What does the Fenix case mean for VAT management?
Fernando Matesanz of Spanish VAT services breaks down the crucial CJEU decision, with significant tax implications for digital platforms and electronically supplied services.
On 29 February, the CJEU finally issued its judgment in the Fenix International case. This is an important judgment that will have a considerable impact on today's economy, in which carrying out all kinds of activities through digital platforms is common. Those involved in VAT have been waiting anxiously for this decision.
Without going too much into the details, the question raised by the Court was whether Article 9a(1) of the VAT Implementing Regulation is actually extending the scope of Article 28 of the VAT Directive, thus exceeding its implementing powers and, therefore, considered as invalid.
In other words, it seeks to determine whether Article 9(a)1 of the 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 whereby 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 same service to the final consumer. Article 9a(1) of the implementing regulation establishes that if applying 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 if the platform authorises the charge of the price to the customer or sets the general terms and conditions of the service.
While initially it seems that Article 9(a)1 exceeds its implementing powers, the Court has been clear on this and decided it is actually seeking a uniform application in the EU territory of Article 28 of the VAT Directive. Therefore, it concluded that it did not exceed its implementing powers and, thus, Article 9a(1) cannot be considered as invalid.
The implications of the above will be significant and many digital platforms are no doubt already reviewing their processes 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 opinion, it will not affect all activities carried out with the help of digital platforms.
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, the provisions can be ignored and parties can stick to the terms and conditions agreed, assuming that these correspond to 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 service (interaction between service provider and service recipient).
It is true that where there is 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 be able to argue 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 to limit the liability of the platforms in some way? Reading in detail the content of the Article, platforms would avoid this liability if 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 literal sense this would be possible, in practice it seems unlikely that this could happen. Underlying service providers, who in many cases are freelancers or small businesses, appreciate when platforms help them to manage the financial aspects of their services. Therefore it seems implausible for such platforms to give up providing this service to their customers.
Perhaps rather than looking to avoid 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. It is certain that this responsibility will be extended to more and more activities. It must, therefore, be assumed that businesses are facing a new way of managing VAT that is becoming common practice as we move deeper into the digital age.