The European Commission’s VAT Committee is reviewing Italy’s €870 million VAT assessment on Meta (Facebook) related to the free provision of its platform in exchange for users’ personal data. Italy deems it a barter arrangement subject to VAT. The VAT Committee, comprising external indirect tax experts, will provide a non-binding review. Existing European Court of Justice cases suggest that the Meta case might not meet the criteria for a taxable supply in barter exchanges.
The case raises complexities in determining the link between VAT consideration and supplies. If there’s no demonstrable link or an inability to determine monetary value, VAT may not be applicable. Users may perceive their data as covering the entire consideration, including the price and VAT. Any VAT liability would fall on Meta.
Questions also arise about the location of user data consumption, impacting Italy’s right to tax. The place of supply is typically where consumption occurs, raising the issue of where Meta uses the user data.
Consideration for VAT need not be strictly monetary, and the lack of clarity in the EU VAT Directive adds complexity. While expenses can constitute consideration, a clear link between the supply and consideration is essential, reflecting the supplier’s expectation of receiving something in return.
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ECJ cases:
- C-154/80 (Coöperatieve Aardappelenbewaarplaats) – Clarification term “supply for consideration”: a “direct link” must exist between the supply and the amount received
- C-102/86 (Apple and Pear Development Council) – Compulsory payments, even in kind, cannot be easily considered as giving rise to onerous transactions
The EU VAT Committee already discussed the the ”Conditions for there being a taxable transaction when Internet services are provided in exchange for user data” in its 111th meeting on October 30, 2018
Summary of WP 958:
- VAT Committee Consultation:
- German authorities seek VAT Committee opinion on VAT applicability for IT services provided without monetary consideration but in exchange for client data usage rights.
- Terms and Conditions Involving Data Permission:
- Individuals accepting free IT services agree to provider terms, granting permission for personal data usage, considered within the scope of managing private property.
- Non-Economic Activity by Individuals:
- Individuals using free IT services do not intend economic activity and lack characteristics of such activity, making the provision of data not an economic activity and not subject to VAT.
- Lack of Direct Link:
- Providing IT services without monetary consideration, allowing data usage, is not a taxable transaction for VAT due to the absence of a direct link between the service and consideration received.
- Variability and Quality of Data:
- Data provided varies in quantity and quality, and users might even provide false data. This variability makes it challenging to establish a direct link, a condition for the transaction to be taxable.
- Potential Taxable Transaction:
- If a sufficient direct link is found between IT services and customer data provided without monetary consideration, it becomes a taxable transaction, and the taxable amount would be the supplier’s cost for providing the service to the customer.
Source Circabc WP958
The minutes of the 111th meeting summarizes the discussion on WP958″:
- Background:
- The German delegation prompted a Working Paper from Commission services on the taxation of internet services provided without monetary consideration in exchange for personal data.
- Key Questions:
- The assessment focused on whether such services constitute taxable transactions and, if so, how the taxable amount for VAT could be determined.
- Commission Services’ Conclusions:
- Private User Permission:
- Private users granting permission for IT services to use personal data falls within users managing their private sphere.
- Private users are assumed to seek access to specific IT services rather than consciously pursuing economic gain or engaging in economic activity.
- Supply of IT Services Without Monetary Consideration:
- This is not a taxable transaction because no direct link can be established between the service provided and the variable user data received.
- Varying quantity and quality of personal data from different users contribute to the lack of a direct link.
- Taxable Amount Determination:
- If deemed taxable, the taxable amount would be the supplier’s cost for providing the IT service to a specific customer.
- Private User Permission:
- German Delegation’s Response:
- The German delegation thanked the Commission services for aligning with their assessment.
- Ongoing discussions on whether the provision of user data is a taxable supply are happening in tax administrations and academic circles.
- Other Delegations’ Views:
- Several delegations generally agreed with the Commission services’ analysis.
- Some were cautious, noting ongoing discussions in their Member States and the emergence of new economic activity models.
- Questions were raised about the need to redefine the concept of “economic activity,” with discussions touching on concepts from direct taxation, such as the “nexus.”
- Conclusion:
- The Chair suggested an attempt to formulate general guidelines but acknowledged that the debate on the issues raised would likely continue in future meetings.
