EU VAT Committee – WP 1118 – VAT treatment of IT services provided in exchange for users’ personal data

• Background: Italy asked the VAT Committee whether IT services (e.g., social media platforms) provided to users in exchange for their personal data (rather than money) should be considered a taxable supply for VAT purposes under Article 2(1)(c) of the VAT Directive.
• Previous Guidance: The VAT Committee previously agreed (2018) that if IT services are offered to all users under the same conditions, regardless of the amount or quality of data provided, there is no direct link between the service and the data, so no VAT is due. Only if a user acts as a business (using resources like a trader) would their data provision be a taxable supply.
• Italy’s Position: Italy argues that with new business models, a direct link can exist:
  • If the level of IT service depends on the quantity/quality of data provided (e.g., restricting data sharing limits service features), this could be seen as a barter transaction—services for data.
  • Italy believes that, in such cases, the service should be VAT-taxable.
• Commission’s View: The Commission distinguishes three scenarios:
  • No settings adjusted, service is “free”: No direct link, not taxable.
  • User restricts data, receives reduced service: A direct link may exist, possibly taxable, but hard to value.
  • User pays a fee for service: Clearly taxable.
• The Commission notes that, for scenario 2, a case-by-case analysis is needed, and legislative changes may be required for clarity.
• Conclusion: The VAT Committee is asked to give its opinion on whether, when IT services are provided under differentiated conditions based on the data provided, there is a sufficient direct link to make the service VAT-taxable.

Source WP 1118 – Italian question on IT services in exchange for users personal data

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ECJ Cases referred to

1. Amper Metal Kft., Case C-334/20, Judgment of 25 November 2021
2. UCMR – ADA, Case C-501/19, Judgment of 21 January 2021
3. Vodafone Portugal, Case C-43/19, Judgment of 11 June 2020
4. MEO – Serviços de Comunicações e Multimédia, Case C-295/17, Judgment of 22 November 2018
5. SAWP, Case C-37/16, Judgment of 18 January 2017

These cases are cited to clarify that a supply of services is taxable only if there is a legal relationship between the provider and the recipient, with reciprocal performance and a direct link between the service and the consideration, even if the consideration is not monetary. [WP 1118 -…sonal data | PDF]

See also

• Roadtrip through ECJ cases: Focus on ”Termination/cancellation fees” (Art. 90) – VATupdate

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1. Amper Metal Kft. (C-334/20, Judgment of 25 November 2021)

• Key Finding: The right to deduct input VAT for services (such as advertising) is not dependent on the economic efficiency or profitability of the expenditure. VAT deduction is allowed if the services are used for taxable transactions or the overall economic activity of the taxable person. The price paid, even if excessive or not directly linked to increased turnover, does not affect the right to deduct VAT as long as there is a direct and immediate link between the expense and the business activity. The principle of VAT neutrality is reinforced: businesses should not be penalized for the nature of their expenses if related to taxable activities. [vatupdate.com]

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2. UCMR – ADA (C-501/19, Judgment of 21 January 2021)

• Key Finding: When a collective copyright management organization collects fees in its own name but on behalf of copyright holders for public performance of musical works, this constitutes a supply of services for consideration under the VAT Directive. There must be a legal relationship with reciprocal performance, and the payment is subject to VAT. The organization acts as a taxable person and must issue invoices including VAT to event organizers; copyright holders must invoice the organization for their share. The ruling clarifies that such transactions are taxable if there is a direct link between the service and the consideration. [vatupdate.com]

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3. Vodafone Portugal (C-43/19, Judgment of 11 June 2020)

• Key Finding: Payments made by customers for early termination of contracts (termination fees) are considered remuneration for a supply of services and are subject to VAT. The ECJ held that these payments, even if calculated based on statutory cost bases and not the full contract value, are part of the consideration for the supply of services. The economic reality is that the customer pays for the right to benefit from the contract, and early termination does not change the taxable nature of the payment. [vatupdate.com]

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4. MEO – Serviços de Comunicações e Multimédia (C-295/17, Judgment of 22 November 2018)

• Key Finding: Compensation payments made by customers for early termination of minimum-term contracts, where the amount equals the remaining monthly fees, are not considered damages but are subject to VAT as consideration for services. The ECJ emphasized the economic reality: such payments are part of the contractual consideration for the supply of services, not mere compensation for loss. [vatupdate.com]

See also Briefing Document & Podcast: ECJ C-295/17 (MEO) – VAT due on early termination of broadband deal – VATupdate

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5. SAWP (C-37/16, Judgment of 18 January 2017)

• Key Finding: Payments of fees for fair compensation to organizations collectively managing copyright and related rights (levied on producers and importers of blank media and recording devices) do not constitute a supply of services for consideration under the VAT Directive. There is no legal relationship with reciprocal performance between the rights holders and the payers, so these payments are not subject to VAT. [vatupdate.com]

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