In a new working document on VAT on digital services, the European Commission is cautiously taking a step towards taxing user data from social media platforms. As De Volkskrant recently reported, this could cost platforms billions if member states adopt this interpretation. This brings the hitherto mainly theoretical discussion about "data as a means of payment" a lot closer to concrete tax policy.
The reason for Brussels' reconsideration is an Italian tax assessment of more than €880 million for Meta. Italy argues that users are effectively paying for "free" access to Facebook and Instagram with their personal data. According to the tax authorities, this is a commercial exchange: data instead of money, and therefore potentially subject to VAT. It shows how this case in Brussels has grown into a fundamental discussion about the tax treatment of data-driven platform models.
In EU VAT Committee Working Paper No. 1118, the Commission first confirms the existing principle: the sharing of data by individual users is not in itself an economic activity and therefore does not automatically lead to VAT being levied. If all users receive the same "free" service, regardless of how much data they share, there is no direct link between the service and the consideration required for VAT.
But the tone changes when it comes to differentiated platform models. The Commission mentions scenarios in which users receive less functionality if they restrict tracking, or receive extra options if they do allow extensive data sharing. In such cases, a direct link between personal data and the service may well arise, and VAT taxation may come into play.
According to the Commission, the working document does not concern a new tax, but rather interpretation within the existing VAT framework. Nevertheless, it acknowledges that some "free" platform models may legally qualify as barter transactions, with user data constituting the actual consideration. This could provide Member States with a route to levy VAT in specific cases, although the valuation of data and practical enforceability remain major challenges.
The debate has also erupted in The Hague. D66, CDA, and GroenLinks-PvdA have submitted parliamentary questions to outgoing Minister of Finance Heinen about the possibility of levying VAT on user data from social media companies in the Netherlands. They want to know whether personal data for free platform access can be considered a taxable transaction and how much this could generate. They also question whether a retroactive additional tax assessment is consistent with the principle of a reliable government.
This development directly touches on the governance and privacy debate: personal data is not only seen as something that requires protection, but also explicitly as an economic consideration with fiscal value. This development shows how it conflicts with the classic image of the user as merely a "data subject" under the GDPR, and how the tax authorities now see that same data traffic as a potential tax base.
This shifts the government from being merely a standard-setter and supervisor to being a co-beneficiary of the value creation surrounding personal data, which can cause friction in terms of policy: how credible is it to restrict platforms' hunger for data when the treasury is simultaneously benefiting from that data as a basis for VAT?
