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ABSTRACT
The Fourth Industrial Revolution is in full swing. Advances in robotics and artificial intelligence, the ubiquitous presence of Big Data, and the increased reliance on cloud computing are just some glimpses of how technological innovation is re-shaping today’s society and the economy, thus bridging the gap between the digital and physical spheres. Using a traditional method of jurisprudence, which involves the joint examination of various legal materials, such as legislation, case law, institutional sources of interpretation, and scholarly opinions, the article examines, in turn, the main challenges or, at least, the potential threats that the on-going transformation in each of those areas poses or might pose in the near future to the application of the current European VAT rules. Based on such analysis, the author submits that the current EU VAT system is generally well-equipped to cope with the on-going transformation, especially with regard to the advent of cloud computing technologies. Nonetheless, a few minor ‘fixes’ to the existing rules or, at least, a clarification of their interpretation could be conceived in other areas subject to the present technological developments. In particular, adjustments to current EU VAT rules can be provided as to take into account the increased capability of robots to operate completely autonomously, which might ultimately lead them to acquire the status of ‘taxable persons’, or also in view of the sensational ability shown by digital firms in monetising and commercially exploiting user data, which often constitute the sole ‘consideration’ paid by individuals in digital barter transactions.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
* The paper was presented at the 6th Junior Tax Scholars Conference on ‘Taxation and Big Data’ hosted by the Université Paris 1 Panthéon-Sorbonne on 25th May 2018. The author would like to acknowledge Prof. Mariken van Hilten and Prof. Ben Terra as well as the two anonymous peer reviewers for their incredibly valuable comments and remarks. The usual disclaimers apply.
1 Alain A Tait, Value Added Tax – International Practice and Problems (International Monetary Fund 1988) 3, describes the rise of VAT as an ‘unparalleled tax phenomenon’. Alain Schenk, Victor Thuronyi and Wei Cui, Value Added Tax: A Comparative Approach (Cambridge University Press, 2nd edn 2015) 33, argue that ‘the VAT has been the most pervasive tax reform throughout the world during the second half of the twentieth century and into the twenty-first century, and has proved to be a major source of government revenue’.
2 The VAT is in fact a high-yield tax. It enables governments to collect smoothly additional revenues by simply raising its rate(s). Among OECD countries, revenue generated by the VAT represents 6.8% of GDP and 20.1% of total revenue on average. See OECD, Consumption Tax Trends 2016 (2016) 11.
3 Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax (2006) OJ L347 (hereinafter, VAT Directive).
4 Council Implementing Regulation (EU) No. 282/2011 of 15 March 2011 Laying Down Implementing Measures for Directive 2006/112/EC on the Common System of Value Added Tax (2011) OJ L77 (hereinafter, VAT Implementing Regulation).
5 See Liam Ebrill and others, The Modern VAT (International Monetary Fund 2001).
6 Both the OECD and the International Monetary Fund (IMF) regard the introduction, by countries, of a VAT as a ‘growth-friendly tax policy’. See OECD, Tax Policies for Inclusive Growth in a Changing World (2018) 15; International Monetary Fund (IMF), Growth-Friendly Fiscal Policy (2014), available on the official website www.imf.org. For an overview of the main design strengths of a ‘theoretical’ VAT, see Kathryn James, The Rise of the Value Added Tax (Cambridge University Press 2015) 81.
7 The (ac)claimed ‘superior’ design features of EU VAT, especially in terms of better achieving a ‘fiscally neutral’ system, compared to cumulative cascading turnover taxes, were already highlighted in the 1962 Neumark Report. See European Economic Community Commission, ‘Report of the Fiscal and Financial Committee’ in The EEC Reports on Tax Harmonization: The Report of the Fiscal and Financial Committee and the Reports of the Sub-Groups A, B and C. Unofficial Translation Prepared by Dr. H Thurston (IBFD 1963) 124 [Neumark Report]. For further details on the origins and a debate preceding the introduction of VAT in the European Union, see Rita de la Feria, The EU VAT System and the Internal Market (IBFD 2009), Ch. 2.
8 See Robert F van Brederode and Sebastian Pfeiffer, ‘VAT’s Superiority: Is the Emperor Dressed like Adam?’ (2015) 6 International VAT Monitor, published online on 7 July 2015. Although identical in terms of economic effects and tax burden distribution, similar considerations can be extended to a VAT/GST in comparison with a Retail Sales Tax (RST). For a theoretical perspective on this, see Joachim Englisch, ‘“Hybrid” Forms of Taxing Consumption: A Viable Alternative to EU VAT?’ (2015) 4 World Journal of VAT/GST Law 119. For a comparative analysis, based on economic evidences, between these two consumption taxes, see Sijbren Cnossen, ‘The Technical Superiority of VAT over RST’ (1992) 4 Australian Tax Forum 419. The superiority of VAT/GST-type of taxes over RST-type of taxes is however open to a debate. Arguing for the superiority of RST over VAT/GST, see eg John F Due, ‘Economics of the Value Added Tax’ (1980) 6 Journal of Corporation Law 61.
9 See Commission, ‘Green Paper on the Future of VAT. Towards a Simpler, More Robust and Efficient VAT System, 11’ COM (2010) 695 final, 01.12.2010. For a discussion about the neutrality principle in the context of EU VAT, see eg Marta Papis-Almansa, ‘The Principle of Neutrality in EU VAT’ in C Brokelind (ed) Principles of Law: Function, Status and Impact in EU Tax Law (IBFD 2014); Christian Amand, ‘VAT Neutrality: A Principle of EU Law or a Principle of the VAT System?’ (2013) 2 World Journal of VAT/GST Law 163.
10 See OECD, International VAT/GST Guidelines (2017) 20.
11 See Klaus Schwab, ‘The Fourth Industrial Revolution’ (Penguin UK 2016) defines the first three industrial revolutions respectively as: the transport and mechanical production revolution of the late 18th century; the mass production revolution of the late 19th century; and the computer revolution of the 1960s.
12 See eg Erik Brynjolfsson and Andrew McAfee, ‘The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies’ (W.W. Norton & Company 2016).
13 See eg Alec Ross, ‘The Industries of the Future’ (Simon & Schuster 2016).
14 See OECD, Going Digital: Making the Transformation Work for Growth and Well-Being (2017) 9.
15 Initially, art. 1 of the Sixth Directive (Sixth Council Directive 77/388/EEC of 17 May 1977 on the Harmonization of the Laws of the Member States relating to Turnover Taxes – Common System of Value Added Tax: Uniform Basis of Assessment (1977) OJ L145/1) prescribed the entering into force of VAT as from 1 January 1978. However, as for most Member States it was impossible to meet this deadline, the Ninth Directive (Ninth Council Directive 78/583/EEC of 26 June 1978 on the Harmonization of the Laws of the Member States relating to Turnover Taxes (1978) OJ L194/16) delayed the application of the new tax until 1 January 1979.
16 See, among others, Isaac Asimov, Runaround (Street & Smith 1942).
17 The terms ‘robotics’ and ‘artificial intelligence’ are not exact synonyms. In this connection, see Action and Research Center (RSA), The Age of Automation Artificial Intelligence, Robotics and the Future of Low-Skilled Work (2017) 18, available on the website www.thersa.org.
18 See International Federation of Robotics (IFR), Executive Summary World Robotics 2017 Industrial Robots (2017) 15, available on the website www.ifr.org.
19 See McKinsey Global Institute, A Future That Works: Automation, Employment and Productivity (2017) 6, available on the website www.mckinsey.com.
20 For a perspective on this, see e.g. Martin Ford, Rise of the Robots: Technology and the Threat of a Jobless Future (Basic Books 2016).
21 See International Federation of Robotics (IFR), History of Industrial Robots: From the First Installation until Today (2012), available on the website www.ifr.org.
22 See ‘Getting to Grips with Military Robotics’, The Economist (25 Jan. 2018).
23 For instance, automation will not even spare the legal profession. For a perspective on this, see eg Jane Croft, ‘Legal Firms Unleash Office Automatons’, Financial Times (16 May 2016).
24 See Thomas Tamblyn, ‘Amazon Is Reportedly Working on a Robot for the Home’, The Huffington Post (25 Apr. 2018).
25 Apparently, even our morning coffee will soon be served by an intelligent machine. See Geoffrey A Fowler, ‘Robot Baristas Serve Up the Future of Coffee at Cafe X’, The Wall Street Journal (30 Jan. 2018).
26 See Katy McLaughlin, ‘Why Your Next Real-Estate Deal Might Involve a Robot’, The Wall Street Journal (1 Mar 2018).
27 See ‘Robots Can Assemble IKEA Furniture’, The Economist (19 Apr. 2018).
28 An interdisciplinary study, called ‘RoboLaw Project’, with an aim to provide some suggestions and guidelines for policy makers on how to legislate in the field of robotics and AI, was commissioned and funded by the European Commission between 2012 and 2014. See Erica Palmerini, ‘RoboLaw. Regulating Emerging Robotic Technologies in Europe. Robotics facing Law and Ethics’ (2014), available on the official website cordis.europa.eu.
29 The term ‘electronic person’ was first coined in a 1967 article for LIFE magazine. See Charles Rosen, Nils Nilsson and Bertram Raphael, ‘Shakey’, LIFE Magazine (1970). Academically, the attribution of personhood to artificial machines was firstly debated in a seminal law review article appeared as early as 1992. See Lawrence B Solum, ‘Legal Personhood for Artificial Intelligence’ (1992) 70 North Caroline Law Review 1231.
30 See Thomas Burri, ‘The Politics of Robots Autonomy’ (2016) 7 European Journal of Risk Regulation 341. According to the European Parliament Resolution of 16 February 2017 with Recommendations to the Commission on Civil Law Rules on Robotics (2015/2103(INL)), ‘a robot’s autonomy can be defined as the ability to take decisions and implement them in the outside world, independently of external control or influence; whereas this autonomy is of a purely technological nature and its degree depends on how sophisticated a robot’s interaction with its environment has been designed to be’.
31 ibid.
32 See Mady Delvaux, Report with Recommendations to the Commission on Civil Law Rules on Robotics (2017) 8, available on the official website www.europarl.europa.eu.
33 See Tom Allen and Robin Widdison, ‘Can Computers Make Contracts’ (1996) 9 Harvard Journal of Law and Technology 25.
34 In this connection, Prof. Joachim Englisch submits that ‘to enhance legal certainty for taxpayers making use of intelligent robots – or in the more distant future, for the robots themselves – it would seem advisable to establish a system of registration for qualifying robots; taxation should then depend on the entry of the robot in the register’. Despite ‘this would not eliminate the potential for dispute over the correct assessment of the robot’s status, [ … ] such a system would [at least] avoid surprise assessments during tax audits with significant retrospective effects’. See Joachim Englisch, Digitalisation and the Future of National Tax Systems: Taxing Robots? (2018) 19, available on the website www.ssrn.com.
35 This is not yet the case under existing tort and liabilities legislation in most countries. See Nicolas Petit, Law and Regulation of Artificial Intelligence and Robots: Conceptual Framework and Normative Implications (2017) 19, available on the website www.ssrn.com.
36 Attribution of a ‘tax personality’ to a robot may in fact vary according to the taxable object which is targeted by a levy. See Tatiana Falcão, ‘Should My Dishwasher Pay a Robot Tax?’ (2018) Tax Notes International.
37 Under EU law, the concept of ‘employee’ has found specification by the CJEU in Lawrie-Blum (a non-VAT case), where it was held that ‘the term “worker” covers any person performing for remuneration work the nature of which is not determined by himself for and under the control of another, regardless of the legal nature of the employment relationship’. More precisely, an employee is a person who, for a certain period of time, ‘performs services for and under the direction of another person in return for which he receives remuneration’. See Case C-66/85, Deborah Lawrie-Blum v Land Baden-Württemberg, EU:C:1986:284, paras 12 and 17.
38 As far as the attribution of legal personality to a robot under EU VAT is concerned, Prof. Joachim Englisch considers also decisive whether or not a machine disposes of ‘a certain degree of legal and financial autonomy’. See Englisch (n 34) 7. Against this background, I contend that, under EU VAT, the question of ‘tax personality’ should be seen as something distinct from that concerning ‘tax liability’. Thus, although – admittedly – administratively rather impractical, a robot might be considered a taxable person even if the tax liability arising from its activities would in fact be attributed to another (possibly, human) person.
39 See Kevin J Delaney, ‘The Robot that Takes Your Job Should Pay Taxes, Says Bill Gates’, Quartz (17 Feb. 2017). In particular, the original proposal for a tax on the use of robots made by Bill Gates in 2017 envisaged this tax as a sort of ‘corrective tax’ or ‘Pigouvian tax’, levied in order to reduce the negative externalities resulting from the rapid employment of intelligent machines that is expected to occur in the course of the next decade. In favour of a policy for adjusting the tax system in a way to be neutral as between robot and human workers, see instead Ryan Abbott and Bret Bogenschneider, ‘Should Robot Pay Taxes? Tax Policy in the Age of Automation’ (2018) 12 Harvard Law and Policy Review 145.
40 For further discussion on the possible design of a ‘robot tax’, see Xavier Oberson, ‘Taxing Robots? From the Emergence of an Electronic Ability to Pay to a Tax on Robots or the Use of Robots’ (2017) 9 World Tax Journal; Joao Guerreiro, Sergio Rebelo and Pedro Teles, Should Robots Be Taxed? (NBER Working Paper No. 23806, 2018).
41 Regardless of its various characteristics highlighted above, a ‘robot tax’ can essentially be seen as a tax levied ‘on the work performed by a robot or a fee for using and maintaining a robot’. See European Parliament, ‘Report of 27 January 2017 with Recommendations to the Commission on Civil Law Rules on Robotics’, No. 2015/2103(INL). As Orly Mazur, Taxing Robots (2018) 4, available on the website www.ssrn.com, puts it, the goal of a ‘robot tax’ essentially consists in treating ‘a robot the same as a person for tax purposes’.
42 See Case C-475/03, Banca Popolare di Cremona Soc. Coop. Srl v Agenzia Entrate Ufficio Cremona, EU:C:2006:629, para 25.
43 With regard to a possible introduction of a levy on robots, Englisch (n 34) 3 and 21, argues that, both for the purposes of direct and indirect taxes, ‘the case for taxing robots or their use is relatively weak’, although then conceding that ‘the first tax where robots might eventually attain taxable person status is most likely the VAT/GST’.
44 See, more recently, Case C-475/17, Viking Motors AS and Others v Tallinna linn and Maksu-ja Tolliamet, EU:C:2018:636, paras 41–42, where the Court considered that an Estonian retail sales tax imposed on business activities did not conflict with EU VAT, since it did not meet the third and fourth EU VAT characteristics of being collected at each stage of the production and distribution process and allowing businesses to deduct the tax paid at an earlier stage of such process. In the case, the CJEU further considered that ‘the passing-on of that tax to the final consumer was a possibility and not an obligation for the retailers who could at any time choose to bear that tax themselves, without increasing the prices of the goods and services provided’. See Viking Motors (n 44) para 45.
45 Notwithstanding this clarification, the devil remains very much hidden in the detail of the CJEU’s jurisprudence. See Alexis Tsielepis, ‘The Devil Is in the Detail: An Analysis of the ECJ’s Attributes to the Fixed Establishment Concept’ (2017) 28 International VAT Monitor. It should also be recalled that the concept of ‘fixed establishment’ is not the same under national VAT laws of all Member States.
46 See Case C-168/84, Gunter Berkholz v Finanzamt Hamburg-Mitte-Altstadt, EU:C:1985:299, para 18. In addition to the notion of ‘fixed establishment’, pursuant to arts. 44 and 45 of the VAT Directive other three types of establishments of a taxable person (which serve as proxies under place of supply rules) are relevant, ie its place of establishment, its permanent address and its usual residence.
47 See Ad van Doesum, Herman van Kesteren and Gert-Jan van Norden, Fundamentals of EU VAT Law (Kluwer Law International 2016) 165; Ine Lejeune, Ellen Cortvriend and Davide Accorsi, ‘Implementing Measures Relating to EU Place-of-Supply Rules: Are Business Issues Solved and Is Certainty Provided?’ (2011) 11 International VAT Monitor 146. According to Madeleine Merkx, Establishments in European VAT (Kluwer Law International 2013) 96, ‘a passive fixed establishment should not be regarded as a fixed establishment’ because the levying of VAT on B2B transactions does not seem to also require taxation in the country of actual consumption or spending.
48 See Council Implementing Regulation (EU) No. 1042/2013 of 7 Oct. 2013 amending Implementing Regulation (EU) No. 282/2011 as Regards the Place of Supply of Services (2013) OJ L284. Despite the fact that it could be referred either to a supplying or receiving business unit, the concept of ‘fixed establishment’ is to be intended as unitary. See Value Added Tax Committee, Working Paper No 791, Clarifications of the Concept of Fixed Establishment, taxud.c.1(2014)88957, 4, available on the official website www.ec.europa.eu; Value Added Tax Committee, Working Paper No 857, Clarifications on the Concept of Fixed Establishment, taxud.c.1(2015)2177802, 4, available on the official website www.ec.europa.eu.
49 The definition provided in the VAT Implementing Regulation is indeed a codification of the pre-existent CJEU’s case law. See Case C-532/11, Susanne Leichenich v Ansbert Peffekoven, Ingo Horeis, EU:C:2012:720, para 29.
50 See European Commission, ‘Explanatory Notes on EU VAT Place of Supply Rules on Services Connected with Immovable Property that Enter into Force in 2017 (Council Implementing Regulation (EU) No 1042/2013)’, 43, available on the official website www.ec.europa.eu.
51 See Sam Mitha, Robots, Technological Change and Taxation (2017), available on the website www.tax journal.com.
52 Point 5 of Annex III to the VAT Directive. Notably, a reduced rate for transportation by taxi but not applicable to transportation by minicab was at stake in Joined Cases C-454/12 and C-455/12, Pro Med Logistik GmbH v Finanzamt Dresden-Süd and Eckard Pongratz v Finanzamt Würzburg mit Außenstelle Ochsenfurt, EU:C:2014:111.
53 Under the heading of ‘neutrality’, the Ottawa Taxation Framework Conditions in fact stipulate that ‘taxation should seek to be neutral and equitable between forms of electronic commerce and between conventional and electronic forms of commerce’ (emphasis added). See OECD, Electronic Commerce: Taxation Framework Conditions – A Report by the Committee on Fiscal Affairs (1998) 3.
54 Commission, ‘Proposal for a Council Directive amending Directive 2006/112/EC, as regards Rates of Value Added Tax Applied to Books, Newspapers and Periodicals’ COM (2016) 758 final. Noteworthy, the Commission’s proposal was approved by the EU Council on 2 October 2018.
55 Art. 395 VAT Directive.
56 Commission, ‘Proposal for a Council Directive amending Directive 2006/112/EC as regards Rates of Value Added Tax’ COM (2018) 20 final.
57 See eg Case C-267/99, Christiane Adam, épouse Urbing v Administration de l’Enregistrement et des Domains, EU:C:2001:534, paras 35–36. From the CJEU’s case law, it seems that, for being incompatible with the principle of neutrality, importance should be attached to whether the two supplies at stake are, as it follows from factual evidences and the perspective of the average customer, similar, ie of equivalent nature and in competition with one another. For a discussion, see Marie Lamensch, ‘Different VAT Rates for Digital and Paperback Publications in the EU, a Breach of “Fiscal Neutrality”? A Tentative Answer and Broader Reflection on the Coherence of the EU Rules Prohibiting Indirect Tax Discrimination’ (2015) 4 World Journal of VAT/GST Law 1.
58 See ‘The World’s Most Valuable Resource Is No Longer Oil but Data’, The Economist (6 May 2017).
59 See International Data Corporation (IDC), Executive Summary. Data Growth, Business Opportunities, and the IT Imperatives (2014), available on the website www.emc.com. One zettabyte is equivalent to a trillion gigabytes, with a trillion being 1,000 billion.
60 See International Data Corporation (IDC), Executive Summary. Data Growth, Business Opportunities, and the IT Imperatives (2017), available on the website www.emc.com.
61 See European Commission, Questions and Answers – Data Protection Reform Package (24 May 2017), available on the official website www.europa.eu.
62 See Vasudha Thirani and Arvind Gupta, The Value of Data (2017), available on the website www.weforum.org.
63 See ‘Siemens and General Electric: Gear Up for the Internet of Things’, The Economist (3 Dec. 2016).
64 See House of Lords, AI in the UK: Ready, Willing and Able? Chapter 7: Healthcare and Artificial Intelligence (2018), available on the official website www.parliament.uk.
65 For a perspective on this, see eg OECD, OECD Guidelines on the Protection of Privacy and Trans-Border Flows of Personal Data (2013).
66 See OECD/G20, BEPS: Addressing the Tax Challenges of the Digital Economy. Action 1: 2015 Final Report (2015) 68.
67 ‘Data is Giving Rise to a New Economy’, The Economist (6 May 2017).
68 The difficulty of pricing data has also been recognized by the EU Commission. See European Commission, Commission Staff Working Document, ‘Impact Assessment accompanying the Document Proposal for a Council Directive laying down Rules relating to the Corporate Taxation of a Significant Digital Presence and Proposal for a Council Directive on the Common System of a Digital Services Tax on Revenues resulting from the Provision of Certain Digital Services’ SWD (2018) 81 final/2, 64.
69 For an overview of possible different approaches, see OECD, Exploring the Economics of Personal Data: A Survey of Methodologies for Measuring Monetary Value (2013).
70 Rather puzzlingly, a research survey conducted among college students found that they would gladly hand over private data in exchange for as little as a pizza. See Susan Athey, Christian Catalini and Catherine E Tucker, The Digital Privacy Paradox: Small Money, Small Costs, Small Talk (2017), available on the website www.ssrn.com.
71 See Pierre Collin and Nicolas Colin, Task Force on Taxation of the Digital Economy. Report to the Minister for the Economy and Finance, the Minister for Industrial Recovery, the Minister Delegate for the Budget and the Minister Delegate for Small and Medium-sized Enterprises, Innovation and the Digital Economy (2013) 49 and 113. Exploitation of ‘free’ or ‘unpaid’ labour as a key feature of the digital economy was highlighted as early as 2000. See Tiziana Terranova, ‘Free Labor: Producing culture for the Digital Economy’ (2000) 18 Social Text 33. The idea was nonetheless reiterated and developed later on. See Christian Fuchs and Sebastian Sevignani, ‘What Is Digital Labour? What Is Digital Work? What’s Their Difference? And Why Do These Questions Matter for Understanding Social Media?’ (2013) 11 tripleC: Communication, Capitalism & Critique 237. Against this contentious, it can be maintained that user activities cannot be regarded as a form of labour but rather as a cultural or intellectual experience, since, as a matter of fact, no pressure is made by a digital firm upon them to perform their activities. See David Hesmondhalgh, ‘User-generated Content, Free Labour and the Cultural Industries’ (2010) 10 Ephemera 267. For a judicial decision concerning unpaid digital work, see Rojas-Lozano v Google, 2015 WL 4779245 (N.D. Cal. 2015). With specific regard to exploitation of data by digital firms, see eg Imanol Arrieta Ibarra and others, Should We Treat Data as Labor? Moving Beyond ‘Free’ (2017), available on the website www.ssrn.com.
72 According to Raffaele Petruzzi and Svitlana Buriak, ‘Addressing the Tax Challenges of the Digitalization of the Economy – A Possible Answer in the Proper Application of the Transfer Pricing Rules?’ (2018) 72 Bulletin for International Taxation, customers can be viewed as ‘unconscious contributors’ to the business value of a digital company, ie as ‘unconscious employees’ of these companies. There are however digital firms that provide some compensation to their users. For instance, a digital company like Citizenme allows users providing access to their data the possibility to earn a small fee, while Datacoup, another start-up, sells insights from personal data and passes on the part of the proceeds to its users.
73 See OECD/G20, Tax Challenges Arising from Digitalisation –Interim Report 2018 (2018) 54.
74 OECD/G20 (n 73) 25–26.
75 See Case C-126/14, UAB ‘Sveda’ v Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos, EU:C:2015:712, para 37.
76 See Case C-132/16, Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ - Sofia v ‘Iberdrola Inmobiliaria Real Estate Investments’ EOOD, EU:C:2017:683, para 33.
77 In this connection, see eg Michael P Devereux and John Vella, ‘Debate: Implications of Digitalization for International Corporate Tax Reform’ (2018) 46 Intertax 557. Alexandra M Bal, ‘(Mis)guided by the Value Creation Principle – Can New Concepts Solve Old Problems?’ (2018) 72 Bulletin for International Taxation. With regard to a consumption-type tax as the US sales tax, see Adam B Thimmesch, ‘Transacting in Data: Tax, Privacy, and the New Economy’ (2016) 94 Denver University Law Review 171. For its own account, in 2017 Austria’s ruling Social Democratic Party sought to impose a ‘digital barter tax’ on online services such as Facebook, Twitter, and Google. See B Groendahl, ‘You Think Google Search Is Free? Austria Seeks to Tax It Anyway’, Bloomberg (29 Apr. 2017).
78 Marie Lamensch, ‘The Scope of the EU VAT System: Traditional & Digital Economy related Questions’ in M Lang and others (eds) CJEU – Recent Developments in Value Added Tax (Linde 2018) 126.
79 See, among others, Case C-235/85, Commission of the European Communities v Kingdom of the Netherlands, EU:C:1987:161, para 14.
80 For a perspective on this, see Sebastian Pfeiffer, ‘VAT on “Free” Electronic Services?’ (2016) 27 International VAT Monitor. Apparently, the author mentioned in this note has later changed his mind on this matter. See Sebastian Pfeiffer, ‘Comment on “Free” Internet Services’ in M Lang and others (eds) CJEU – Recent Developments in Value Added Tax (Linde 2018) 138, observing that ‘the user does not use his data for the purpose of obtaining income on a regular basis. If the user were to perform an economic activity, it would be easier to simply sell his data publicly than to trade it for the access to electronic services’.
81 European Economic and Social Committee (EESC), Taxation of the Collaborative Economy – Analysis of Possible Tax Policies Faced with the Growth of the Collaborative Economy (Exploratory Opinion Requested by the Estonian Presidency) (2017) para 5.8, available on the official website www.eesc.europa.eu.
82 On the evolving concept of ‘consumer’ in respect of the use of a Facebook account, see Case C-498/16, Maximilian Schrems v Facebook Ireland Limited, EU:C:2018:37, paras 39–41.
83 See eg Case C-102/86, Apple and Pear Development Council v Commissioners of Customs and Excise, EU:C:1988:120, paras 11–12.
84 See Case C-16/93, R.J. Tolsma v Inspecteur der Omzetbelasting Leeuwarden, EU:C:1994:80, para 14.
85 See eg Case C-330/95, Goldsmiths (Jewellers) Ltd v Commissioners of Customs & Excise, EU:C:1997:339, paras 23–25.
86 See Mariken E van Hilten, ‘The Legal Character of VAT’ in Dirk Albregtse and Hans Kogels (eds) Selected Issues in European Tax Law: The Legal Character of VAT and the Application of General Principles of Justice: Summary of an EFS Seminar in Honor of Fons Simons (Kluwer Law International 1999) 7.
87 Goldsmiths (n 85) para 25.
88 See Pfeiffer (2018) (n 80) 134, who argues that ‘upon accepting the terms and conditions [of a digital platform], the legal relationship between the provider of the service and the recipient is present’.
89 See Case C-33/93, Empire Stores Ltd v Commissioners of Customs and Excise, EU:C:1994:225, paras 13–17. The reasoning displayed by the CJEU in Empire Stores was nevertheless criticized by Paul Farmer and Richard Lyal, EC Tax Law (Clarendon Press 1994) 123, who contended that ‘the self-introduction scheme [ … ] did not involve any act of agency on the part of the potential customer’ and that ‘in the absence of other factors the mere fact of agreeing to be a customer cannot constitute additional consideration over and above the price paid for any supplies’.
90 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the Protection of Natural Persons with regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC (2016) OJ L119 (hereinafter, GDPR).
91 See Commission, ‘Proposal for a Directive of the European Parliament and of the Council on Certain Aspects concerning Contracts for the Supply of Digital Content’ 9 Dec. 2015, COM (2015) 634 final, 24. Nonetheless, treating personal data as a commodity raises a number of concerns in point of respect of fundamental rights. See eg European Data Protection Supervisor, Opinion 4/2017 on the Proposal for a Directive on Certain Aspects concerning Contracts for the Supply of Digital Context (2017) 7, available on the official website www.europa.eu.
92 Apple and Pear (n 83) para 15.
93 See Case C-246/08, Commission of the European Communities v Republic of Finland, EU:C:2009:671, paras 48–49. In his opinion, the Advocate General Colomer found that ‘there is therefore a certain connection between the service and the amounts’ paid by the recipient of the legal aid, ‘but that link is neither direct nor does it have the intensity which the case-law requires in order to identify a service effected for consideration, because it is “contaminated” by the taking account of the client’s income and assets. The more modest the person’s income, the less direct the aforementioned link will be’. See Case C-246/08, Commission of the European Communities v Republic of Finland, EU:C:2009:671, Opinion of AG Colomer, para 49.
94 See Case C-263/15, Lajvér Meliorációs Nonprofit Kft. and Lajvér Csapadékvízrendezési Nonprofit Kft. v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (NAV), EU:C:2016:392, para 49.
95 Lamensch (n 78) 127.
96 For an opposing view, see eg Pfeiffer (2018) (n 80) 135, who contends that, in the case of a ‘barter data exchange’, a direct link exists between the two counter-performances, since it is ‘the right to use data rather than the actual data set which must be seen as the consideration’. Although acknowledging that such contention has some merits, I do not however share the view, expressed by the quoted author (as well as by other scholars), that the use of the service and the data produced do in fact correlate, since ‘the more a service is used, the more data the service provider is able to use’. Whilst this can be true for certain types of information (eg concerning location of users), other data (eg personal details) are shared by a user already upon subscribing a digital service, no matter if that service is not used by that individual later on.
97 See Case C-157/99, B.S.M. Geraets-Smits v Stichting Ziekenfonds VGZ and H.T.M. Peerbooms v Stichting CZ Groep Zorgverzekeringen, EU:C:2001:404, Opinion of the AG Colomer, para 25.
98 Geraets-Smits (n 97) para 58.
99 See OECD, Cloud Computing: The Concept, Impacts and the Role of Government Policy (2014) 4.
100 See OECD/G20 (n 73) 13.
101 See OECD/G20 (n 66) 59.
102 Arts. 44 and 58 VAT Directive. An exception for e-services supplied by small undertakings (ie with an annual turnover of less than EUR 10,000) is set to be included in art. 58(2) of the VAT Directive as from 1 January 2019. Should this provision apply, then the place of supply for e-services to non-taxable persons will follow the general rule contained in art. 45 VAT Directive, pursuant to which the place of supply of services to a non-taxable person shall be the place where the supplier has established his business or maintains a fixed establishment. See art. 1 of the Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as Regards Certain Value Added Tax Obligations for Supplies of Services and Distance Sales of Goods (2017) OJ L348.
103 Arts. 17–25 VAT Implementing Regulation.
104 European Commission, ‘Explanatory Notes on the EU VAT Changes to the Place of Supply of Telecommunications, Broadcasting and Electronic Services That Enter into Force in 2015 (Council Implementing Regulation (EU) No 1042/2013)’ (2014), available on the official website www.ec.europa.eu.
105 Council Directive (EU) 2017/2455 (n 102).
106 The fact that an IT infrastructure such as a server could eventually constitute a fixed establishment for a foreign enterprise was apparently confirmed by the CJEU in Welmory. See Case C-605/12, Welmory sp. z o.o. Dyrektor Izby Skarbowej w Gdańsku, EU:C:2014:2298, para 60. Against this background, it should be recalled here that the VAT Committee found that ‘the mere existence of a warehouse in a Member State does not in itself allow characterising this to be a fixed establishment in that jurisdiction’. See VAT Committee (n 48) 4.
107 See Francesco Cannas, ‘The VAT Treatment of Cloud Computing: Legal Issues and Practical Difficulties’ (2016) World Journal of VAT/GST Law, 5:2, 100. More in general on such a possibility, see Orly Mazur, ‘Taxing the Cloud’ (2015) California Law Review, 103:1, 60.
108 Welmory, (n 106) para 63. In truth, the CJEU did not explicitly refer to the expression ‘for its own needs’, which is employed in art. 11 of the VAT Implementation Regulation, but rather it used the expression ‘for its business’. Nevertheless, I submit that the two expressions ultimately point to the same requirement for the existence of a fixed establishment, since both makes reference to an establishment being endowed with an infrastructure suitable to receive and use the services supplied to it. As an evidence of that, compare art. 11(1) of the VAT Implementing Regulation with para 63 of the CJEU’s decision in Welmory. I also agree with Ben J M Terra, ‘Internet and the Concept of Fixed Establishment of the Recipient of a Supply of Services, Case C-605/12 (Welmory)’ (2014) 3 World Journal of VAT/GST Law 217, who submits that the linguistic shift made by the CJEU in Welmory ‘from the somewhat illusive reference to enable an establishment to receive and use the services supplied to it “for its own needs” into “for its business” (economic activity) has clarified the meaning of Article 11’.
109 Welmory, (n 106) para 65. See also art. 53(2) of the VAT Implementing Regulation, stipulating that ‘where the resources of the fixed establishment are only used for administrative support tasks, such as accounting, invoicing and collection of debt-claims, they shall not be regarded as being used for the fulfilment of the supply of goods or services’.
110 The concrete assessment of whether a service must be treated as truly used for the own needs of the fixed establishment, however, raises some difficulties. For a discussion on this matter, see Rasa Mikutienė, ‘The Preferred Treatment of the Fixed Establishment in European VAT’ (2014) 3 World Journal of VAT/GST Law 180. Moreover, the condition that a service must be used by a fixed establishment for its own needs was criticized as not being ‘in line with the intention of the fixed establishment concept at the conceptual level’, which is ‘to ensure equal treatment between taxable persons resident in a country and branches of foreign taxable persons in the same country’. See Gert-Jan van Norden, ‘The Allocation of Taxing Rights to Fixed Establishments in European VAT Legislation’ in van Arendonk and others (eds) VAT in an EU and International Perspective: Essays in Honour of Hans Kogels (IBFD 2011) 47.
111 In particular, in Heger the CJEU considered that the connection with the immovable property needs to be ‘sufficiently direct’ and ‘not tenuous’. See Case C-166/05, Heger Rudi GmbH v Finanzamt Graz-Stadt, EU:C:2006:533, paras 23–24. In this regard, it should be noted that, although it represents a fundamental component of cloud computing technologies, a server is something easily interchangeable. Moreover, in cloud computing, a relation based on the ‘specificity’ of a single server is, arguably, absent.
112 Notably, art. 13b of the VAT Implementing Regulation defines ‘immovable property’ as: ‘(a) any specific part of the earth, on or below its surface, over which title and possession can be created; (b) any building or construction fixed to or in the ground above or below sea level which cannot be easily dismantled or moved; (c) any item that has been installed and makes up an integral part of a building or construction without which the building or construction is incomplete, such as doors, windows, roofs, staircases and lifts; (d) any item, equipment or machine permanently installed in a building or construction which cannot be moved without destroying or altering the building or construction’.