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- The rapid evolution of the digital economy has prompted tax authorities across Europe to reassess the VAT implications of business models that offer services to users without monetary payment, but in exchange for personal data.
- Working Paper No. 1118, submitted by Italy to the EU VAT Committee in 2025, represents a significant step in this direction. It argues that under certain conditions, IT services provided by platforms in return for users’ personal data may constitute taxable transactions under Article 2(1)(c) of the VAT Directive. While the paper reflects growing awareness of the economic value of personal data, its reasoning and conclusions invite further debate—particularly when examined through the lens of established VAT principles and case law.
The Nature of Consideration in VAT Law
- At the heart of the VAT analysis lies the concept of “consideration.” EU VAT law, as interpreted by the Court of Justice of the European Union (CJEU), recognizes that consideration need not be monetary. It may be provided in kind, and what matters is the economic equivalence and the reciprocal nature of the exchange. The CJEU has consistently held that a supply is taxable only if there is a legal relationship between the supplier and the recipient, involving reciprocal performance, and where the remuneration received constitutes the value actually given in return for the service.
- Working Paper No. 1118 acknowledges this framework but applies it selectively. It maintains that services offered uniformly to all users—regardless of the quantity or quality of personal data provided—do not meet the threshold for a taxable transaction. This position hinges on the assumption that the absence of individualized service levels negates the possibility of a direct link between the service and the consideration.
- However, this interpretation arguably overlooks the broader economic reality of digital platforms. Even when services are offered under uniform terms, users are required to provide personal data and consent to its use. This data is not merely incidental; it is the cornerstone of the platform’s revenue model, enabling targeted advertising and monetization strategies. The platform’s willingness to provide services without monetary payment is predicated on the receipt of this data, which it exploits commercially. In this context, the user’s data functions as the consideration for the service, satisfying the subjective value criterion emphasized in VAT jurisprudence.
Legal Relationship and Reciprocal Performance
- The existence of a legal relationship between platform and user is typically established through the platform’s terms of service. Users must accept these terms to access the service, and in doing so, they grant the platform rights to collect and use their personal data. This arrangement constitutes a factual agreement, sufficient under VAT law to establish a legal relationship.
- Reciprocal performance is also evident. The platform provides access to its digital services, while the user provides personal data and consent. Each party’s performance is conditional on the other’s: the user receives the service only by agreeing to data collection, and the platform offers the service to obtain data it can monetize. This mutual dependency aligns with the “do ut des” principle recognized in civil law and VAT jurisprudence.
- Working Paper No. 1118 appears to accept this framework in cases where service levels vary based on user data settings. However, it resists applying the same logic to uniform service models. This distinction may be artificial. The economic value of personal data does not diminish simply because all users receive the same service. The platform’s business model remains fundamentally reliant on data collection, and the user’s consent is the enabling mechanism. The reciprocal nature of the exchange persists, even in the absence of differentiated service tiers.
Valuation Challenges and Subjective Value
- One of the concerns raised in Working Paper No. 1118 is the difficulty of quantifying the value of personal data. The paper suggests that in cases where a direct link is established, the taxable amount could be based on the cost of providing the service or inferred from subscription fees. While valuation is undoubtedly complex, it should not preclude recognition of the transaction as taxable.
- VAT law emphasizes subjective value—the value attributed by the parties to the exchange—over objective market valuation. If the platform accepts personal data as sufficient compensation for its services, and the user consents to this exchange, the subjective value is established. The absence of a monetary price does not negate the existence of consideration; it merely necessitates alternative methods of valuation, such as cost-based proxies or average revenue per user metrics.
The Case for a Broader Interpretation
- Working Paper No. 1118 rightly identifies scenarios where service levels vary based on user data settings as potentially taxable. However, its reluctance to extend this reasoning to uniform service models may be overly cautious. The economic and legal characteristics of the exchange—legal relationship, reciprocal performance, and subjective value—are present in both cases. The platform’s provision of services is not altruistic; it is a calculated exchange for data that fuels its commercial operations.
- A broader interpretation of VAT law, consistent with CJEU jurisprudence, would recognize that the provision of personal data in exchange for digital services constitutes a taxable transaction. This approach would align VAT treatment with the realities of the digital economy, ensuring that platforms are subject to the same tax principles as traditional businesses.
Conclusion
- Working Paper No. 1118 marks an important development in the EU’s approach to taxing digital services. Its recognition of evolving business models and the potential for direct links between data and service is commendable.
- However, its conclusions could be debated on legal and economic grounds. A more comprehensive application of VAT principles suggests that even uniform “free” services provided in exchange for personal data may meet the criteria for taxable transactions. As digital platforms continue to reshape commerce, VAT policy must evolve to reflect the true nature of value exchange in the data-driven economy.
Originator: Luc Dhont – Follow me on LinkedIn
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