Briefing document on ECJ Case Geelen (C-568/17) – VAT Place of supply of erotic webcam sessions

On 8 May 2019, the European Court of Justice gave its judgment in case C-568/17 (J.W. Geelen) regarding the place of supply for erotic webcam sessions.

Analysis of the European Court of Justice (ECJ) Judgment in Case C-568/17 (Staatssecretaris van Financiën v L.W. Geelen) concerning the Value Added Tax (VAT) treatment of live interactive erotic webcam sessions.

Sources:

• Excerpts from “CURIA – Documents” – Judgment of the Court (First Chamber) of 8 May 2019 in Case C‑568/17.
• Excerpts from “Webcam Erotica VAT: Place of Supply Judgment” (Summary of the ECJ Judgment).

Executive Summary:

This briefing document analyses the ECJ’s judgment in Case C-568/17, which addressed the VAT treatment of live interactive erotic webcam sessions provided by Mr. Geelen, established in the Netherlands, with models performing in the Philippines and customers located in the Netherlands. The central legal issue was the determination of the correct place of supply for VAT purposes. The ECJ ruled that these sessions constitute an ‘entertainment activity’ and that the place where these services are ‘physically carried out’ for VAT is the location where the supplier (Mr. Geelen) has established his business, i.e., the Netherlands. The rules for ‘electronically supplied services’ were deemed inapplicable in this specific context as all customers were located in the same Member State as the supplier.

Main Themes and Important Ideas/Facts:

1. Context of the Case:

• Mr. L.W. Geelen, established in the Netherlands and registered for VAT, provided live interactive erotic webcam sessions. Models located in the Philippines performed these sessions, using hardware and software provided by Mr. Geelen.
• Customers in the Netherlands accessed these sessions online through internet service providers, who handled payments and remitted a portion to Mr. Geelen. The sessions were interactive, allowing customer communication and specific requests.
• The Netherlands tax authority assessed VAT on these services in the Netherlands, leading to a dispute that ultimately reached the Hoge Raad der Nederlanden (Supreme Court of the Netherlands), which referred questions to the ECJ for a preliminary ruling.
• The referring court sought clarity on whether these services qualified as ‘entertainment activities’ or ‘electronically supplied services’ under the relevant EU VAT directives.

2. Classification as an ‘Entertainment Activity’:

• The ECJ considered whether the provision of these webcam sessions fell under Article 9(2)(c) of the Sixth VAT Directive and Article 52(a) of the VAT Directive, which pertain to services relating to “cultural, artistic, sporting, scientific, educational, entertainment or similar activities,” where the place of supply is “the place where those services are physically carried out.”
• The Court affirmed that the “primary objective of a supply of services must be, inter alia, entertainment” (paragraph 30 of the Judgment).
• It concluded that the live interactive erotic webcam sessions did indeed constitute an ‘entertainment activity’. The Court reasoned that “it is common ground that the objective of that service is to provide recipients with a source of entertainment” (paragraph 36).
• The ECJ clarified that “no particular artistic level is required and it is not only services relating, inter alia, to entertainment activities, but also services relating merely to similar activities that fall within the scope of Article 9(2)(c) of the Sixth Directive” (paragraph 31).
• The Court acknowledged the complex nature of the service, involving both the models’ performance and Mr. Geelen’s organisation of the interactive platform. However, it focused on the overall objective of providing entertainment.

3. Determination of the Place Where the Service is ‘Physically Carried Out’ (as Entertainment):

• Despite the models performing in the Philippines, the ECJ determined that the place where the entertainment service was ‘physically carried out’ for VAT purposes was the Netherlands, where Mr. Geelen had established his business.
• The Court reasoned that “the supply of services at issue in the main proceedings, which consists in organising and offering live interactive erotic webcam sessions, is a complex supply which is rendered not by the models, but by Mr Geelen, who organises those sessions” (paragraph 46).
• It stated that “since the activities necessary for the supply of those complex services are concentrated in the place from which the provider, on the one hand, organises the interactive sessions relating to the erotic show performed by the models and, on the other hand, provides customers with the opportunity to view those sessions on the internet… such a complex supply of services must be regarded as being ‘physically carried out’… in the place where that service is supplied by that provider, namely… the place where his business is established: the Netherlands” (paragraph 47).
• This interpretation was supported by the objective of avoiding double taxation or non-taxation and the principle of administrative simplicity. The fact that all customers were in the Netherlands further supported taxation in that Member State.

4. Rejection of Classification as ‘Electronically Supplied Services’:

• The referring court also questioned whether the services could be classified as ‘electronically supplied services’ under Article 9(2)(e) of the Sixth Directive and Article 56(1)(k) of the VAT Directive, in conjunction with Article 11 of Regulation No 1777/2005.
• ‘Electronically supplied services’ are defined as “services which are delivered over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and in the absence of information technology is impossible to ensure” (paragraph 5, quoting Article 11(1) of Regulation No 1777/2005).
• The ECJ concluded that these provisions did not apply in this case because “the services at issue in the main proceedings were supplied to customers who were all located in the Netherlands” (paragraph 57).
• The rules for electronically supplied services under these articles typically apply when services are supplied to customers outside the EU or in a different Member State from the supplier. As the customers were in the same Member State as Mr. Geelen, this specific regime was not triggered.

5. Relationship Between General and Specific Rules for Place of Supply:

• The Court reiterated the established case law that “Article 9(1) of the Sixth Directive in no way takes precedence over Article 9(2). It must be asked, in every situation, whether that situation corresponds to one of the instances mentioned in Article 9(2) of that directive. If not, that situation falls within the scope of Article 9(1) of the directive” (paragraph 24).
• This clarifies that specific rules for the place of supply, such as those for entertainment activities, must be considered first before resorting to the general rule based on the supplier’s establishment.

Quotes from Original Sources:

• On the nature of entertainment: “to fall within the scope of that provision, the principal objective of a supply of services must be, inter alia, entertainment” (paragraph 30 of the Judgment).
• On the complex nature of the service and the role of the organiser: “the supply of services at issue in the main proceedings… is a complex supply which is rendered not by the models, but by Mr Geelen, who organises those sessions” (paragraph 46 of the Judgment).
• On where the service is ‘physically carried out’: “such a complex supply of services must be regarded as being ‘physically carried out’… in the place where that service is supplied by that provider, namely… the place where his business is established: the Netherlands” (paragraph 47 of the Judgment).
• On the definition of electronically supplied services: “‘Electronically supplied services’ as referred to… shall include services which are delivered over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and in the absence of information technology is impossible to ensure” (paragraph 5 of the Judgment, quoting Regulation No 1777/2005).
• On the inapplicability of electronically supplied services rules in this case: “the services at issue in the main proceedings were supplied to customers who were all located in the Netherlands. In those circumstances… the 12th indent of Article 9(2)(e) of that directive is not intended to apply in a case such as that in the main proceedings” (paragraphs 57-58 of the Judgment).

Implications of the Judgment:

• The judgment provides clarity on the VAT treatment of live interactive online services with an entertainment objective.
• It emphasises that for complex services, the location of the organiser and the place where the essential activities for providing the service are concentrated can be decisive for determining the place of supply of entertainment activities, even if the performance element occurs elsewhere.
• It clarifies the scope and limitations of the rules for electronically supplied services, particularly concerning the location of the customer relative to the supplier.
• The decision supports the principle that VAT should be levied in the jurisdiction where the service is consumed, as in this specific case, the supplier and all customers were in the Netherlands.

Further Considerations:

• The judgment highlights the need to assess the principal objective and the nature of the service provided when determining the correct VAT treatment of online activities.
• It may have implications for other online service providers who organise and facilitate interactive entertainment or similar activities across borders but within the same Member State as their customer base.
• The distinction between services requiring significant human intervention (like the interactive webcam sessions) and those that are essentially automated remains crucial for classifying services as ‘electronically supplied’.

This briefing document provides a detailed overview of the ECJ’s judgment in Case C-568/17. The ruling clarifies the VAT treatment of live interactive erotic webcam sessions, classifying them as entertainment activities taxable at the place of the supplier’s establishment when the customers are located in the same Member State. The rules for electronically supplied services were deemed inapplicable in this specific context.

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Frequently Asked Questions: VAT on Live Interactive Erotic Webcam Sessions

1. What was the central legal issue addressed by the European Court of Justice (ECJ) in Case C-568/17 (Geelen)? The central legal issue was to determine the correct place of supply for Value Added Tax (VAT) purposes concerning the provision of live interactive erotic webcam sessions organised by Mr. Geelen, who was established in the Netherlands, with models performing in the Philippines and customers located in the Netherlands. The court was asked to interpret the relevant articles of the Sixth VAT Directive (77/388/EEC) and the VAT Directive (2006/112/EC) to establish where these services should be taxed.

2. Did the ECJ classify live interactive erotic webcam sessions as an ‘entertainment activity’ for VAT purposes? Yes, the ECJ concluded that the provision of live interactive erotic webcam sessions constitutes an ‘entertainment activity’ within the meaning of Article 9(2)(c) of the Sixth Directive and Article 52(a) of the VAT Directive. The Court reasoned that the primary objective of these sessions is to provide entertainment to the customers, and no specific artistic merit or physical co-location of the provider and recipient is required for an activity to be classified as entertainment for VAT.

3. If classified as entertainment, where did the ECJ determine the place of supply to be for these webcam sessions? Despite the models performing the erotic shows in the Philippines, the ECJ determined that the place where these entertainment services are ‘physically carried out’ for VAT purposes is the place where the supplier, Mr. Geelen, has established his business, which in this case is the Netherlands. The Court reasoned that the service provided is a complex one, involving the organisation and enabling of the interactive sessions by Mr. Geelen. The activities necessary for this service are concentrated where he organises the sessions and provides the technical and contractual framework for customers to access and interact with the models.

4. Did the ECJ consider the location of the models (Philippines) or the customers (Netherlands) as the place where the entertainment service was physically carried out? While acknowledging the models were physically located in the Philippines, the ECJ did not consider this the decisive factor for determining where the entertainment service was physically carried out for VAT purposes. Similarly, although the customers were in the Netherlands, the Court focused on the location of the supplier and where the essential activities of organising and providing the service took place. The Court prioritised the place where the supplier had established his business as the location where the complex entertainment service was effectively carried out.

5. Did the ECJ consider live interactive erotic webcam sessions as ‘electronically supplied services’ for VAT purposes?

No, the ECJ did not consider the live interactive erotic webcam sessions as ‘electronically supplied services’ under Article 9(2)(e) of the Sixth Directive and Article 56(1)(k) of the VAT Directive, read in conjunction with Article 11 of Regulation No 1777/2005. These provisions typically apply to services delivered over the internet with minimal human intervention, supplied to customers outside the EU or in a different Member State from the supplier. In this case, as all customers were located in the Netherlands (the same Member State as the supplier), these specific rules for electronically supplied services did not apply.

6. What criteria define ‘electronically supplied services’ according to the relevant EU legislation mentioned in the case? According to Article 11(1) of Regulation No 1777/2005, ‘electronically supplied services’ are defined as services delivered over the internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and which are impossible to ensure without information technology.

7. Why was the distinction between ‘entertainment activity’ and ‘electronically supplied service’ important in this case? The distinction was crucial because different VAT rules apply to each category, particularly regarding the place of supply. For entertainment activities under Article 9(2)(c) of the Sixth Directive (and Article 52(a) of the VAT Directive), the place of supply is where the services are physically carried out. For electronically supplied services under Article 9(2)(e) (and Article 56(1)(k)), the place of supply is generally where the customer is established, if the customer is outside the supplier’s Member State. Understanding which category the webcam sessions fell into was essential for determining which Member State had the right to tax these services.

8. What was the final ruling of the ECJ regarding the place of supply for VAT on these live interactive erotic webcam sessions? The ECJ ruled that the live interactive erotic webcam sessions constitute an ‘entertainment activity’ and that the place where these services are ‘physically carried out’ for VAT purposes is the place where the supplier (Mr. Geelen) has established his business (the Netherlands). The rules for electronically supplied services did not apply because the customers were all located in the same Member State as the supplier. Therefore, the VAT on these services was deemed payable in the Netherlands

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Study Guide: VAT on Live Interactive Erotic Webcam Sessions

Key Concepts to Understand:

• Value Added Tax (VAT) and its purpose.
• The legal framework governing VAT in the European Union, specifically the Sixth VAT Directive (77/388/EEC) and the VAT Directive (2006/112/EC).
• The rules for determining the place of supply of services for VAT purposes, distinguishing between general rules and specific exceptions.
• The concept of “entertainment activities” and the rule that the place of supply is where such services are physically carried out.
• The definition and rules for “electronically supplied services”.
• The interpretation of EU law by the Court of Justice of the European Union (CJEU) through preliminary rulings.

Areas to Review in the Source Material:

• The factual background of Case C-568/17 (Staatssecretaris van Financiën v L.W. Geelen) and the questions referred by the Hoge Raad der Nederlanden.
• Articles 9(1) and 9(2)(c) and (e) of the Sixth VAT Directive.
• Articles 43, 52(a), and 56(1)(k) of the VAT Directive.
• Article 11 of Council Regulation (EC) No 1777/2005 concerning electronically supplied services.
• The CJEU’s reasoning and conclusions regarding whether live interactive erotic webcam sessions constitute an “entertainment activity”.
• The CJEU’s reasoning and conclusions regarding where such services are “physically carried out” for VAT purposes.
• The CJEU’s reasoning and conclusions regarding whether such services qualify as “electronically supplied services” in the specific context of the case.
• The principle that Article 9(1) of the Sixth Directive does not take precedence over Article 9(2).
• The objective of the rules on the place of supply of services in avoiding double taxation or non-taxation.

Quiz:

1. What was the central legal question before the Court of Justice of the European Union in Case C-568/17 concerning VAT and live interactive erotic webcam sessions?
2. According to Article 9(2)(c) of the Sixth VAT Directive and Article 52(a) of the VAT Directive, where is the place of supply for services relating to “entertainment or similar activities” deemed to be?
3. Why did the CJEU conclude that the live interactive erotic webcam sessions in this case constituted an “entertainment activity” for VAT purposes?
4. Despite the models performing the webcam sessions in the Philippines, why did the CJEU determine that the services were “physically carried out” in the Netherlands?
5. What are the key characteristics of “electronically supplied services” as defined in Article 11(1) of Regulation No 1777/2005?
6. Why did the CJEU decide that the provisions for electronically supplied services (Article 9(2)(e) of the Sixth Directive and Article 56(1)(k) of the VAT Directive) did not apply in this specific case?
7. What is the general rule for the place of supply of services under Article 9(1) of the Sixth VAT Directive (and the corresponding Article 43 of the VAT Directive)?
8. Explain the significance of the CJEU’s statement that Article 9(1) of the Sixth VAT Directive does not take precedence over Article 9(2).
9. What was the referring court’s concern regarding the physical meeting of service provider and recipients in relation to “entertainment activities”? How did the CJEU address this?
10. What was the CJEU’s view on the consistency of their interpretation with the objective of the VAT rules regarding the place of supply?

Answer Key:

1. The central legal question was to determine the place where the live interactive erotic webcam sessions provided by Mr. Geelen, based in the Netherlands with models in the Philippines, were deemed to be supplied for the purposes of Value Added Tax (VAT). This involved interpreting the relevant provisions of the EU VAT directives.
2. According to Article 9(2)(c) of the Sixth VAT Directive and Article 52(a) of the VAT Directive, the place of supply of services relating to “entertainment or similar activities” is the place where those services are physically carried out. This is a specific exception to the general rule for the place of supply of services.
3. The CJEU concluded that the sessions were an “entertainment activity” because their primary objective was to provide recipients with a source of entertainment. The Court stated that no particular artistic level is required for an activity to fall under this category, encompassing both entertainment and similar activities.
4. The CJEU determined that the services were “physically carried out” in the Netherlands because the complex supply of services, which involved organising the sessions and providing the technical and organisational framework for customers to view and interact, was rendered by Mr. Geelen who was established in the Netherlands.
5. Key characteristics of “electronically supplied services” are that they are delivered over the internet or an electronic network, their supply is essentially automated with minimal human intervention, and they are impossible to ensure in the absence of information technology.
6. The CJEU decided that the provisions for electronically supplied services did not apply because Article 9(2)(e) of the Sixth Directive and Article 56(1)(k) of the VAT Directive concern services supplied to recipients established outside the European Union or in a different Member State than the supplier, whereas in this case, all of Mr. Geelen’s customers were located in the Netherlands.
7. The general rule for the place of supply of services under Article 9(1) of the Sixth VAT Directive (and Article 43 of the VAT Directive) is deemed to be the place where the supplier has established their business or has a fixed establishment from which the service is supplied.
8. The CJEU’s statement clarifies that when a service falls under one of the specific instances listed in Article 9(2), that rule for determining the place of supply applies, and it is not overridden by the general rule in Article 9(1) even if the supplier’s place of business is elsewhere.
9. The referring court questioned whether the requirement of a physical meeting between service provider and recipients for “entertainment activities” still applied given the development of the internet. The CJEU addressed this by stating that while such activities were usually for specific events at identifiable locations, the wording of the directive did not necessarily limit its application to only such events, focusing instead on the intrinsic nature of the service as entertainment.
10. The CJEU considered that their interpretation, which placed the supply of services where the organiser was established, provided a useful point of reference leading to a rational result for tax purposes. It aligned with the objective of avoiding double taxation or non-taxation and facilitated the administration of the rules on the place of supply. In this specific case, it also ensured taxation in the Member State where the services were used by the recipients.

Essay Format Questions:

1. Critically analyse the CJEU’s reasoning in Case C-568/17 regarding the classification of live interactive erotic webcam sessions as “entertainment activities” for VAT purposes. Discuss the relevance of the online nature of the service and the interaction between the models and the customers.
2. Evaluate the CJEU’s interpretation of “the place where those services are physically carried out” in the context of Article 9(2)(c) of the Sixth VAT Directive and Article 52(a) of the VAT Directive in Case C-568/17. Consider the arguments for the place of performance by the models versus the place of establishment of the organiser.
3. Discuss the conditions under which a service is classified as an “electronically supplied service” for VAT purposes according to EU law. Explain why the CJEU concluded that the services in Case C-568/17 did not meet these criteria in the specific circumstances of the case.
4. Analyse the interplay between the general rule for the place of supply of services (Article 9(1) of the Sixth VAT Directive) and the specific rules (Article 9(2)). How did the CJEU’s judgment in Case C-568/17 illustrate this relationship, and what are the implications for determining the VAT liability of cross-border services?
5. Consider the broader implications of the CJEU’s judgment in Case C-568/17 for the taxation of online services, particularly those involving elements of entertainment or digital content provision. How might this judgment influence the application of VAT rules to other digitally delivered services?

Glossary of Key Terms:

• Preliminary Ruling: A decision given by the Court of Justice of the European Union (CJEU) on a question of interpretation of EU law referred to it by a national court of a Member State. The CJEU does not decide the national case itself but provides guidance on how EU law should be interpreted.
• Value Added Tax (VAT): A consumption tax assessed on the value added to goods and services. It is a harmonised tax within the European Union, meaning that while Member States implement it, they must comply with EU directives.
• Sixth VAT Directive (77/388/EEC): A key piece of EU legislation that harmonised the VAT systems of Member States. It was later repealed and replaced by the VAT Directive (2006/112/EC).
• VAT Directive (2006/112/EC): The current principal EU directive governing the common system of value added tax. It consolidates and updates the provisions of the Sixth VAT Directive.
• Place of Supply: The jurisdiction in which a supply of goods or services is deemed to take place for VAT purposes. Determining the place of supply is crucial for identifying where VAT is due and at what rate.
• Entertainment Activity: A category of services identified in the VAT directives where the place of supply is specifically defined as the location where the activity is physically carried out. This includes a broad range of activities aimed at providing amusement or enjoyment.
• Electronically Supplied Services: Services delivered over the internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible without information technology. Specific rules apply to the place of supply of these services.
• Ratione Temporis: A Latin phrase meaning “by reason of time”. In a legal context, it refers to the period during which a law or provision is applicable.
• Hoge Raad der Nederlanden: The Supreme Court of the Netherlands, which referred the questions of interpretation of EU law to the CJEU in Case C-568/17.
• Staatssecretaris van Financiën: The State Secretary for Finance in the Netherlands, a party in the main proceedings.
• Taxable Person: An individual or entity carrying out an economic activity independently, regardless of its purpose or results. Taxable persons are liable to account for VAT.

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