On 29 February, the CJEU finally issued its judgment in the Fenix International case (C-695/20). This is an important judgment that we foresee will have a considerable impact on today’s economy, in which carrying out all kinds of activities through the use of digital platforms is something common. Those of us involved in VAT have been waiting anxiously for this Court decision.
Without going too much into the details of the case, we can briefly say that the question raised by the Court tried to ascertain whether Article 9a(1) of the VAT Implementing Regulation (282/2011) may be considered that it is actually extending the scope of Article 28 of the VAT Directive, thus exceeding its implementing powers and, therefore, it might be considered as invalid.
In other words, it seeks to determine whether Article 9(a) 1 of the implementing regulation has gone further than it should and is de facto establishing a legal provision that does not appear in the VAT Directive.
Article 28 of the VAT Directive foresees a deemed provision for which it should be considered that an intermediary acting in its own name (a platform in this case) receives the service from the supplier and, at the same time, supplies the very same service to the final consumer. For its part, article 9(a) of the VAT implementing regulation establishes that for the application of this Article 28 to electronically supplied services it would be possible to explicitly indicate someone else, and not the platform, as the actual supplier of the service. However, this will not be possible in case the platform authorises the charge of the price to the customer or sets the general terms and conditions of the service.
The Court finally decided that Article 9a(1) was actually seeking a uniform application in the EU territory of Article 28 of the VAT Directive. Therefore it concludes that it did not exceed its implementing powers and, thus, Article 9(a) cannot be considered as invalid.
The implications of the above will be significant and many digital platforms are no doubt already reviewing their processes in order to determine the potential liability they may have in relation to VAT collection. While, again, the impact is considerable, it is important to explain the scope of the decision as, contrary to what many people may think, it will not affect all activities carried out with the help of digital platforms. The expectations about the scope of this decision are wide. However, it is possible that its impact will be will not be as widespread as we might initially think.
Article 9a(1) of the VAT Implementing Regulation refers to electronically supplied services only. Therefore, in cases where the service does not qualify as electronically supplied, we could ignore the provisions of this article and simply stick to the terms and conditions agreed between the parties, assuming that these obviously correspond to the reality of the activity carried out.
It is important to note that many services provided with the help of digital platforms are not considered as electronically supplied because there is a considerable degree of human intervention in the delivery of the service (interaction between service provider and service recipient).
It is true that in those cases where there is indeed an electronically supplied service, the Court’s decision implies an important responsibility for the platforms on the collection and payment of VAT.
In the cases foreseen in article 9a(1), the platform shall automatically be considered as the supplier of the services. They will not able to argue that their role is merely an intermediation and that their VAT liability is therefore limited to their commission fee. As the platform is considered as the service provider, they should charge and collect the VAT on the full amount of the transaction.
Is it possible to circumvent this presumption in order to limit the liability of the platforms in some way? Reading in detail the content of the article, platforms would avoid this liability in case they did not authorise the charge of the price to customers or did not establish the general conditions of the service. In that case, they would be allowed to expressly state that the service provider is not the platform, but someone else.
In a strictly literal sense this would be a possibility, in practice it seems difficult that this could happen. One of the tasks that underlying service providers, who in many cases are freelancers or small businesses, appreciate the most is that platforms help them to manage the financial aspects of for their services like the collection of the prices, so it seems difficult for such platforms to give up providing this service to their customer. Perhaps rather than looking for ways to avoid the application of this presumption, it would be wiser to accept that, as we have seen with e-commerce transactions and the recent ViDA proposal, the role of platforms in VAT collection is becoming increasingly important. It is already a reality and will continue to be so. We are certain that this responsibility will be extended to more and more types of activities. We must, therefore, assume that we are facing a new way of managing VAT that is becoming common practice as we move deeper into the digital age.