Potential new tax risk for companies providing 'free' services across the EU
Italian prosecutors and tax authorities are allegedly investigating Meta, owner of Facebook, for failure to apply VAT on its free services to Italian users from 2015 to 2021.
The authorities argue that the data that users provide when signing up and using the platform constitutes "consideration in kind" for the "service" supplied by the social media platform, thus being subject to VAT. The amount claimed is reported to be approximately EUR 870 million.
This enforcement action appears to have been originated by the European Public Prosecutors Office (EPPO). The EPPO was created to protect the financial interests of the European Union and it has complete independence from Member States in setting its own priorities. This investigation is a substantial escalation from the carousel frauds that have been the typical target of EPPO since its inception. This development may be an indication that similar enforcement actions are imminent elsewhere in the EU, particularly in the context of a broader trend of tax enforcement actions by means of criminal investigations already seen in a number of Member States, such as Germany and Italy, which has to date targeted primarily financial investors and multinational companies.
If confirmed, the challenge that an apparently free service is to be treated as being economically rewarded for VAT purposes due to the data received in exchange would be ground-breaking for potentially all providers of "free" services across the EU, especially if the same rationale could be applied to all ad-based free services, and is a risk that all companies should consider their exposure to.
Our team of European criminal litigation and tax partners are at the forefront of defending clients against similar enforcement actions and would be happy to discuss this development in greater detail with you.