EU: CJEU confirms electronic marketplaces qualify as undisclosed agents pre-2015 amendments

The Court of Justice of the European Union (CJEU) today published its decision in case C‑101/24 regarding whether an electronic marketplace acts as an undisclosed agent under Article 28 of the EU value added tax (VAT) Directive before 2015 when the EU introduced Article 9a of the EU VAT Implementing Regulations (the deeming provision for marketplaces facilitating electronically supplied services (ESS)). The decision broadly follows the CJEU’s Advocate General nonbinding opinion, which was published earlier this year (read TaxNewsFlash).

Background

Under Article 28 of the EU VAT Directive, intermediaries acting in their own name but on behalf of a principal (so-called undisclosed agents) are deemed to buy-sell the services provided by the principal, therefore creating a fiction of two transactions for VAT purposes that the principal sells the services to the undisclosed agent who resells the services to the customers.

Since 2015, the EU, through Article 9a of the EU VAT Implementing Regulations, which refers to Article 28 of the EU VAT Directive, has clarified that electronic marketplaces are deemed to act as undisclosed agents for the sale of ESS (i.e., digital services such as streaming, video games, software, etc.) they facilitate if they meet certain conditions (e.g., set the general terms and conditions, authorize the charge to the customer, or the delivery of the services).

As a result, electronic marketplaces are liable to collect VAT on all business-to-consumer (B2C) sales of electronic supplied services they facilitate.

Facts

Between 2012 and 2014, a German company provided mobile applications (games) through an app store operated by an Irish company, X. While the games were free to download, users paid for in-app purchases via the app store, with X confirming and charging for these purchases. Initially, the German company considered itself the service provider to end users and filed its VAT returns in Germany accordingly. However, on January 29, 2016, the German company corrected its tax returns for 2012 to 2014, stating that company X was the actual service provider, and thus, the services were supplied in Ireland, not Germany, meaning VAT was not due in Germany. However, the German tax authority found that company X was merely an intermediary, and the actual supplier of services to end users was the German company.

Questions before the CJEU

• Under circumstances such as those in the main proceedings, in which a German taxable person (developer) supplied, before January 1, 2015, a service by electronic means to non-taxable persons (end customers) established within the territory of the EU, via a marketplace for applications operated by an Irish taxable person, is Article 28 of the EU VAT Directive to be applied, with the result that the Irish taxable person is treated as if it had received those services from the developer and supplied them to the end customers, because the marketplace for applications did not name the developer as the supplier of the service and show German VAT until it did so in the order confirmations issued to the end customers?
• If the first question referred is answered in the affirmative: is the place of supply of the fictitious service supplied by the developer to the marketplace in Ireland, by virtue of Article 44 of the EU VAT Directive, or in Germany, by virtue of Article 45?
• If, by virtue of the answers to the first and second questions referred for a preliminary ruling, the developer has not supplied any services in Germany: is the developer subject to a tax liability for German VAT under Article 203 of the EU VAT Directive, on the ground that the marketplace for applications, acting in accordance with an agreement, named the developer as the supplier of the service and showed German VAT in the order confirmations it sent by email to the end customers, even though the end customers are not entitled to deduct input VAT?

CJEU decision

First question

According to the CJEU, Article 28 of the EU VAT Directive treats an intermediary that acts in its own name but for someone else’s account as if it first received the service from the underlying provider and then provided that same service to the customer. Therefore, if a platform appears to the customer as the contracting party—while it actually acts for a developer—it is deemed to be the provider for VAT. National courts must assess all facts, especially the intermediary’s contractual obligations and powers. Here, the referring decision shows that the national court considered that the platform acted in its own name for the in-app purchases at issue in the case because, in particular, integrating the products into the app store interface led the average end customer to expect that X was the counterparty and the seller of the products. This was all the more so because the customer first had to register with the app store and accept its terms of use before purchasing such products. By contrast, during the purchase process on the app store, it did not appear sufficiently clear that the platform was acting on behalf of another.

The referring court, however, questioned the relevance of order confirmations that later named the taxpayer as provider and showed German VAT. The CJEU clarified that for Article 28 to apply, an agency mandate must exist under which the agent intervenes, on the principal’s behalf, in providing the services. Even if a customer understands that an agency mandate exists and knows the principal’s identity in a complex digital transaction chain, that knowledge alone does not stop Article 28 from applying. What matters is the intermediary’s actual powers and control in the transaction. If it acts in its own name for another’s account, Article 28 treats the intermediary as the provider for VAT purposes.

The CJEU thus held that order confirmations received after checkout that identify the developer and show a specific VAT rate do not, by themselves, displace the application of Article 28 if the other facts show the intermediary acted in its own name for another’s account.

The CJEU further clarified that Article 9a of the EU VAT Implementing Regulation 282/2011 helps identify who provides electronic services when a telecom network, interface, or portal (such as an app store) sits between the developer and the customer. However, that provision does not change Article 28. Although Article 9a took effect on January 1, 2015, and does not apply to 2012–2014, it clarifies concepts already present in the VAT Directive, so courts should interpret Article 28 consistently with it.

Therefore, the CJEU held that Article 28 can still apply to pre‑2015 app store transactions and cannot be excluded solely because the platform’s order confirmations name the developer and show the developer’s Member State VAT rate.

Second question

The CJEU re-emphasized that Article 28 introduces a legal fiction involving two consecutive services: in the case at hand, the first service is supplied by a third party to a taxable person and the second by the taxable person to the end customer. For the first service, which is fictitious and supplied to a taxable person, the sourcing is determined by Article 44 of the EU VAT Directive, typically the place of establishment of the taxable person. The second service, aimed at non-taxable persons, generally follows the rules of Article 45, identifying the place of supply as the supplier's place of establishment (under the rules applicable at the time of the case – now the place of the consumer). According to the CJEU, nothing in Article 28 or elsewhere in the EU VAT Directive creates an exception to the sourcing rules. The fact that the end customers are consumers does not change the upstream analysis: for the deemed service between two taxable persons (principal and intermediary), Article 44 is applicable.

Third question

In the third question, the referring court is trying to determine if, under Article 203 of EU VAT Directive, a person represented by a taxable person in a service transaction can be held liable for VAT if they consent to being named as the service provider on purchase confirmations sent to end-users who are not taxable. According to Article 203, anyone who lists VAT on an invoice must pay that VAT. This rule aims to prevent tax revenue loss that could occur if VAT is incorrectly invoiced, and the recipient improperly claims a tax deduction. Furthermore, the referring court is considering whether purchase confirmations to non-taxable persons can be treated as invoices under Article 203.

According to the CJEU, because the transactions here involved consumers, not businesses, no one could claim an input VAT deduction. As a result, the risk that Article 203 aims to prevent did not exist, and Article 203 did not apply. The developer therefore did not become liable for VAT in its own country merely because the order confirmations named it as the provider and showed its domestic VAT rate. In these circumstances, whether the order confirmations at issue qualify as invoices, as the taxpayer argued, does not matter.

KPMG observation

The CJEU’s decision further clarifies the application of the undisclosed agency rules under Article 28 beyond what is already included in Article 9a of the VAT Implementing Regulations. In this respect, the decision has the following consequences:

• Application of the undisclosed agent principle to electronically supplied services transactions facilitated by electronic marketplace prior to 2015, subject to country specific statute of limitations.
• Application of the undisclosed agent principle to electronic marketplaces facilitating other services. While the case focuses on the facilitation of electronically supplied services, the CJEU’s position is broad enough to include other services facilitated by electronic marketplaces that are currently not caught by Article 9a of the EU VAT implementing regulations (e.g., personal, professional, and other services requiring human intervention) as long as such electronic marketplaces meet the conditions under Article 28 to qualify as undisclosed agent.
• Confirmation that the sourcing rules under the undisclosed agent regime must be analyzed separately for each leg of the deemed buy sell taking into account not only the nature of the underlying transaction but also the VAT status of the parties.
• Application of the undisclosed agent principle to electronic marketplaces facilitating the sale of goods before the introduction of the e-commerce package in July 2021 when an explicit liability for such marketplaces was introduced. While the undisclosed agent principle for goods is based on a different provision of the EU VAT Directive (Article 14 instead of Article 28), the principles laid out by the CJEU could also be applied for the electronic marketplaces facilitating the sale of goods. However, it should be noted that with respect to goods, the e-commerce package introduced a new Article 14a in the EU VAT Directive and not a simple clarification through an article in the EU VAT Implementing Regulation. Therefore, the application of the undisclosed agent principle to electronic marketplaces before 2021 on the basis of Article 14 is still less clear.  

Contact us

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com