Meta - Italian VAT case: is Facebook free as it seems?

29 Marzo 2023

According to the newspapers, Facebook parent company (META) was involved in Italy in an interesting case concerning the application of VAT to its services. Meta faces a potential tax bill of around 870 million euros ($925 million) in Italy after prosecutors launched an investigation into the company. The investigation was opened by the Milan Prosecutor’s Office at the request of the European Public Prosecutor's Office (EPPO), which asked the Italian Tax police and the Italian Revenue Agency to checks if there is a case for Facebook’s users’ registrations to be subject to tax.

According to the Italian tax authorities (“ITA”), indeed, Facebook would not be as free as it seems.  When signing up, users pay with their personal data, which can be used for profiling with an advertising purpose. According to ITA, the exchange between the data provided by users and the digital services offered by Meta through its social media using them for online advertising could be subject to VAT because it is a trade-in between different goods/services.  In order to calculate the taxable amount, ITA used a specific method, based on the ratio of advertising revenue from Italian sources to Meta Ireland’s total advertising revenue and multiplying it by Meta Ireland’s total costs.

In a nutshell, ITA challenged the non-application of VAT to the digital services provided by Meta. These services would not be free of charge (thus irrelevant for VAT purposes), but rather provided against a payment in kind. Such a payment would consist in the provision by users of their personal data. In other words, we would be facing a mutual provision of services (pursuant to art. 11 Italian Vat Code):

  • The first, provided by Meta, relevant for VAT purposes;
  • The second, provided by users, outside the scope of VAT as long as such users are not carrying out business activity.

The aforementioned conclusion seems to be confirmed by some law provisions laid down under the European Directive 779/2019 (point 24 of the introduction). Moreover, Art. 135-octies, para. 4, of the Italian Consumer Code, implementing the EU Directive 2019/771, recognizes the possibility of using personal data as consideration for the purchase of digital content and services, providing that the provisions of Chapter I-bis on “contracts for the provision of digital content and digital services” are also applicable in cases where “the trader provides or undertakes to provide digital content or a digital service to the consumer and the consumer provides or undertakes to provide personal data to the trader, except where the personal data provided by the consumer are processed exclusively by the trader for the purpose of providing the digital content or digital service under this chapter or to enable the performance of legal obligations to which the trader is subject, and the trader does not process such data for purposes other than those intended. Thus, the possibility for the consumer to provide data as consideration for digital content and services is provided for by the law and can take place, provided that this provision is transparent and does not condition the freedom of users’ consent. The same conclusions were drawn by the Italian Council of State decision No. 2631/2021. In other words, as far as the European and the Italian consumer laws are concerned, the services provided by Meta could be assimilated to supply of goods/services. As such, they should be subject to the guarantees provided by consumer law.

Could such conclusion apply also for VAT purposes?

Apparently this argument is not without substance. Indeed, if a) the digital services provided by Meta can be qualified as a supply of goods/services and b) the provision by users of their personal data as a payment in kind (and vice versa), then both such services could assume relevance for VAT purposes. This, of course, provided that one represents the consideration in kind for the other.

However, the issue is more complex. As for the ITA argument some objection could be raised.

Firstly, the authorization to the supply of data as a consideration operates only for European/Italian consumer law purposes. Paragraph 24 of European Directive 770/2019 clarifies that, on every other level, the authorization given by the consumer to the use of their data should not necessary qualify as a consideration.

Secondly, an exchange in kind is relevant for VAT purposes only when i) one party is legally obliged to provide certain services ii) the other party is legally obliged to provide goods/and services as a consideration for the former (see Article 9(1)(2) of EC Directive 112 of 2006).

In other words, a sort of "interconnection"/”mutual reciprocity” between the two services is required.

Indeed, while it could be quite easy to ascertain that Meta assumes an obligation to perform certain services, it is more difficult to identify a corresponding obligation for the consumers to provide their personal data. Within certain limits, the consumers could refuse to share their data. What if the consumers share data that are not accurate ? Has Meta any power to enforce the fulfilling of such an obligation?

Such issues are deeply influenced by the civil law qualification of the concrete case. We espect that a lot of legal opinions will be exchanged during the controversy at stake. In any case, the position of ITA could have significant consequences not only for social media but on the entire online advertising industry.  

2024 - Morri Rossetti