ECJ on VAT for influencers on platforms

What is it all about?

The ECJ has made an exciting ruling on the topic of VAT treatment of influencers on TikTok, which is something like this or similar, but also gives some clues for Twitch, for example. At its core is the issue of commission deals on platforms that influencers use to reach their followers. Commission business is actually nothing special and an ancient legal construct, e.g. in the art market or with magazine dealers.

In this case, the commission agent acts in his own name but for the account of another person. However, for VAT purposes, a chain of services for turnover of goods pursuant to sec. 3 para. 3 Value Added Tax Act (UStG) and for services pursuant to § 3 para. 11 UStG fictitious. Since the introduction of Art. 9a of the VAT Implementing Regulation (VATDVO) on January 1, 2015, this fiction also applies to electronically supplied services.

This leads to the fact that the platform operator does not have to charge the Influencer for a business service, but the Influencer has to charge the platform for its service and the platform has to charge the end customer for its service.

The ECJ was therefore concerned with whether the platform, in this case OnlyFans, only has to pay tax on the commission as remuneration. The platform operator argued that Article 9a of the VAT Regulation was unlawful, while the tax office argued that the user fee paid by the customer was taxable. However, the ECJ found Art. 9a VAT Regulation to be in conformity with the Union.

The consequences

The decision of the European Court of Justice (ECJ) in Case C-695/20, Fenix, also has implications for influencers who offer their digital services via platforms. The fiction of the service chain has the effect that the platform operator does not have to charge the Influencer for any business supply service, but that the Influencer provides a service to the platform and the platform provides a service to the end customer. This means that influencers must declare revenue to the platform based on the compensation agreed with the platform.

If the platform operator is based abroad, German content providers do not have to pay German sales tax on their sales, as the principle of the place of receipt pursuant to Section 3a (1) of the German Commercial Code (HGB) applies. 2 UStG applies. In this case, the sales tax is due at the place of the recipient of the service. Contrary to civil law, the Influencer does not receive any taxable input service from the platform, which is why any settlements by platforms based in Germany do not entitle the Influencer to an input tax deduction. In the case of foreign (not European!) platforms, § 13b UStG (as reverse charge) does not apply.

The question remains open as to whether the legal issue is to be assessed similarly for other services such as online consulting, online educational services or chats.

Influencers should think clearly about these and similar issues as it affects sales, tax obligations, and therefore their own profitability. It is advisable to seek advice from a tax advisor or lawyer in order to comply with the legal requirements and, if necessary, to adapt the contracts with the platforms. In any case, it is important to be aware of the tax obligations related to the use of platforms and the provision of digital services.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.