'. In the absence of a price or some other value given in return which could be attributed in one way or another to an agreement on an exchange, there is no direct link between the service and the sums received. Instead the receipts originate in voluntary decisions by certain passers-by to pay an amount of their choice.

18Moreover, that is consistent with the fact that the 'service' itself is not defined contractually in any way as regards either its principle or its extent. The Commission rightly points out that the plaintiff plays music voluntarily and can terminate his performance at any time. Conversely, the passer-by can decide freely how long he wishes to remain on the spot and listen.

19For the same reasons, it is not possible to establish the necessary relationship between the benefits which the passers-by obtain from the services and the fact of payment and its amount. 1 The persons concerned can decide freely, without being contractually bound, on all the factors which are of importance for that relationship. Thus many passers-by may deposit a comparatively large sum in the plaintiff's collecting tin without lingering, while others may listen to his performance for a considerable time without paying anything.

20This also shows that the comparison made by the Netherlands Government with musicians who operate on the basis of contractual agreements with the individual listeners in their audience does not hold water, since in such a case the service and the consideration, and the relationship between the two, have been defined by the parties by agreement, whereas that is not the case here.

21Contrary to the opinion of the German Government, the necessary 'inherent link' between the 'service' and the 'consideration' can also not be deduced from the fact that the passers-by 'only give money because the music has been played to them first'. Some passers-by certainly might be induced by the plaintiff's performance to hand over certain sums of money to him. Others who would in any event have been prepared to make a donation might perhaps decide on a larger amount than if the plaintiff did not make music but merely asked for money. However, the plaintiff and the passers-by do not determine the service and consideration as mutually dependent elements of a bargain. In those circumstances the motives which underlie the greater or lesser inclination of passers-by to make donations are irrelevant.

22It is therefore clear that the requirement of an 'inherent link' as defined in the case-law is not fulfilled.

23Moreover, I do not consider that the payments by the passers-by are a subjective value (or subjective consideration), since there is no (subjective) relationship between service and consideration defined by the parties. The consideration for the benefits obtained by the passers-by could be valued, if at all, only according to objective criteria, but that is not sufficient, according to the case-law cited above, with respect to the requirement of a service provided 'for consideration'.

24Question 1 (a) of the Gerechtshof, Leeuwarden, should therefore be answered to the following effect:

The playing of music on the public highway, for which no payment is stipulated but for which a payment is received, cannot be regarded as a service effected for consideration within the meaning of Article 2 of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes.

25(2) Question 1 (b) is distinguished from Question 1 (a) by the inclusion of an additional factor. For the purposes of Question 1 (b) the national court assumes that a 'payment' is 'solicited and, in view of customary usage, can be expected, although its amount is neither quantified nor quantifiable'. By referring to this additional element, the Gerechtshof is in fact asking whether such a case can be equated with the case of a stipulated consideration.

26In my opinion this question must be answered in the negative, so that my previous assessment remains.

27Firstly, the circumstance that 'payment' is 'solicited' confirms that there is no legal entitlement to it. Consequently, that circumstance does not permit the present case to be equated with that of an agreed exchange of service and consideration.

28The national court states that 'payment ... in view of customary usage, can be expected', but it is not entirely clear what precisely is meant thereby. If it meant that experience shows that a greater or lesser volume of payments can be expected, that would be of no relevance, since the amount donated by the individual passer-by, as can be seen from the very text of the question, is neither quantified nor quantifiable. The usage referred to by the national court would therefore not create any relationship between the performance by the plaintiff and the payment by the individual passers-by comparable with the relationship in the case of an agreed exchange of service and consideration.

29The same would apply if in the opinion of the national court the average passer-by could be 'expected' on the basis of a social custom to comply with the plaintiff's request for a payment. Since the amount of the payment is not quantifiable, that too does not create a situation comparable with that of an agreed exchange of service and consideration.

30Question 1 (b) should therefore be answered to the following effect:

It is immaterial in this respect that a payment is solicited and in view of customary usage can be expected to a greater or lesser but in any event neither quantified nor quantifiable extent.

C — Conclusion

31In conclusion, I propose that the Court give the following answers to the questions of the Gerechtshof, Leeuwarden:

(1) A musical performance on the public highway, for which no payment is stipulated but a payment is received, is not to be regarded as a supply of services for consideration within the meaning of Article 2 of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes.

(2) It is immaterial in this respect that payment is solicited and in view of customary usage can be expected to a greater or lesser but in any event neither quantified nor quantifiable extent.

Notes

(1) Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1). last amended bv Council Directive 91/111/EEC of 14 December 1992 (OJ 1992 L 384, p. 47).

(2) First Council Directive 67/227/EEC of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p. 14).

(3) My emphasis.

(4) My emphasis.

(5) Judgment in Case 89/81 Staatssecretaris van Financien v Hong Kong Trade [1982] ECR 1277.

(6) Paragraph 10 of the judgment, my emphasis.

(7) This is a reference to Article 8 of the Second Directive (OJ, English Special Edition 1967, p. 16), which was the predecessor of Article 11 of the Sixth Directive.

(8) Hong Kong Trade judgment, paragraph 11.

(9) See the judgment in Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph 17.

(10) Whether and under precisely what circumstances other economic operations can exceptionally be equated to the operations described in the provision need not be examined exhaustively here, since such an equation can in any event be excluded in the present case: see below, paragraph 25 et seq.

(12) Apple and Pear Development Council judgment (see previous footnote), paragraph 15.

(13) Coöperatieve Aardappelenbewaarplaats judgment (see foot

(11) Judgments in Case 154/80 v Staatssecretaris van Financiën note 11), paragraph 13, and Naturally Yours Cosmetics Coöperatieve Aardappelenbewaarplaats [1981] ECR 445, paragraph 12; Case 102/86 Apple and Pear Development v [1988] Council Commissioners of Customs and Excise ECR 1443, paragraph 11; and Case 230/87 Naturally Yours judgment (see footnote 11), paragraph 16.

(14) See paragraph 23 below.

(15) Coöperatieve Aardappelenbewaarplaats judgment (see footCosmetics Ltd v Commissioners of Customs and Excise note 11), paragraphs 10 and 11; [1988] ECR 6365, paragraph 11. Naturally Yours Cosmetics judgment (see footnote 11), paragraph 16.

(16) Paragraphs 7 to 13 above.

(17) Paragraph 14 above, first indent.

(18) It may be noted that in such circumstances the very existence of a 'service' can be questioned. However, it appears from the wording and context of the questions referred that what the national court is concerned witli is the characteristic defined bv the words 'for consideration' in Article 2 of the Sixth Directive.

(19) Sec footnote 12 above and the text referred to there.

(20) See paragraph 14 above, third indent.

(21) For example, the average length of stay of individual passers-by, the average sura paid by them, etc.