Company profit margins hinge on Italy’s €870 million VAT investigation against Meta, tax professionals told the ITR Indirect Tax Forum 2023 in Brussels yesterday, May 23.
It was first reported in February 2022 that Milan magistrates had launched an investigation into Meta at the request of the European Public Prosecutor’s Office, pursuing up to €870 million ($925 million) in unpaid VAT on the data obtained from its users.
The ongoing investigation is based on the assumption that consumers actually ‘pay’ for ‘free’ Meta services like Facebook with their data, and that transactions should therefore be subject to VAT.
Describing the core issue, Aleksandra Bal, indirect tax technology lead at financial technology company Stripe in the Netherlands, referenced the documentary The Social Dilemma.
“If you are not paying for the product, then you are the product.”
She later added: “They [online platforms] are not completely free – when we use them we allow the service provider to collect and exploit our data.”
Bal was joined on the panel by Johan Visser, indirect tax partner at Atlas Fiscalisten in Amsterdam.
The €870 million is based on consumer data transactions from 2015 to 2021, and if the case is successful it would set a dangerous international precedent, the panel told the forum.
The speakers were concerned that if one company can owe an amount so large in one jurisdiction, the global VAT tax bill will be huge if the same rules are applied worldwide.
Discussing the Italian Revenue Agency and its investigation, Visser said: “If they succeed in this case, it will blow up every online company”.
He shared his concern that a successful case might justify the pursuit of VAT on consumer data transactions in industries extending beyond purely online service providers like Meta.
Using discount cards in supermarkets as an example, Visser noted: “If you use that card, you get a discount and they get your data, you’re buying a discount.”
He then posed the question: would those transactions also be subject to similar VAT principles?
The outcome of the case depends on the ability of the authority to establish a direct link between the data obtained and the service provided.
“It will be really hard to substantiate that in court,” said Visser.
But if the authorities do, he said, it is likely that other European tax agencies will follow suit. “They’re in line, they have been for years.”
The panel and audience also raised concerns over the way data VAT amounts are calculated.
Whether data transactions for ‘free’ services are subject to VAT in the future, and at what price, will be partly determined by the Italian tax authority’s Meta investigation.
