User data as payment for ‘free’ digital services? New EU VAT Committee discussion and local country insights (DE, IT, NL, GCC, UK)

VAT Committee Involvement: The EU VAT Committee is discussing the VAT treatment of digital services, particularly regarding whether user data provided in exchange for free services constitutes taxable consideration. This follows inquiries from Italy about VAT implications for social media platforms, where a substantial VAT claim of around €1 billion is at stake.
Italian Authorities’ Position: Italy argues that a direct link can be established between the services provided by social media platforms and the personal data users supply, suggesting that services should be subject to VAT. This contrasts with previous VAT Committee guidelines stating that if services are uniformly free, they do not constitute a taxable supply.
Implications for Businesses: The ongoing discussions highlight the need for businesses in the digital economy to closely monitor developments regarding VAT treatment, as changes could significantly impact their operating models. Companies should reassess their VAT/GST positions in light of evolving business practices and engage with tax specialists to ensure compliance and prepare for potential legislative shifts.

Summary of Country Insights on User Data as Payment for Digital Services

Germany: The German VAT Committee previously sought guidance on the link between personal data and IT services. While there is ongoing debate among scholars and no definitive tax authority guidelines, recent court rulings suggest that free content providers may recover VAT if they plan to transition to a subscription model.
Italy: The Italian tax authorities have issued VAT assessments against major social media platforms, asserting that user data constitutes consideration for VAT purposes. They argue that the varying levels of service based on user data create a reciprocal relationship, thereby establishing a taxable supply.
Netherlands: The Dutch authorities maintain that VAT cannot be levied on free digital services since there is no direct turnover. However, they acknowledge ongoing discussions at the EU level regarding the VAT treatment of user data as consideration.
Gulf Cooperation Council (GCC): GCC tax authorities have yet to make specific moves regarding the VAT treatment of free digital services, but trends suggest a potential shift towards viewing such services as deemed supplies. This could involve assessing user tolerance of advertisements as a form of consideration.
United Kingdom: The UK’s VAT community is closely watching the developments in Italy, though HMRC has not yet provided formal guidance on the matter. The question of whether user data can be considered taxable supply remains relevant for UK VAT law, especially for digital platforms operating in the market.

Source Cesar Atroshy