Free online services, VAT risks?!

Anyone offering an online service for which users pay only with their data would do well to look now at whether that business model can give rise to VAT on the value of that data.

Googling for free?

Almost everyone knows the experience: you search for something and adverts appear for products and services you, as an individual or a business, happen to be interested in.

We are no longer naive about this. Our online behaviour, whether through apps or ordinary browsing, is tracked, mapped and sold on by companies, and used to tempt us into buying new or used products and services.

Users pay with personal data

Not everyone realises that free use of browsers, platforms, apps and websites can be seen as a service supplied by the provider, for which the user pays by making their personal and search data available. It is a lucrative business model, and one tax authorities are keen to share in.

The Italian tax authorities have taken the lead and issued VAT assessments running into hundreds of millions against the tech giants Meta, X and LinkedIn. In their view there is a supply and there is consideration, the two basic conditions for charging VAT. VAT should therefore be accounted for on the value of the data received, which the tech giants have not done.

A legal battle ahead

A legal battle will follow. If Italy prevails, tax authorities in other member states will have to act as well. Some may already be acting to preserve their assessment periods. A tax authority can raise an assessment several years after the supply. In the Netherlands that period is five years.

The ViDA measures adopted earlier this year have made clear to member states that VAT and the digital world need to be brought closer together. The expectation is that the Court of Justice will ultimately settle whether, and in what circumstances, free online services should be subject to VAT.

What this means for smaller businesses

A ruling that free digital services can give rise to VAT would also affect small and medium-sized businesses in the Netherlands.

Providers of online services funded by selling user data made available in exchange for the service, knowingly or otherwise (who reads the small print?), should already be examining whether their model could give rise to VAT on the value of that data, and how the model might be adjusted. Think of unpaid services from:

• dating sites
• online marketplaces and platforms
• providers of SaaS products
• online games and apps
• providers of streaming services and television programmes

We are happy to discuss these risks with you, along with other VAT aspects of doing business digitally.