Fenix International is the operator of the online content platform Only Fans. Fenix collects and distributes the payments made by users to content creators that are active on the platform. Fenix withholds 20% of the remuneration paid by the user for its own services. In dispute was whether VAT was due by Fenix based on the withheld remuneration or over the full remuneration paid by the user.
Article 28 of the VAT Directive stipulates that, where a commissionaire is acting in its own name but for the account of its principal, that principal is deemed to sell its product to the commissionaire and that the commissionaire is deemed to on-sell this product to the customer. As of 2015, article 9a of the VAT Implementing Regulation provides that a taxable person taking part in the provision of electronic services is presumed to be acting in its own name, but on behalf of the electronic service provider. This liability under article 9a of the VAT Implementing Regulation does not incur if the service provider is explicitly assigned as the person liable for VAT and this is also reflected in the various contractual arrangements.
Fenix took the position that article 9a of the VAT Implementing Regulation was not valid as it expanded the scope of article 28 VAT Directive. The ECJ ruled that article 9a of the VAT Implementing Regulation is lawful because it provides further details on when a person is considered to act in its own name, but on behalf of the provider of the electronic service. The provision in the VAT Implementing Regulation respects the essential general aims pursued by article 28 of the VAT Directive. The ECJ further ruled that an online interface that has the power to charge for and define the essential elements of electronic services must for VAT purposes be regarded as the supplier of those services based on article 28 of the VAT Directive. For this purpose, it does not matter that the principal is disclosed to the customer, e.g. as the customer is aware of the identity of the content creator.
Relevance for practice
The ‘Fenix International Limited’ case and article 9a of the VAT Implementing Regulation relate to electronic services offered via platforms taking part in the supply. However, based on this ECJ ruling tax authorities may argue that the provisions for commissionaires apply in more cases than before and might try to shift the VAT liability on the total sales taking place via a platform to the platform. Platforms should pay attention to the contracts with their users and the broader set of user terms as to determine their VAT obligations and/or as to ensure VAT compliance.
This ruling seems to confirm the broader trend of increased VAT liabilities and obligations for platforms. If your platform business performs activities in the EU or if you operate an electronic interface that assists webshops, we strongly advise you to determine the potential EU VAT aspects of your business activities. We also refer to our previous newsletters on this topic:
- DAC7 is coming: Are you sure that your business is not in scope?
- VAT in the Digital Age: new rules proposed
- More VAT liabilities and obligations for intermediary platforms and other electronic interfaces that assist webshops
- New VAT e-commerce rules: are you ready?
Please contact your trusted adviser at Loyens & Loeff or get in touch with your dedicated specialists in the Indirect Tax practice group.