1    Background

The evolution of digital business models is constantly creating new challenges for EU VAT law. In particular, the provision of “free” IT services is repeatedly at the centre of discussion. Users frequently have to agree to the use and further processing of their personal data when they want to access digital content from social networks, other online services, or gaming apps. This raises the question: Is this a taxable barter transaction “IT service in exchange for user data (or the right to use it)”? The EU VAT Directive does not provide a clear legal framework for these business models.

Currently, there is a case in Italy against platform operators like Meta, LinkedIn, and X. The tax authorities have assessed about EUR 1 billion in VAT and have subjected the companies’ “free internet services” to VAT (see also KMLZ VAT Newsletter 15 | 2023).

Italy has asked the VAT Committee for an opinion. In a 2018 working paper (No. 958), the Committee already rejected the idea that IT services offered to all users under the same conditions – regardless of the amount and quality of data – constitute a taxable transaction. In these situations, there shall be no direct link between the service and a consideration. Only if a platform makes the use of its services explicitly dependent on the release of certain data (e.g., limited functions if less data is shared) could there be a direct link and thus a possible taxable supply. Building on this, the VAT Committee has now developed further criteria for evaluating these business models in its November 2025 working paper (No. 1118).

2    VAT Committee Working Paper No. 1118

Three models of IT services in exchange for data usage rights are categorized:

a)    Identical scope of service, regardless of the amount of data shared

If an IT service provider offers the same scope of a service to all users, no matter what or how much data is shared, this is not a taxable barter transaction. There is no direct link. In this case, the user always receives the same service, regardless of their individual data sharing, usage intensity, or other factors.
 

b)    Variable scope of service, depending on the amount of data shared

A case-by-case assessment of the direct link between the IT service and the consent to use and process personal data is always necessary if the available functions of the service vary – i.e., if they depend on the user’s consent to share personal data or on certain privacy settings. This is the case, for example, if a platform explicitly ties the use of certain features to the sharing of personal data. This does not include purely technical restrictions that make the user experience impossible without certain data. The working paper does not specify how this case-by-case assessment should be carried out or – if a taxable transaction is on hand – how the value of the consideration should be determined.
 

c)    Subscription for ad-free use

If a user pays for a (platform) service, this is a taxable transaction. The question is whether using the same platform without paying money, but with consent to process personal data (IT service in exchange for data), is also a taxable transaction. The subscription fee could be used as a reference for the taxable value. However, the VAT Committee points out that it must be checked what the subscription fee actually covers. If the fee is paid to avoid personalized advertising, then without a monetary payment, there is probably no taxable exchange. If the scope of the “free version” depends on the data provided or on how intensively a user uses the platform, it is difficult to value each person’s data per month, regardless of the amount of data provided. Again, a case-by-case assessment is needed (see 2 above). The same applies to freemium models, where only limited services are available in the basic version for free. When a paid subscription is taken out, additional features are unlocked, which makes the comparison with the basic version difficult.

3    Practical consequences and open questions

Even after this (non-binding) guidance from the VAT Committee, there is still no black-and-white categorization for the “IT service in exchange for data” business model. Companies must examine their own business models for various “shades of grey”. Nevertheless, the three working paper categories set out above can offer some assistance, and companies can adjust their offerings accordingly. However, the categorization does not answer all open questions, as the Committee consistently refers to case-by-case assessments in doubtful situations. Furthermore, there is still no guidance on how to determine value in the case of a taxable barter transaction.