A divergence within the EU VAT system challenges established guidance and introduces new compliance uncertainty for digital service providers.

In a move that is sending ripples across the digital economy, ^[1] The companies involved have already lodged appeals against these assessments, signaling that the issue might be fought in court – potentially over several years, given Italy’s three-tier tax court process.^[2] This step marks a significant deviation from the existing consensus within the EU VAT Committee, and it raises critical questions for businesses operating digital platforms in the European Union.

The Legal Framework: When Is a Supply Taxable Under EU VAT Law?

Under EU VAT law, VAT applies only to supplies made by a taxable person for consideration. The notion of "consideration" is broader than cash payments and can include non-monetary assets. Indeed, non-monetary consideration is a recognized concept. For example, the UK Court of Appeal in ING Intermediate Holdings Ltd v HMRC (2017) found that a bank’s ‘free’ deposit accounts were actually provided for consideration – the customers’ deposits constituted payment in kind under a barter arrangement.^[3] This precedent illustrates that even without a cash fee, a benefit conferred (whether deposits or personal data) can trigger VAT obligations beyond the online context.

However, the Court of Justice of the EU (CJEU) has consistently held that a supply is taxable only where there is a direct link between the service rendered and the value received in return.^[4]

Personal Data as Consideration: Legal and Conceptual Challenges

While it is widely recognized that personal data has commercial value, the legal question is whether this data can constitute consideration under EU VAT law. Challenges to this view include:

• The lack of reciprocity: Platforms often provide identical services to users regardless of how much data they share.
• The non-economic nature of data provision: Users do not actively trade their data; they passively consent to its use.
• The absence of a direct link: There is typically no agreed, measurable value of data exchanged for services.

These points led the EU VAT Committee, in its Working Paper 958^[5] and Guideline 967 (2018)^[6], to unanimously agree that free digital services provided in exchange for personal data do not constitute as taxable supplies. The user is not a taxable person, and the service is not provided for consideration.

Italy's Divergence: A Shift in Perspective

Italy's tax authorities state that digital services provided to users who accept terms allowing data usage are part of a reciprocal relationship. They assert that:

• The digital platform supplies a service.
• The user supplies valuable data.

This recharacterization treats the transaction as a barter, with the cost of the service used as the taxable base. This means VAT would be due on the service’s value even though no cash is received from users, creating an out-of-pocket tax cost for the platform. In effect, a data-for-services barter is treated like a cash transaction under VAT – the taxable amount is the monetary value of the data provided. Such an interpretation directly contradicts Guideline 967 and challenges the integrity of EU VAT harmonization.

Implications for Businesses

The Italian position introduces serious legal uncertainty:

• Fragmentation: A transaction considered non-taxable in one Member State may be taxed in another.
• Compliance burdens: Companies may need to report VAT in specific jurisdictions despite offering uniform services.
• Litigation risk: Businesses may need to contest assessments or seek clarification from national or EU courts.
• Valuation complexity: If data is treated as consideration, assigning a value for VAT purposes becomes contentious.
• Financial reporting: Companies with similar data-driven revenue models (across various industries) should evaluate whether this VAT exposure needs to be reflected in their financial statements – for example, as a contingent liability or provision – in line with accounting standards’ prudence and disclosure requirements.

Risk of Broader Fragmentation

This divergence threatens the single market's coherence. It creates distortion in competition and undermines the uniformity that the EU VAT system is designed to ensure. If more Member States adopt similar interpretations, businesses will face an increasingly complex VAT landscape.

Additionally, the issue could have global repercussions. Non-EU digital service providers may find themselves subject to inconsistent VAT obligations across the EU. There is also a risk that taxing data as consideration might clash with data protection principles, adding a layer of legal tension.

What Comes Next?

Businesses must monitor this development closely. The European Commission has reportedly placed the issue back on the VAT Committee's agenda. A referral to the CJEU may ultimately be necessary to restore legal clarity.

In the meantime, companies should:

• Review their digital service models in light of potential VAT exposure.
• Consider obtaining advance rulings in key jurisdictions.
• Engage with industry associations to encourage a unified response.

Conclusion

The debate over whether personal data qualifies as consideration in the context of VAT is more than a technical dispute. It touches on the future of digital taxation, the boundaries of VAT law, and the unity of the EU single market. Until the CJEU provides clarity or the law is amended, companies must navigate this grey area with caution.

[1] https://www.reuters.com/world/europe/meta-x-linkedin-appeal-unprecedented-vat-claim-by-italy-2025-07-21/ 

[2] https://www.reuters.com/world/europe/meta-x-linkedin-appeal-unprecedented-vat-claim-by-italy-2025-07-21/ 

[3] ING Intermediate Holdings Ltd v Revenue and Customs Commissioners [2017] EWCA Civ 83, [2017] STC 985 (CA) [para 58].

[4] CJEU, judgement of 3 March 1994 – Case C-16/93 – Tolsma, ECLI:EU:C:1994:80, Link to decision: EUR-Lex - 61993CJ0016 - EN - EUR-Lex.

[5] EU Commission, Working Paper No 958 of 30 October 2018, taxud.c.1(2018)6248826, Link to document: https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/412a07d0-62b2-47f5-b6a2-655e3af2213e?p=1&n=10&sort=modified_DESC.

[6] EU VAT Committee, Guideline 967 resulting from the 111^th Meeting of 30 November 2018, Document B - taxud.c.1(2019)3722302, page 248, link to document: https://taxation-customs.ec.europa.eu/document/download/474e7e57-7e01-4de0-ac94-e55537e505ae_en?filename=guidelines-vat-committee-meetings_en.pdf.