Do street musicians have to pay VAT from donations made by passers-by

It 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.

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

Mr 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. The 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.

In 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 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?

The CJEU 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.

The Court stated 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.It follows that a supply of services 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. In a case at issue it is clear that those conditions are not fulfilled.

If 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. Firstly, 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.

In addition 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. That 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.

Therefore, 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.