The VAT treatment of services provided electronically in a digital economy, through various online platforms, raises many questions in current tax practice. An example in this sense is that of an intensely publicized case, resolved by the Court of Justice of the European Union (Grand Chamber) by the judgment of February 28, 2023, in case C-695/20, Fenix International Ltd.
Fenix, registered for VAT purposes in the United Kingdom, operates and has sole control over the online social networking platform known as “OnlyFans”. The platform, launched in July 2016, caters to “users” around the world, who are divided into “creators” and “fans”. The platform is mainly used by sex workers who produce material with pornographic content, but also by other content creators such as bodybuilders or musicians.
Creators, who have “profiles”, upload and publish content such as photos and videos to their profiles. They can also broadcast live videos and send private messages to their fans. The latter can access uploaded content by making ad hoc payments or by paying a monthly subscription for each creator whose content they wish to view and/or interact with. Fans can also pay tips or donations, for which no content is provided in return. Creators set the monthly subscription amount on their profile, while Fenix sets the minimum amount for both subscriptions and tips.
Fenix is responsible for the collection and distribution of fan payments through a third party payment service provider. It also sets out the general terms of use of the platform, which have been amended several times during the relevant period.
Fenix bills creators 20% of the amounts paid by their fans through a deduction. Both payments made by a fan and payments to a creator appear on that user’s bank statement as a payment made to or from Fenix. Throughout the relevant period, Fenix invoiced and accounted for VAT at a rate of 20% on a tax base consisting of the deduction (commission) of 20%.
The main dispute was generated by a tax inspection which established Fenix’s obligation to collect VAT not only on the 20% commission charged for providing creators access to the online platform, but on the entire amount collected from fans. Thus, using a simple example, for a service with a value of 100 euros, Fenix included in the VAT tax base only the commission of 20 euros, to which it applied the British VAT of 20% (4 euros), resulting in a final invoice of 104 euros (of which 4 euros VAT). According to the British tax administration, the invoice should have been one of 100 euros (the value of the service) + VAT in the amount of 20 euros since the commission structure was applicable.
Thus, according to art. 28 of the VAT Directive, transposed in art. 271 para. (2) Fiscal Code, when a taxable person acting in his own name, but on behalf of another person, takes part in a provision of services, it is considered that he received and provided the respective services himself.
As the General Advocate showed in his conclusions, art. 28 of the VAT Directive creates the legal fiction of two identical services provided consecutively. Based on this fiction, it is considered that the operator, who takes part in the provision of services and has the capacity of commission agent, received, in a first stage, the services in question from the operator on whose account he acts, which has the capacity of principal, before to personally provide these services to the client, in a second step. Or, more simply and concretely:
– In stage 1, the creator provides Fenix with a service aimed at accessing the content posted on the platform.
– In stage 2, Fenix provides the fan with exactly the same service.
Regarding invoices, Fenix issues the invoice to end customers for the full value of the service provided, to which VAT is added. At the same time, the creator invoices Fenix for the value of the service provided, less the agreed commission.
The bone of contention was represented in the case by a technical matter, namely art. 9a of the Implementing Regulation no. 282/2011, introduced by Implementing Regulation no. 1042/2013 and drafted as follows:
(1) In the application of Article 28 of the [VAT] Directive, if services are provided electronically through a telecommunications network, an interface or a portal, such as an online application store, it is presumed that a person the taxable person who participates in the respective service acts in his own name, but on behalf of the supplier of the respective services, unless the supplier is explicitly indicated as the supplier by the respective taxable person and this is reflected in the contractual provisions between the parties.
In order to consider that the provider of electronically provided services is explicitly indicated as the provider of the respective services by the taxable person, the following conditions must be met:
(a) the invoice issued or made available by each taxable person who participates in the provision of services provided electronically must identify the respective services and their provider;
(b) the payment note or receipt issued or made available to the customer must identify the services provided electronically and their provider.
For the purposes of this paragraph, a taxable person who, in relation to the provision of services provided electronically, authorizes the payment or delivery of the services or establishes the general terms and conditions of the provision cannot explicitly indicate another person as the provider of the respective services.
(2) Paragraph (1) also applies if the telephone services provided over the Internet, including the Internet telephony protocol (VoIP), are provided through a telecommunications network, an interface or a portal such as an online store of applications and are provided under the same conditions as those provided for in the respective paragraph.
(3) This article does not apply to a taxable person who deals only with the processing of payments related to services provided electronically or to telephone services provided over the Internet, including VoIP, and who does not participate in the provision of the services provided electronically or of the respective telephone services.”
Obviously, for reasons of protecting the identity of creators, online platforms in general (and Fenix in the case of the OnlyFans platform) do not receive and do not provide end customers with full data about the identity of these creators. We are, as the Advocate General said, in the presence of opaque intermediaries (online platforms).
The Court of Justice resolved the technical issue in the case, appreciating on the one hand that art. 291 para. (2) TFEU allowed the Council to adopt art. 9a, and on the other hand that this article 9a does nothing but detail the application conditions of art. 28 of the VAT Directive.
It is important to specify what the Advocate General observed, namely the fact that at the level of the VAT Committee (an advisory body composed of representatives of the tax administrations of the member states) it was determined as early as 2011 that in order to establish the place of provision of the electronic services received by a final consumer , online, through an intermediary or a third party that intervenes in an operation, it is necessary to establish who is the provider of the electronic service. Therefore, when an electronic service is provided to the final consumer, the intermediary or third party involved in the transaction is considered to have acted on its own behalf, unless, in relation to the final consumer, the supplier of the electronic service itself is explicitly indicated as the electronic service provider.
The practical implications of the decision of the Court of Justice of the European Union in the Fenix case are major, two possible lines of action being foreseeable: either online platforms will want to free themselves from the VAT burden and will impose greater transparency regarding the identity of creators, which would it also allows the tax authorities to check their income more carefully, including from the VAT perspective; either the online platforms will continue to keep the identity of the creators non-public, assuming the related costs and feeding the public budgets with a surplus of VAT.
This material was prepared, for the Blog of Costaș, Negru & Asociații, by Dr. Cosmin Flavius Costaș.
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