The European Commission’s VAT Committee is currently reviewing Italy’s €870 million VAT assessment on Meta, formerly known as Facebook, in relation to the free provision of its platform in exchange for users’ personal data. Italy considers this arrangement to be a barter transaction subject to VAT. The VAT Committee, which consists of external indirect tax experts, will provide a non-binding review of the case. Previous cases in the European Court of Justice suggest that the Meta case may not meet the criteria for a taxable supply in barter exchanges. This case raises complexities in determining the link between VAT consideration and supplies. If there is no demonstrable link or an inability to determine the monetary value, VAT may not be applicable. Users may perceive their data as covering the entire consideration, including the price and VAT. In such a scenario, any VAT liability would fall on Meta. Furthermore, questions arise regarding the location of user data consumption, which could impact Italy’s right to tax. The place of supply is typically where consumption occurs, which raises the issue of where Meta uses the user data.
Consideration for VAT does not necessarily have to be strictly monetary, and the lack of clarity in the EU VAT Directive adds complexity to the matter. 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.
The European VAT Committee has previously discussed the conditions for a taxable transaction when internet services are provided in exchange for user data. This discussion took place during its 111th meeting on October 30, 2018.
German authorities have sought the VAT Committee’s opinion on the VAT applicability for IT services provided without monetary consideration but in exchange for client data usage rights. The terms and conditions involving data permission state that individuals accepting free IT services agree to provider terms, granting permission for personal data usage. This is considered within the scope of managing private property.
Individuals using free IT services do not intend economic activity and lack the characteristics of such activity. Therefore, the provision of data is not considered an economic activity and is not subject to VAT. Furthermore, 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.
The variability and quality of data provided by users make it challenging to establish a direct link, which is a condition for the transaction to be taxable. However, if a sufficient direct link is found between IT services and customer data provided without monetary consideration, it becomes a taxable transaction. In such a case, the taxable amount would be the supplier’s cost for providing the service to the customer.
During the 111th meeting, 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. The assessment focused on whether such services constitute taxable transactions and, if so, how the taxable amount for VAT could be determined. The Commission services concluded that private users granting permission for IT services to use personal data falls within the scope of users managing their private sphere. They assume that private users seek access to specific IT services rather than consciously pursuing economic gain or engaging in economic activity.
The supply of IT services without monetary consideration is not considered a taxable transaction because no direct link can be established between the service provided and the variable user data received. The varying quantity and quality of personal data from different users contribute to the lack of a direct link. If deemed taxable, the taxable amount would be the supplier’s cost for providing the IT service to a specific customer. The German delegation expressed gratitude for the alignment of the Commission services’ assessment with their own. Other delegations generally agreed with the analysis, although some expressed caution and noted ongoing discussions in their Member States regarding the provision of user data as a taxable supply. The concept of “economic activity” was also questioned, with discussions touching on concepts from direct taxation, such as the “nexus.”
In conclusion, the Chair suggested attempting to formulate general guidelines, but acknowledged that the debate on the issues raised would likely continue in future meetings.