Every reputable city within Europe comes with its fair share of offerings and activities for tourists. Recently, during a stay in the Dutch capital our colleague Brian was offered a free walking tour, with the guide informing that at their discretion, participants may donate a sum of money reflecting the quality of the tour. After a couple of hours of roaming beside the canals and dodging the occasional speeding bike, the handful of people on the tour donated eagerly.

It didn’t take much time for the tax geek to surface and start questioning how such tour would be treated from a VAT aspect.

The main question was whether the donation could be subject to VAT.

Back in 1993, the ECJ had already ruled on the matter in C-16/93, a case which concerned a barrel organ player which used to perform and solicit donations at the side of the road. In that case the court ruled that a donation did not amount to “consideration” for VAT purposes and that therefore it is outside of the scope of VAT, on the basis that there is no legal relationship between the musician and his customer (being the random person walking on the street). The core of the court’s decisions seems to rely solely on the lack of legal relationship between the provider of the service and the recipient pursuant to which there is a reciprocal performance.

This could have probably been the end of the story in 1993, but nowadays things seem to be more complex. A quick search on-line shows that certain websites specialise in the provision of free walking tours, including pre-booking of the tour. It also transpired that some tour guides consider this as a full-time job and rely purely on the generosity of donations by the tour participants for their livelihood. The more successful websites solicit a fee per tour participant from the walking tour guide for the use of the website facilities, and even give an indication on their website of the size of the donation which the guide will be expecting from each tour participant.

While the precedent set in C-16/93 seems to apply to all donations in the EU, it is natural to wander whether the more commercially orchestrated setup in the walking tours industry could be considered, in substance, as some form of a legal relationship. Can the facilities of pre-booking combined with the payment by the tour guide of a fee based on number of tour participant be construed as an implied “legal relationship”? Considering a legal relationship exists between the website and the tour guide, one may question whether the website can be considered as an intermediary between the customer and the guide?

A seemingly simple transaction, with possibly not so simple repercussions!

Until the rules set in C-16/93 are clarified further, Brian can hand out his generous donation to the tour guide without expecting a fiscal receipt.

Proost, Brian!

For personalised guidance reach out to our tax team at Sheltons Malta or write to us on [email protected].

Disclaimer: This article is provided for informative purposes only and should not be construed as professional advice. Always consult a tax professional for personalised guidance.