Can gratuitous use of the platform be subject to VAT?

1. 9. 2023

Do you operate a platform? Is it free to use for registered users? Are you allowed to use the collected user data for commercial purposes? If your answer is always yes, then watch out. The Italian tax authorities have charged one platform with an output VAT in just such a case.

The Italian tax administration was dealing with a platform operator which offered use of the platform free of charge to its registered users, but in order to register free of charge, the user had to agree, as stated in the terms and conditions, to the commercial use of the personal data provided by them.

The tax administrator-initiated proceedings with the platform, in which it concluded that this was not a gratuitous provision of services but a barter, i.e., the provision of services for a consideration, and charged output VAT on this account. According to the Italian tax administration, the basis of assessment for VAT is the value of the data provided by the user when registering. The amount of VAT charged in this way amounted to €870 million over a 7-year period. 

The conclusion of the Italian tax administration is not consistent with the opinion of the European VAT Advisory Committee, which states in its recommendation that:

1) The permission by private users to allow IT service providers to use their personal data would rather fall within the scope of these users managing their private sphere. In such a case, it can be assumed that private users are not consciously acting with the aim of gaining economic profit and carrying out economic activities, but that they only want to be able to use specific IT services that they cannot use without agreeing to the providers' terms and conditions.

2) The provision of IT services without monetary consideration is not a taxable supply because it is not possible to prove a direct link between the service provided to a particular customer and the user data received from that customer. This is because the personal data for which the provider provides the use of an IT service may vary considerably in quantity and quality between users.

3) If the described provision of IT services constituted a taxable supply, the taxable amount would be the provider's cost of providing the IT service to a particular customer, not the value of the data.

However, in terms of legal status, the European VAT Committee is only an advisory body and stands completely outside the legislative process. It therefore has no legislative powers and cannot adopt any legally binding interpretations of the application of the VAT Directive. The VAT Committee's instructions are not binding on the European Commission or the Member States.  It is therefore appropriate to recommend a revision of the terms and conditions for platforms providing their services throughout the European Union, and not only in Italy.

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