Opinion of Advocate General SZPUNAR of 12 February 2019 in case C-568/17 (J.W. Geelen) regarding the question as to what the place of supply is for erotic webcam sessions.
Informal translation
Considerations:
Note from the editors: The A-G very clearly starts with the consideration that the VAT rules are old, and may not always be able to keep up with the technological and economical developments. We fully concur with this.
“VAT is a consumption tax. Ideally, it should therefore be levied at the place where the goods or services to which the tax relates are consumed. However, in the case of cross-border transactions, in particular with regard to services, this entails considerable administrative burdens, both for taxpayers and for the tax authorities. Therefore, the European Union directives on VAT provide for a simplified method for determining the location of services.
However, the determination of this place still causes problems, particularly in the case of complex services and services provided at a distance, for example, as in the present case, via webstreaming. The development of the provisions does not always keep pace with technological evolution and the changing market situation. The interpretation of the provisions in consideration of technological changes thus remains the task of the judges.”
Facts (simplified):
- L.W. Geelen, is a taxable person established and registered for VAT purposes in the Netherlands. He provides services that consist of organizing and making live interactive erotic webcam sessions available.
- The models that appear in the picture during the sessions are at that moment in the Philippines. Geelen provides them with the hardware and software required for the execution of the webcam sessions.
- Customers can contact the models via the internet if they have created an account with one of the internet providers. These providers charge the buyers a fee, of which they pay a part to Geelen.
- The sessions are live and interactive in nature, which means that the customers can communicate with the models and make requests.
- The services provided by Geelen are in principle intended for the Dutch market, although technically, also users from outside the Netherlands could access the websites and create an account.
Geelen did not submit VAT returns for its activities. However, the Dutch tax authorities were of the opinion that VAT was payable on the services in the Netherlands.
The Dutch Supreme Court asked the European Court of Justice for a preliminary ruling (summarised):
- Where are live interactive erotic webcam sessions that are provided for a fee subject to VAT? Can they be regarded ‘entertainment services’, which are subject to VAT in the country where the actual activities/event take(s) place (as Geelen argues), or are these ‘electronically supplied services’, subject to VAT in the country where the customers are, in case of private individuals (as the tax authorities argue)?
- Or is there another outcome, as to how should the place of the service be determined?
Conclusion:
The A-G indicates that it seems clear that the services that are being performed are ‘entertainment services’. However, this does not answer the question how to deal with services that, although they are entertainment services, are not being performed at a single place or at a specific time, as is the case, for example, with a live pop-concert or attending an exhibition or fair.
As the determination of the place of supply for services can be very complicated, the European Commission proposed that the main rule is that B2C services are subject to VAT in the country where the service provider is established. However, certain exceptions are made, including for ‘entertainment services’.
“19. (…) the Commission notes that it is most desirable for services to be taxed at the place where they are actually consumed. However, such a construction is a source of serious practical difficulties in cross-border services. These can be solved fairly easily in the case of services to taxable persons, in particular through the so-called reverse charge mechanism. However, this mechanism does not apply to non-taxable persons. An alternative would be to require service providers to register and pay VAT in each Member State where they provide services, but this would entail an excessive administrative burden. Moreover, the place of actual consumption in many services is not at all the place where it is physically carried out but the place of establishment or the place of residence of the customer, which complicates the matter even further, since it requires the service provider to call the place of residence each time. customer and VAT at that place.
As a general principle, these practical difficulties in the Sixth Directive mean that the place of supply is the place where the service provider is established. In the above proposal, the Commission proposed to maintain this general rule for services to non-taxable persons.
20. However, there are exceptions to this principle. One of these is the exception for cultural activities, educational and entertainment activities, etc., which concerns us in this case. With the introduction of this exception, two objectives have been achieved.
21. Firstly, if the activity in question required the simultaneous physical presence of the customers and the service providers (or of the persons who provide the service on their behalf) in one place, the most desirable solution would be achieved by taxing the services on the marketplace of actual consumption without excessive administrative barriers. Such services are in fact of a one-off nature, in the sense that their economic sense is usually limited to the duration of the provision of services. The consumption of such services is therefore immediate in nature and takes place at the place where they are performed. The place of establishment or the place of residence of the customers is therefore of no importance; the service provider will only pay the VAT at the place where the service is actually performed.
22. Secondly, such services are often complex because they require a wide range of indirect and supplementary services, some of which may be provided directly to final customers, but others are for example provided to the organizers of the events forming part of the final services. . The price of this can but does not have to be part of the total price of the final service. In addition, it is possible that they are supplied by different service providers. The application of the general rule that the tax is levied at the place where the service provider is established would therefore lead to the need for a VAT levy on different partial services in different Member States. Member States. The taxation of these services at the place where they are actually carried out simplifies the case if this is the place of supply of the final service or of the main service.
23. However, the application of that exception to services provided at a distance, such as those at issue in the main proceedings, can not achieve those objectives.”
So, the A-G sets himself to deal with this problem.
He argues that if the arguments of Geelen are followed, the services would not be subject to Dutch VAT (but subject to VAT in the Philippines). This is not the desirable or satisfactory solution, as, according to the A-G, the services are actually enjoyed in the EU.
(Note from the editors: The A-G at least recognizes that there is enjoyment with the ‘user’, although we do not know if the person actually performing the services is also enjoying it…)
“41. This dilemma is a perfect example of the problems that arise when trying to apply the contested provisions to situations for which they are not intended, that is to say, to services provided at a distance. In contrast to services requiring the simultaneous physical presence of the provider and the customer, in the case of services provided remotely, there is by definition no place that can be clearly and unambiguously considered to be the place of service. The essence of such services is that they are performed in at least two locations and, more specifically, from one to another.
44. These services are defined as ‘live interactive erotic webcam sessions’. Two elements seem to be essential for the services thus conceived: the erotic sessions as such (ie the appearance of the models) and their transfer via the internet, as well as ensuring the interactive communication.
45. These two elements constitute a single, indivisible service. Geelen not only ensures the appearance of the models, because such a service would have no value for its customers, since the latter are in the Netherlands and the models in the Philippines. His services are also not limited to arranging the transfer of it, because he also organizes the performance of the models, he provides them with the necessary hardware and, as we may assume, pays them a compensation.
46. Both elements are therefore equally important, since the service would not be economically useful without each of those elements and would in any event be separate services.
47. Returning to the provisions examined in this case, it should be noted that they relate to services relating to cultural activities, entertainment activities and other activities. With regard to the location of services, however, these provisions do not refer to the place where the activities are carried out but to the place of the service. The place of performance of the activity to which the service relates, in this case the entertainment activity consisting of the performance of the models, is therefore not sufficient to determine the place of services if other equally important elements of the service are provided elsewhere.
48. I therefore disagree with the Commission’s view that the place where the models operate must be regarded as the place of services at issue in the main proceedings. That position completely disregards the fact that the economic sense of that service is for the customers to be able to use them at a place chosen by them, particularly in their place of residence, and to ensure the transfer of the sessions from that point of view is as important an element as the performance of the models.
49. However, it is difficult to establish that the place of consumption by the customers is the place where the service is actually supplied, as the Netherlands and French Governments wish. None of the actions that make up this service are in fact performed there.”
Conclusion:
The A-G is of the opinion that:
- Services consisting in organizing and making live interactive erotic webcam sessions are not services in connection with entertainment activities within the meaning of those provisions.
- In the case of services provided at a distance and therefore not requiring the presence of the customer at the place of actual provision of the services, the place of establishment of the service provider must be regarded as the place where the service is taking place or actually is carried out within the meaning of the aforementioned provisions.
Note: The A-G is trying to make a distinction between the actual performance by the ladies in front of the webcam, and the services performed by Geelen. The latter he qualifies not as ‘entertainment’, but as ‘making available or providing the opportunity to attend live interactive erotic webcam sessions’, which services as such are not services in connection with entertainment. It seems somewhat unclear if the A-G means that the services as he describes them are ‘generic B2C services’, or if they are (or can be) electronically supplied services. The answer to this question can be relevant if the service provider and the recipient (private individual) are not in the same country. Also, the question arises how the viewing of live pop concerts should be regarded? Or a hospital giving the opportunity to students at the other side of the world to attend an operation live.
