VATupdate

Questions about tax liability and VAT liability in the sale of sexual services (prostitution)

  • Published: 12.11.2021
  • Released: 17.06.2021
Case number SKNS1-2021-62

Increase in ordinary income and personal income from the sale of sexual services. Determination of VAT for the sale of sexual services. Imposition of ordinary and increased additional tax.

Change access and discretion / determination.

Questions about VAT

Also when it comes to VAT, there is a divergent picture of legal sources (case law, administrative practice and legal theory) in relation to whether income from the sale of sexual services is taxable.

It follows from section 3-1 of the Value Added Tax Act that all sales of services are subject to value added tax. Exceptions to this require legal authority. According to current regulations, income from prostitution is neither exempt nor exempt from VAT. The question is whether the Value Added Tax Act § 3‑1 must nevertheless be interpreted restrictively on the basis of the service’s special nature.

The term “turnover” is defined in the Value Added Tax Act § 1‑3 (1) letter a. Sexual services for consideration clearly fall within a general understanding of the legal definition: “delivery of goods and services for consideration”. The tax obligation under the Value Added Tax Act is general and covers the sale of all types of services unless there are exceptions specified in the Act, cf. the Value Added Tax Act § 3‑1 and §§ 3‑2 to 3‑20.

The Act defines services as “everything that can be traded and which is not to be regarded as a commodity”, cf. the Value Added Tax Act § 1‑3 (1) letter c. The question is whether there is a normative element in the wording “can”, so that the concept of service is limited to everything that can be legally traded. It is agreed, for example, that illegal activities such as the sale of drugs, healing, hired murder fall outside the scope of the Act under the VAT Act § 1‑1, cf. the VAT handbook 9th edition (2013) page 121 and the Ministry of Finance’s statement of 8 August 1998 (UTV -1999-200). The question then becomes whether a similar restrictive interpretation may be relevant when selling sexual services.

There is no Supreme Court case law regarding issues of VAT on the sale of sexual services. In a judgment mentioned above from the Oslo District Court of 19 June 2013 (TOSLO-2012-196791) (Utv-2013‑1521) which applied to tax liability and value added tax on the sale of sexual services, the court concluded that the plaintiff’s sales of sexual services were subject to value added tax.

Another judgment from the Oslo District Court handed down on 16 December 2014 (unpublished judgment, attached here in the case) also discussed the question of tax liability for prostitution. The case concerned the confiscation of NOK 57,140, ​​cf. the Penal Code § 34 and § 37 d first paragraph. The confiscation order was related to non-payment of taxes and fees in the period from 1 June 2012 to 2012. It was not disputed that the defendant stayed in Norway for part of this period, and that she had income from prostitution which she did not state for taxation, and that she also did not register in the VAT register. In this case, the court concluded that the accused prostituted herself out of necessity. The court did not find evidence under any reasonable doubt that the defendant was taxable in Norway, since she had a permanent residence in Greece and stayed there for more than 183 days during the year.

“The court has come to a different position than the district court ruling from 2012. The court finds that VAT on the purchase of sexual is to be regarded as a tax levied by the state on criminal purchases. The court can not see that this is any different from the fact that it is the prostitute who has The value-added tax is imposed on the last stage of turnover, namely the buyer. referred to the Penal Code § 224 on the state’s participation in human trafficking and exploitation of a particularly vulnerable person.

The court thus finds it extremely doubtful whether the state can and in that case should collect VAT on sexual services “.

The court did not take a final position on the question, but let the considerations regarding possible litigation be part of the background for the court’s discussion of whether the confiscation claim had to fall away as clearly unreasonable, cf. the Penal Code § 34 first paragraph second sentence. The accused was acquitted of both charges. The judgment, as a lower court judgment, has limited legal source weight, and applies to a criminal case with special evidentiary requirements, but has discussions that have the same issues as previous judgments.

Anders Mikkelsen has in chapter 2 in “Current VAT law” (2015) referred to these judgments, and concludes that the legal situation regarding the issue of tax liability for sexual services must still be considered unresolved, and ideally should be clarified by the legislature.

In the Secretariat’s view, the case in 2014 is different from the verdict from 2013. The former was a criminal case involving the confiscation of funds earned through prostitution. There were no tax decisions. The accused was a foreign-language tourist, she had random and rather dubious places of residence and variable income. She had a permanent residence in Greece where she had a daughter she supported. In the case in 2013, the situation was different. The case concerned escort services, and is comparable to the present case. This applied to a person resident in Norway, and there were tax decisions that were appealed by taxpayers.

Although the mentioned cases have little legal source weight, it seems that the court’s argumentation in the judgment handed down in 2013 was more detailed, while the statement in the criminal case is only orbiter dictum, as the court did not take a final position on the relevant issue.

In contrast to the Oslo District Court’s judgment from 2012 (delivered on 19 June 2013), the Tax Appeals Board, as mentioned above, in case 01 NS 106/2019, has considered the sale of sexual services not to be taxable. As previously mentioned, the Tax Appeals Board’s decision has been criticized by the Ministry of Finance, which believes that the decision is incorrect.

The secretariat has been in doubt about the question, and especially due to the district court’s statement in the above – mentioned judgment from the Oslo district court of 16 December 2014, where the court states that it finds it

“extremely doubtful whether the state can and in that case should collect VAT on sexual services”.

Having said that, the secretariat points out that prostitution is not explicitly exempt from tax, and it is then the general tax obligation in the Value Added Tax Act § 3‑1 that applies. The Secretariat finds no evidence to interpret the main provision on tax liability restrictively.

For this reason, the secretariat concludes, in accordance with the tax office’s view and in contrast to the Tax Appeals Board’s decision from 2019, that the taxpayer’s prostitution activity is taxable turnover.

Source: skatteetaten.no

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