Opinion of advocate general on whether street musicians must pay VAT from donations made by passers-by

Mr. Tolsma (plaintiff) challenged a decision in which the Inspector of Turnover Taxes charged certain sums as turnover taxes on the Tolsma’s activity as the operator of a barrel organ. The 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.

In support of his case 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. The 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.

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 the goods and services, whatever the number 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.

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. 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. 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.

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. It 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. In principle that requirement is met only in the case of operations which contain an element of contractual exchange.

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). 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’.

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. The ‘service’ itself is not defined contractually in any way as regards either its principle or its extent. 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.

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. 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.

The payments by the passers-by are not 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 with respect to the requirement of a service provided ‘for consideration’.

Therefore, 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. 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.