Electronically supplied services are increasingly becoming the focus of financial administration. These include services such as app sales and online games. This also includes the marketing of content by influencers on platforms such as YouTube, Instagram, and OnlyFans, the purchase and sale of virtual goods such as game characters from online games (so-called skins), and in-game transactions by gamers. The boundaries here are fluid, and new offerings are constantly coming onto the market.
There are many VAT pitfalls associated with electronically supplies services. In practice, the question usually arises as to whether human involvement precludes an electronically supplies services. A key aspect is determining the place of supply, as in the case of electronically supplies services in B2C transactions, the place of the customer’s permanant address or usual residence is decisive in accordance with sec. 3a para 5 sentence 1 German VAT Act.
When is a service considered to be supplied electronically?
Electronically supplied services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology. (Art. 7 para 1 VAT Implementing Regulation). In particular, it is decisive whether “human involvement” relates to the actual service process. In the opinion of the tax authorities, however, service elements that only serve to prepare and secure the main service are not relevant.
In each individual case, it must be carefully examined whether human involvement exists that precludes an electronically provided service. The offers on the market are diverse and differ in their specific characteristics (especially in the sale of digital goods such as online game skins).
When is human involvement only minimal?
According to Art. 58 para 1 sentence 2 VAT Directive, mere communication via an electronic medium does not mean that the service is supplied electronically. In particular, an electronic order and/or order processing alone does not mean that a service is provided electronically (Art. 7 para 3 lit. c VAT Implementing Regulation). The VAT Committee has specified the requirements for the minimum level of human involvement in more detail. According to this, digital content sent by email does not constitute an electronically supplied service within the meaning of Art. 7 VAT Implementing Regulation. This is because, in the opinion of the VAT Committee, the transmission of digital content requires more than just minimal human activity.
Place of supply for electronicalle supplied services
If the service provider provides electronically supplied services and the customer is a private individual, the place of supply is determined in accordance with sec. 3a para 5 German VAT Act based on the customer's permanent address or usual residence. The service provider must then, in accordance with Art. 24a and Art. 24b VAT Implementing Regulation, carry out a comparatively complex check to determine where the service is consumed and pay VAT in accordance with the requirements of that country. According to Art. 24f VAT Implementing Regulation, evidence includes, for example, the billing address, IP address, bank details, mobile phone country code, etc.
