Validity of Article 9a of Council Implementing Regulation 282/2011 confirmed in Case C-695/20

Background

Article 9A of Council implementing regulation 282/2011 was introduced in 2013 by Implementing Regulation 1042/2013 in the context of the 2015 VAT changes relating to business-to-consumers supplies of electronic, broadcasting and telecommunications services.

By way of a short reminder, such services were, prior to 1 January 2015, subject to VAT in the country where the supplier was established. This caused some distortion on the EU market as some operators chose Member States with low VAT rates (mainly Luxembourg where the VAT rate at the time was 15%) to set up their operations and sell their services. To restore a level playing field for operators in that sector, it was decided at EU level that, after 1 January 2015, the same services should become subject to VAT in the EU Member State where the customer was residing.

Charging VAT according to the rate applicable in the country of the customer required businesses to determine where they were residing by collecting pieces of evidence such as IP, credit card or billing address etc.

For electronic services provided via telecom operators, marketplaces and the likes, the initial supplier – not always being in direct contact with the final customer - could not always collect the required evidence. Article 9a was essentially introduced to remedy that specific issue and to provide a surer way that VAT would be accounted for.

While Article 28 of the Principal Directive (Directive 2006/112/EC) already provided that an intermediary acting in their own name in a supply of service was deemed to purchase the service in question from the initial supplier and provide that same service to the final customer, Article 9a was introduced as a presumption that an intermediary such as those mentioned above (eg telecoms operator, marketplace etc) was acting in their own name. Article 9a is wide in scope imposing VAT obligations on the platform where it authorises the charge to the customer, delivery of the services or sets the general terms and conditions of the supply. In the UK, post Brexit, although Article 9a was not expressly implemented into UK law, HMRC maintained that section 47 (supplies through agents acting in their own name) achieved the same results as Article 9a, although this is somewhat unclear.

Such intermediaries are therefore presumed to buy the electronic service from the initial supplier and resell the same service to the final customer. The result of that presumption is not only that the intermediary is liable for collecting VAT at the rate applicable in the country of the customer, but also to collect from the customer with whom it is directly in contact, the pieces of evidence required to determine such rate.

Challenge before the Court of Justice of the European Union (CJEU)

Fenix, the operator of the “Only Fans” platform, challenged the validity of Article 9a on the basis that it had the effect of amending and/or supplementing Article 28 of the Principal Directive by adding new rules to it. This was because the intermediary that falls within the scope of Article 9a is deemed to purchase and provide an electronic service even though the identity of the initial supplier is known, in other words even though this intermediary is acting transparently for a disclosed principal.

The question is whether Article 9a goes beyond implementing Article 28 of the VAT Directive, which would make it unlawful according to general EU law principles.

Finding of the Court and conclusion

The Court considered that Article 9a was introduced to ensure a uniform application of Article 28 of the VAT Directive and, by extension, of the common VAT system within the single market. Article 9a was also safeguarding legal certainty for operators concerned as a means to avoid non or double taxation that could arise as a result of dissenting interpretations between Member States. Finally, the Court held that the Council did not exceed its implementing powers as it only sought to ensure a uniform application of the VAT Directive across EU countries

For these reasons, the CJEU confirmed Article 9a of Council Implementing Regulation 282/2011 to be valid.

This judgment is most welcome as disregarding Article 9a could result in significant complications for providers of electronic services who sell their services via online platforms, marketplaces, or telecom operators. Supply chains become more and more complex and most of those suppliers, although trading via disclosed intermediaries, do not have direct contact with end users. Collecting the relevant information that is required for them to apply a correct VAT treatment could become highly burdensome, even almost impossible in some cases.

View case here.