Supplies of services via online platforms

The CJEU has held that that Article 9a of the Implementing Regulation 282/2011, which deems electronically supplied services made through online platforms to be made by the platform itself in most cases, is compliant with EU law: Fenix International v HMRC (Case C-695/20).

Article 9a means that, in most cases, online platforms are treated as acting as undisclosed agents when facilitating supplies of electronically supplied services, and that VAT is accountable on the full amounts charged rather than merely on the commission charged by the platform to the actual service provider. Given the increasing importance of online services made through a variety of platforms, the confirmation that Article 9a is effective and compliant with general principles of EU law is an important one.

Background

Fenix, a business registered for VAT purposes in the UK, operated a social media online platform called ‘Only Fans’. The platform is offered to ‘users’ from around the world, who are divided into ‘creators’ and ‘fans’. Creators, who have ‘profiles’, upload and post content such as photographs and videos to their respective profiles. They can also stream live videos and send private messages to their fans. Fans can access uploaded content by making ad hoc payments or paying a monthly subscription in respect of each creator whose content they wish to view and/or with whom they wish to interact. Fans can also pay tips or donations for which no content is supplied in return. Creators determined the amount of the monthly subscription to their profile, whilst Fenix set the minimum amount both for subscriptions and for tips.

Fenix was responsible for collecting and distributing the payments made by fans, using a third-party payment service provider. Fenix charged the creators an amount of 20% of the sums paid by their fans by way of a deduction. Both the payments from a fan and the payments to a creator appear on the relevant user’s bank statement as a payment made to or from Fenix. Throughout the relevant period, Fenix charged and accounted for VAT at a rate of 20% on a tax base formed by the 20% deduction.

In 2020, HMRC determined that Fenix should have accounted for VAT on the whole of the amounts that it received, both the 20% deduction and the amounts passed on to creators. HMRC took the view that that Fenix had to be deemed to be acting in its own name pursuant to Article 9a of the Implementing Regulation and accordingly was required to account for VAT on the full amounts it received.

Article 9a seeks to clarify the operation of Article 28 of the Principal VAT Directive in relation to electronically provided services via platforms and networks. Article 28 provides that “Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself”. Article 9a provides, broadly, that “where electronically supplied services are supplied through a telecommunications network, an interface or a portal such as a marketplace for applications, a taxable person taking part in that supply shall be presumed to be acting in his own name but on behalf of the provider of those services unless that provider is explicitly indicated as the supplier by that taxable person and that is reflected in the contractual arrangements between the parties”.

Fenix appealed and the FTT decided to refer to the CJEU the question of the validity of Article 9a. In particular, the FTT considered that it was arguable that it went beyond the implementing power conferred on the Council. In September 2022, the Advocate General opined that Article 9a was compliant with EU rules and the CJEU has now agreed.

Decision of the CJEU

The Court first noted that in order to be compliant with EU law, the provisions of an implementing act must (i) comply with the essential general aims pursued by the legislative act which those provisions are expected to clarify, and (ii) be necessary or appropriate for the uniform implementation of that act without supplementing or amending it, even as to its non-essential elements.

Therefore, in order to determine whether, in adopting Article 9a, the Council complied with the limits of the implementing powers conferred on it, it was necessary to ascertain whether Article 9a merely clarifies the content of Article 28 of the VAT Directive, which entailed examining whether Article 9a (i) respects the essential general objectives of the VAT Directive and, in particular, Article 28, (ii), is necessary or appropriate for the uniform implementation of Article 28 and, (iii) neither supplements nor amends Article 28 in any way.

Compliance of Article 9a with the essential general aims pursued by Article 28 of the VAT Directive

The Court noted that Article 28 is worded in general terms, without containing restrictions as to its application or scope and establishes that a taxable person who, in the context of a supply of services, acts as an intermediary in his or her own name but on behalf of another person, is treated as the supplier of those services.

In addition, it was apparent from the recitals to the Implementing Regulation that its objective is to ensure the uniform application of the VAT system throughout the European Union. As regards Article 9a, it was clear that, having regard to the taxation of electronically supplied services to non-taxable persons from 1 January 2015, when they became taxable in the Member State where the customer is established, regardless of where the taxable person supplying those services is established, the Council considered it necessary to clarify who the supplier of services for VAT purposes is when supplied through a telecommunications network, an interface or a portal. As such, Article 9a(1) is intended to ensure, from 1 January 2015, the uniform application of the presumption established in Article 28 of the VAT Directive to such services, and it followed that the provisions of Article 9a comply with the essential general aims of the VAT Directive and, in particular, those of Article 28.

Whether Article 9a is necessary or appropriate for the uniform implementation of Article 28 of the VAT Directive

The explanatory notes on Article 9a explain that, ‘where telecommunications services and electronic services are supplied to a final consumer (B2C), it is the supplier of the services who is liable to pay the VAT to the tax authorities. It is therefore essential to identify with certainty who is the supplier of the services provided, in particular when these are not supplied directly to the final customer but via intermediaries’. In addition, ‘supply chains are often long and can stretch across borders. Where that is the case, it can be difficult to know when the services are finally supplied to a final consumer, and who is responsible for the VAT on that supply. To provide legal certainty for all parties involved and to ensure collection of the tax, it is necessary to define who in the chain must be seen as the supplier of the service to the final consumer’.

The Court pointed out that it was clear from the explanatory memorandum to the Commission’s proposal for a Council Regulation amending Implementing Regulation No 282/2011 that it had become essential to amend the Implementing Regulation in order to establish the manner in which the relevant provisions of the VAT Directive should be applied. In particular, it was necessary in order to ensure legal certainty for service providers and to avoid double taxation or non-taxation which would have resulted from divergent implementation arrangements between Member States. In those circumstances, the Court held that Article 9a was appropriate, or even necessary, for the uniform implementation of Article 28 of the VAT Directive.

Compliance of Article 9a with the prohibition on supplementing or amending the content of Article 28 of the VAT Directive

Fenix argued that Article 9a supplemented or amended Article 28 of the VAT Directive in a number of ways, with the result that it exceeded the limits of the implementing power conferred on the Council. The Court has rejected these arguments. In particular, the Court did not consider that the presumption in Article 9a supplemented or amended Article 28 – it merely specified the cases in which the condition in Article 28 is to be regarded as satisfied, without supplementing or amending the content of that article. In addition, the Court rejected the argument that the presumption established in Article 9a applies without regard to the contractual and commercial reality, contrary to the case-law of the Court. The Court noted that by adding ‘unless that provider is explicitly indicated as the supplier by that taxable person and that is reflected in the contractual arrangements between the parties’, the first subparagraph of Article 9a(1) allows that presumption to be rebutted, by taking into account the contractual reality of the relationship between the participants in the chain of economic transactions.

Comment

The decision of the CJEU is extremely important, bringing certainty as to the continuing application of Article 28 as implemented by Article 9a to supplies made via electronic platforms. All business that operate in this space and provide any form of platform for the provision of e-services should review their operating procedures to ensure they comply with their VAT liabilities.

The financial importance of the decision is also borne out by the fact that, highly unusually, the AG had recommended that, if the CJEU disagreed and ultimately found that Art 9a was invalid, the scope of that decision should, exceptionally, be limited. The AG noted the huge scale of transactions that would need to be retrospectively amended (around £2.7bn just in the UK ). As a result, the AG recommended that the decision should be applied only to the specific appellant in the case and should only apply prospectively for other taxpayers.

Article 9a (in full)

For the application of Article 28 of [the VAT Directive], where electronically supplied services are supplied through a telecommunications network, an interface or a portal such as a marketplace for applications, a taxable person taking part in that supply shall be presumed to be acting in his own name but on behalf of the provider of those services unless that provider is explicitly indicated as the supplier by that taxable person and that is reflected in the contractual arrangements between the parties.

In order to regard the provider of electronically supplied services as being explicitly indicated as the supplier of those services by the taxable person, the following conditions shall be met:

(a) the invoice issued or made available by each taxable person taking part in the supply of the electronically supplied services must identify such services and the supplier thereof;

(b) the bill or receipt issued or made available to the customer must identify the electronically supplied services and the supplier thereof.

For the purposes of this paragraph, a taxable person who, with regard to a supply of electronically supplied services, authorises the charge to the customer or the delivery of the services, or sets the general terms and conditions of the supply, shall not be permitted to explicitly indicate another person as the supplier of those services.

Paragraph 1 shall also apply where telephone services provided through the internet, including voice over internet Protocol (VoIP), are supplied through a telecommunications network, an interface or a portal such as a marketplace for applications and are supplied under the same conditions as set out in that paragraph.

This Article shall not apply to a taxable person who only provides for processing of payments in respect of electronically supplied services or of telephone services provided through the internet, including voice over internet Protocol (VoIP), and who does not take part in the supply of those electronically supplied services or telephone services.’