EU: Commission paper on VAT treatment of free-of-charge access to platform in exchange for user data

The European Commission on November 17, 2025, published EU VAT Committee Working Paper No. 1118, addressing Italy’s request for guidance on how to treat, for value added tax (VAT) purposes, information technology (IT) services that social media platforms provide to users when users grant permission to use their personal data. The EU VAT Committee is an advisory committee composed of representatives from each of the EU member states, which publishes nonbinding guidelines on EU VAT technical questions.

Background

According to Article 2(1)(c) of the EU VAT Directive, VAT applies when a person provides services for consideration (including in the form of barter as further clarified by EU case-law). In this respect, in 2018 the VAT Committee discussed whether users who receive IT services for free and permit platforms to record and use their personal and usage data provide an economic benefit to those platforms, whether a direct link exists between the IT services and the consent to data use, and how to determine any taxable amount. The Committee unanimously concluded that an individual’s act of allowing data use does not constitute an economic activity—and therefore does not trigger VAT—unless the individual mobilizes human or material resources comparable to a taxable person. The Committee further held that a platform’s free provision of IT services in exchange for permission to use personal data is not taxable so long as the platform offers the same conditions to all users regardless of the quantity or quality of data they provide, because that uniformity prevents establishing the necessary “direct link” between the service provided and the consideration received.

Italy’s current question focuses on that second point and asks whether evolving business models can create situations in which platforms differentiate functionality based on users’ data permissions and thereby establish a direct link that would make the transaction subject to VAT.

EU Commission Services analysis

The Commission’s Services analyzed three common models:

1. When a platform offers “free” access with no changes to settings, and all users receive the same functionality while the platform uses their data—The Commission viewed this as generally not taxable because authorities cannot establish a direct link between each user’s data and their service level.
2. When users actively restrict data permissions and the platform correspondingly reduces features or access. The Commission acknowledged that a direct link may exist between the data the user allows and the functionality the user receives—That scenario could be taxable, but authorities would need to assess facts case by case and address complex valuation issues, because quantifying the economic value of the data exchanged for functionality remains difficult.
3. When users pay a subscription for an ad-free or enhanced experience—The Commission viewed this as clearly taxable because users make a monetary payment for the service. The Commission cautioned against automatically using the subscription price to value non-monetary exchanges in the second model, since users provide different amounts and types of data and platforms may still use some data even for paid tiers.

The Commission asked delegations (i.e., representatives of each member state’s tax authorities) to express their opinion on the Commission’s analysis and highlighted that the best approach may be beyond the remit of the VAT Committee and legislative changes to the EU VAT Directive would be necessary.

KPMG observation

While the Working Paper may ultimately result in nonbinding guidelines by the VAT Committee on the topic, the analysis could be used by tax authorities as a basis for investigating the VAT treatment on free-of-charge business models in the digital economy. Businesses may thus want to review their free-of-charge sales and determine whether they fall under any of the models covered by the Commission and thus assess whether there is a potential underlying VAT risk. However, even if a potential VAT risk is identified, the Commission’s analysis does not provide sufficient guidance to quantify the risk as it highlights the complexities of the business models.

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com