The topic of Upwork and Fiverr is one of the most popular topics on my blog. Uncertainty seems to be high. In addition to what I’ve said in this article, I’d like to reveal a little more information about Fiverr.
I regularly receive questions about whether the revenue (sales) generated as a service provider on Fiverr is subject to sales tax. Inquirers asking tax advisors for advice often get the answer that this would be the case if the person who “buys” the service (and be it a logo, a text or anything else) uses this received service in Germany (or in the EC).
However, this is only half the truth, because it must first be clarified/assessed whether in the present case a so-called “service commission” in application of § 3 para. 11 and 11a of the German Value Added Tax Act (Umsatzsteuergesetz, UStG) is present.
If an entrepreneur is involved in the provision of another service (e.g. Fiverr in this case) and acts in his own name but on behalf of a third party, this service is deemed to have been provided to him and by him (Section 3 (11) UstG ). This provision, in implementation of Art 28 VAT Directive, extends the idea that § 3 para. 3 UStG for the supply commission is based on the interposition of a business agent in the provision of other services to third parties or in the provision of other services by third parties.
Although Fiverr writes the following:
“Sellers shall be responsible for the payment of all direct or indirect taxes, including GST, VAT or other taxes applicable to them depending on their residence or location. Sellers represent and warrant that they will, at all times, comply with their obligations under the income tax laws in their jurisdiction. The price displayed on the Gig Page or Logo Maker Order Page is inclusive of all taxes and fees that may apply to Sellers.”
However, this does not really clearly and compellingly define the legal relationships, because it does not clarify whether there is a legal relationship between the seller and Fiverr or the seller and the buyer. The problem is that often enough the seller and buyer do not know each other at all, let alone the seller knows in which country the buyer lives (or is based) and whether the buyer is a company or a private person. However, this information would be relevant in order to create correct invoices (to the buyer!) and to finally answer the question if and how much sales tax has to be paid. In this respect, tax law always follows civil law.
“Appointment as Collection Agent for Limited Payments: Seller hereby appoints Fiverr as Seller’s Limited Payment Collection Agent to exclusively receive payments (through its payment service provider, if applicable) from Buyer and remit such payments to Seller. Seller agrees that the payment made by Buyer to Fiverr shall be deemed equivalent to the payment made directly to Seller.”
This could indicate that Fiverr does not want to act as a seller and buyer, but only as an intermediary and collection service provider. Whether this is sufficient, may be doubted. Clearly express with whom one contracts as a “buyer” and with whom not, do not do this the terms and conditions in my opinion. This could indicate that the risk is borne by Fiverr, which is the beneficiary in case of doubt.
The uncertainties here also lie in functions such as these
“A Fiverr Studio allows certain sellers to collaborate with each other and offer a multi-service gig (a “Studio Gig”) to buyers.”
In case of doubt, at least under German law, this construction would be a GbR, with all the legal consequences (civil and tax) that this entails.
Furthermore, it should be noted that GTC regulate that one may only use Fiverr as a means of payment, that all communication must take place via Fiverr and that one must also provide proof of performance in the Fiverr system in order to receive payments from Fiverr.
Also problematic is that although a seller can enter their VAT ID, the seller cannot use prices that would, for example, comply with the reverse charge procedure in the EU and thus be displayed without VAT. Only a fixed price can be charged for a “gig”.
Likewise, Fiverr states under the “Buyer” section:
“Buyers pay Fiverr to create an order from the seller’s gig page or custom listing by using the Order Now button or logo maker.”
Furthermore, Fiverr clarifies in the “Fiver Business” section:
“Invoices for purchases made by purchasers using the team’s payment method shall be issued in the name of the entity designated by the Administrator and sent only to the Administrator.”
Therefore, there is a VERY strong case for Fiverr to act as a beneficiary and not just an intermediary. This means that the place of performance for other services would be in Israel (i.e. the registered office of Fiverr) (§ 3a para. 2 UStG) . Other services are defined as all services that do not constitute deliveries. But beware: this only applies if Fiverr is to be considered a company. What sounds logical at first will be commented by any tax advisor with “anyone can say that”. It is therefore necessary for Fiverr to submit a certificate of entrepreneurship issued by the respective competent tax authority in the third country (reference to Art. 18 (3) VAT Regulation). The content of the certificate should be similar to the entrepreneur certificate according to § 61a para. 4 UStDV (as for the so-called remuneration procedure). If the recipient of the service cannot provide proof by means of a certificate in accordance with sentences 1 and 2, it is left to the entrepreneur providing the service to decide how he proves that the recipient of the service established in the territory of the third country is an entrepreneur. Whether Fiverr transmits such a certificate, I doubt and whether this gives problems with a later company/tax audit, can hardly be judged.
If, however, Fiverr is seen as a company and if, according to the circumstances and the above, it is to be assumed that the transactions with Fiverr are a service commission, this would result in the place of performance being Israel and no VAT having to be paid in the EU on the sales received from Fiverr. (so-called industry solution)
In the circumstances described here, Section 19 of the German Turnover Tax Act (UStG) and other aspects of turnover tax law may also need to be taken into account. Since it always depends on the individual case and general statements are associated with uncertainties, legal or tax advice for self-employed persons is also strongly recommended for these reasons.
I am open to feedback if statements of fact in this article no longer correspond to the actual facts on Fiverr. Then I will try to adjust the designs and possibly there will be a different result. Please note that in the context of this article, I cannot give specific legal advice on Fiverr, nor can I make a specific suggestion on how to deal with the problem. This can only be done within the framework of a mandate.