On 28 February 2023, the Court of Justice of the European Union (CJEU) issued its long-awaited decision in the Fenix International case, concluding that an online platform operator is liable for the VAT collected from customers. In fact, the court held that article 9a of Council Implementing Regulation No 282/2011, which deems electronically supplied services (ESS) made via online platforms to be supplied by the platform rather than the service provider, is compliant with EU law.
Implementing regulations are non-legislative acts that set out the requirements for the uniform implementation of EU legislative acts (such as directives) in the 27 member states, which means that regulations only can clarify the underlying legislative act without supplementing or amending it, even as to its non-essential elements.
Although the question before the CJEU in the Fenix International case was of a purely technical nature, i.e., whether article 9a is compatible with EU law, the court’s decision is significant because this is the first opportunity the CJEU has had to eliminate any ambiguities about the VAT liability of online platforms that facilitate ESS.
Article 28 of the EU VAT Directive provides that a taxable person who acts as an intermediary in his own name but on behalf of another person in a supply of services is presumed to be the supplier of those services. Article 9a of the Implementing Regulation, which implements article 28, provides that where ESS are supplied through a telecommunications network, interface or portal such as a marketplace for applications, the online platform is presumed to be acting in its own name but on behalf of the service provider, effectively shifting the liability to collect VAT from the service provider to the platform. In practice, an online platform typically must account for VAT on the full amount charged to customers rather than just on the commission the platform charges to the service provider.
The “deemed seller” presumption is rebuttable and article 9a also sets out the situations where the presumption will not apply so that the service provider will then be responsible for collecting VAT. The deemed seller presumption can be rebutted by showing that the service provider is explicitly indicated as the supplier by the platform, and this is reflected in the contractual arrangements.
Facts of the case
Fenix, a company established and registered for VAT purposes in the UK, operates a social media online platform called “Only Fans,” which is offered to "users" worldwide, the latter of which are categorised as "Creators" and "Fans." Creators upload and post digital content (e.g., photographs, videos) to their individual profiles and can live stream videos and send private messages to their Fans. Fans can access a Creator’s content by making ad hoc payments or paying a monthly subscription fee for each Creator whose content they wish to view and/or with whom they wish to interact. Fans can also leave “tips” or make donations for which no content is supplied in return.
Although the Creators determine the monthly subscription fee, Fenix sets the minimum amount for subscriptions and tips. In addition, Fenix sets the general terms and conditions for using the Only Fans platform and is responsible for collecting and distributing the payments made to Creators by Fans. Fenix withheld 20% of the amounts paid by Fans and applied UK VAT on that amount in the invoices it issued. However, the UK tax authorities took the position that Fenix was an intermediary acting in its own name but on behalf of another person and, therefore, was required to account for VAT on all amounts paid by Fans, not just the amount equal to 20%.
Fenix appealed and also raised the question whether article 9a of the Implementing Regulation goes beyond article 28 of the VAT Directive by deeming an agent that participates in a supply of ESS as the supplier even though the identity of the actual supplier is known. The UK first-tier tribunal referred the case to the CJEU asking whether article 9a is valid or whether it exceeds the Council’s "implementing power" under EU law. It is worth noting that, at the time of the referral (i.e., 22 December 2020), the UK was still considered an EU member state for VAT purposes and applied the EU VAT rules. This was the UK’s last referral of a VAT matter to the CJEU.
Decision of the CJEU
The CJEU stated that an implementing provision adopted by the Council is lawful based on the EU legislation if it (i) complies with the essential general aims of the legislative act that the provision is expected to clarify; and (ii) is necessary or appropriate for the uniform implementation of the act without supplementing or amending it, even with respect to its non-essential elements.
In this respect, the court found that article 9a is intended to ensure the uniform application of the presumption in article 28 of the VAT Directive by clarifying who the supplier is in relation to ESS provided via platforms. Since article 9a enables the tax authorities of the EU member states to determine with certainty who the supplier is in complex supply chains where online platforms are involved and, thus, to avoid double taxation/non-taxation issues, it is also considered appropriate, or even necessary, for the uniform implementation of article 28. Therefore, the court concluded that article 9a is valid and in line with EU law.
The CJEU rejected Fenix’s argument that article 9a supplements or amends the presumption in article 28. In particular, the court found that, having regard to the economic and commercial reality of ESS transactions, article 9a sets out the specific elements that should be examined to determine whether a provider of ESS can be presumed to be the principal supplier of the services. The fact that article 9a specifically sets out an “irrebuttable” presumption for online platforms that authorise the charge or delivery to the customer, or the general terms and conditions of the supply is not contrary to article 28. (Article 9a provides in relevant part that "...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.” Thus, in these specific cases, the presumption becomes irrebuttable.) Since an online platform can unilaterally define the essential elements of a supply, it will be deemed to be the supplier of the underlying services. Any other interpretation would imply that contractual arrangements that do not reflect the economic and commercial reality could be allowed
The CJEU’s decision comes as no surprise, given that it confirms the validity of the applicable VAT provisions and reflects current commercial practice. Considering the proliferation of online platforms in the global economy, legal certainty regarding the VAT treatment applicable to these transactions is essential. Online platforms whose approach has not been in line with the VAT provisions should carefully assess the CJEU’s decision and take informed decisions for their next actions.