The German Federal Tax Court (BFH) had to decide about German VAT for services performed by an US-based entrepreneur. The entrepreneur runs an online forum for personal contacts. Customers, who become members, have access to the personal data of other members and could finally contact them for arranging dates (dating agency). The dating agency also provided chat rooms and news magazines. The German tax office has seen these services as electronic services. This would lead to the fact that the services are subject to VAT in Germany and German VAT must be paid.
The dating agency argued that the services cannot be seen as electronic services as they are not fully automated. The member profiles are checked by specially trained personnel. This human participation excludes an electronic service.
The Federal Tax Court (decision from 1st June 2016) agreed with the tax authorities and considered the services as electronic services which are subject to VAT in Germany. The court refers to the legal definition of electronic services in Art. 11 para.1 COUNCIL REGULATION (EC) No 1777/2005. Following this regulation electronically supplied services include services which are delivered over the internet or an electronic network. Moreover, electronically services are characterized by the fact that their supply - due to their nature - necessarily requires information technology, is essentially automated and involves only minimal human participation.
In the light of this provision the court stated: By collecting and providing member profiles the dating agency provides a database to its customers. The provision of a database typically constitutes an electronic service. The fact that the provided data is not collected by programs as in the case of internet search engines (google) does not change this result. The same applies for the participation of staff checking the member profiles. This human involvement only ensures that the members have access to the online community. The access to the database (online community) itself takes place without human involvement. The chatrooms and news magazines are only of supplementary nature and must be treated like the principal service (here: provision of the database).
Short overview on electronic services
There are special rules for the taxation of electronic services in the EU-Member states. A brief overview: From 1 January 2015, telecommunication, broadcasting and electronic services (electronic services) are always VATaxed in the EU-Member state where the customer is situated. It does not matter whether the customer is a business or a private individual.
In case the customer is a business showing a valid VAT-ID the reverse-charge procedure regularly applies. In case the foreign entrepreneur renders electronic services to private individuals, the situation is different. Basically, the entrepreneur must be registered for VAT in the country where the private individual is situated. However, the entrepreneur can make use of the simplification procedure “Mini One Stop Shop”. This is particularly useful for entrepreneurs who are established outside the EU and solely perform electronic services. In such cases the entrepreneur can file one VAT declaration for all performed electronic services in the EU. As a result: there is no need to become registered in all EU-Member states concerned.