Virtual events are increasingly common, especially after the repeated lockdowns caused by COVID-19. Indeed, the Court of Justice of the European Union (CJEU) has taken account of the VAT implications of online entertainment activities even before in Geelen (C-568/17), which was decided on 8 May 2019.[[i]]

The CJEU had the opportunity to address this issue more recently in its decision in Westside Unicat (C-532/22), released on 23 November 2023.[[ii]] Noteworthy, this judgment will not likely be the last one of the series, as another case is pending before the CJEU.[[iii]]

1. Geelen (C-568/17)

Geelen (C-568/17) concerned a taxable person registered for VAT purposes in the Netherlands, Mr. Geelen, who offered access to live interactive erotic sessions for customers in the Netherlands in exchange for consideration. Sessions were broadcast live and were interactive in the sense that visitors were able to send specific requests to the models. The models filmed during those sessions were physically located in the Philippines, i.e., outside the EU.

At stake was the determination of the place of supply of services consisting of offering live interactive erotic webcam sessions, whether that place was in the Netherlands, i.e., where both the supplier and the customers were located, or in the Philippines, i.e., where the models performed in front of the webcam, or elsewhere, i.e., in another country. The determination of the place of supply also depended on the classification of the services in question as entertainment services, electronically supplied services, or other types of services.

In its judgment on 8 May 2019, the CJEU ruled that the services consisting of providing access to live interactive erotic sessions constituted an entertainment activity within the meaning of (now) Article 54 of the VAT Directive, which had to be regarded as being “physically carried out” at the place where the supplier has established his business or a fixed establishment from where those services are supplied or, in the absence of such a place, where he has his permanent address or usually resides.[[iv]]

Noteworthy, the CJEU found that the performance of the services in the case was carried out by Mr. Geelen in the Netherlands rather than by the models in the Philippines, mainly because of the complex nature of the services at stake, which involved not only erotic webcam shows but also the organisation and live broadcast of those shows through the Internet.[[v]]

• VAT Committee

The CJEU’s findings in Geelen (C-568/17) were also examined by the VAT Committee in Working Paper No. 1013 of 22 March 2021, following a request by the Romanian tax authorities seeking advice on the issues at stake in Westside Unicat (C-532/22).[[vi]] In that document, the EU Commission essentially upheld the CJEU’s qualification of the live-streaming services as entertainment services within the meaning of Article 54 of the VAT Directive.

At the same time, however, the EU Commission considered that “[g]iven the technological advancements such activities/events should be considered to take place where the customer is located (e.g., enjoys the entertainment)”, on the ground that “[t]his interpretation ensures both the taxation at the place of consumption and a rational result/solution for tax purposes”.[[vii]]

Noteworthy, the EU Commission’s opinion expressed in Working Paper No. 1013 of 22 March 2021 has been incorporated into the VAT Committee’s Guidelines, adopted at a large majority.[[viii]]

• New Place of Supply Rules for Virtual Events

In April 2022, Directive 2022/542/EU was approved.[[ix]] This Directive amended, inter alia, the place of supply rules for live-streamed events, acknowledging that “it is necessary for all services that can be supplied to a customer by electronic means to be taxable at the place where the customer is established, has his permanent address or usually resides”.[[x]]

To that effect, two new (sub)paragraphs were added to Articles 53 and 54 of the VAT Directive, both effective on 1 January 2025.  

Notably, a sentence was added to Article 53 of the VAT Directive, stipulating that “[t]his Article shall not apply to admission to the events referred to in the first paragraph where the atten­dance is virtual”. Consequently, as of 1 January 2025, B2B online entertainment services will fall under the main place of supply rule of Article 44 of the VAT Directive, according to which the place of supply is where the (business) recipient of the supply is located.

As regards B2C entertainment services, Directive 2022/542/EU adds a subparagraph to Article 54(1) of the VAT Directive, stipulating that “[w]here the services and ancillary services relate to activities which are streamed or otherwise made vir­tually available, the place of supply shall, however, be the place where the non-taxable person is established, has his permanent address or usually resides”. By means of this addition, as of 1 January 2025, the place of supply will be the country where the (private) recipient of the supply is located.

• Westside Unicat (C-532/22)

The last addition to the saga concerning the VAT treatment of virtual events was made on 23 November 2023, when the CJEU released its decision in Westside Unicat (C-532/22).

The case concerned a Romanian company that live-streamed via the Internet digital content filmed by third-party performers. The Romanian company entered into a commercial agreement with a website operator established in the United States, i.e., outside the EU. Under that agreement, the US website operator acquired the live-streamed content by the Romanian company in return for a percentage of the fees received from final customers accessing that content.

The CJEU was to determine the place of supply rule applicable to the services provided by the Romanian company to the US website operator. In particular, the doubt was whether the services in question could be classified as “entertainment services” within the meaning of Article 53 of the VAT Directive, which stipulates that the place of supply of these services is where the entertainment activity actually takes place.

In its decision, the CJEU deviated from its findings in Geelen (C-568/17), where it ruled that live-streamed interactive video sessions are “entertainment services” for EU VAT purposes, which must be regarded as actually taking place where the supplier is established.

In Westside Unicat (C-532/22), the CJEU took a different position, stipulating that the services provided by the Romanian company to the US website operator could not be treated as “entertainment services” within the meaning of Article 53 of the VAT Directive. This is because these services did not grant final customers the right to access digital content but were only services that allowed the website operator to stream the content to the final clients.[[xi]]

Instead, the services provided by the Romanian company to the US website operator were general B2B services, which, based on Article 44 of the VAT Directive, are taxable where the customer is established, in the United States, i.e., outside the EU. Consequently, the services in question felt outside the scope of EU VAT.

The moot point for the CJEU in the case to resolve was to identify who was responsible for organising the online entertainment activity and granting the right of admission to that event. With a rather concise explanation, the CJEU reasoned that the Romanian company, operating the video chat studio and having the technical equipment to create the entertainment digital content filmed by the third-party performers, did not have the power to grant the final customers access to the interactive video sessions.[[xii]]

Although the CJEU did not elaborate much on this point, I believe that the main reason for the CJEU to take this position was that the underlying contractual arrangements with the final customers only involved the US website operator, as indicated in the factual background of the case.[[xiii]]

In my view, this CJEU’s position can be criticised. Reference by the CJEU and the EU Commission to contractual arrangements for determining the actual person granting final customers access to an event might prove insufficient where economic and commercial reality suggests that another person materially organised all the content of the event, whereas the former person concluded a contract with the final customers only to “buy and sell” that event.

This seems to have occurred in Westside Unicat (C-532/22) since, as it emerged from the factual background of the case, “[u]nder the streaming contract, in which the applicant is identified as the organiser of the sessions, the original content of the sessions is uploaded to a website operated by StreamRay [i.e., the US website operator, GB] for the entertainment of its customers worldwide”.[[xiv]]

The narrow interpretation followed by both the CJEU and the EU Commission in the present case might create “loopholes” in the EU VAT system. For instance, streaming companies might establish themselves outside the EU in order to offer online entertainment services without charging VAT to EU private customers, while receiving the same live-streamed digital content from companies based in the EU for the same or even a higher price. This loophole will not be solved by the new place of supply rules entering into force on 1 January 2025 in case of a different price between outbound (i.e., supplies from EU business operators to non-EU business operators) and inbound (i.e., supplies from non-EU business operators to EU final customers) streaming services.[[xv]]

• Conclusions

The issues related to the VAT treatment of virtual events in Geelen (C-568/17) and Westside Unicat (C-532/22) described above are the inevitable consequence of the digitalisation of the economy and the impact of technological developments on the VAT system. The new place of supply rules for online entertainment services have provided some clarity to the applicable VAT treatment. However, in my opinion, not all issues will be solved, so it is easy to predict that the saga concerning the VAT treatment of virtual events will continue.[[xvi]]

Giorgio Beretta

December 2023

[[i]] CJEU, 8 May 2019, C-568/17, Geelen, ECLI:EU:C:2019:388.

[[ii]] CJEU, 23 November 2023, C-532/22, Westside Unicat, ECLI:EU:C:2023:919.

[[iii]] Request for a Preliminary Ruling from the Curtea de Apel București (Romania) lodged on 7 February 2023, Streaming Services, Case C-69/23.

[[iv]] Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

[[v]] For an analysis of this case, see G. Beretta – L. Lavazza, Geelen (Case C-568/17). What VAT if the ‘Unity of Action, Time and Place’ Is Broken Up?, 48 Intertax 5 (2020), pp. 544-548.

[[vi]] VAT Committee, 22 March 2021, Working Paper No. 1013. Case C-568/17, Geelen, Live Streaming of Digital Content (Video-Chat),  taxud.c.1(2021)2147591 – EN.

[[vii]] P. 11 of Working Paper No. 1013 of 22 March 2021.

[[viii]] VAT Committee, Guidelines resulting from the 118th Meeting of 19 April 2021. Document B – taxud.c.1(2021)6378389 – 1016).

[[ix]] Council Directive (EU) 2022/542 of 5 April 2022 amending Direc­tives 2006/112/EC and (EU) 2020/285 as regards rates of value added tax (OJ 2022 L107, pp. 1–12).

[[x]] Point 18 of the Preamble to Directive 2022/542/EU.

[[xi]] Noteworthy, Article 53 of the VAT Directive only applies to the “supply of services in respect of admission to (…) entertainment (…) events”. In Westside Unicat (C-532/22), the CJEU explained that this expression “must be understood as designating the supply of services downstream of organising the subject matter of that presentation and concerned with granting the public admission to the latter” (paragraph 38). Article 53 of the VAT Directive is, therefore, of a narrower scope than Article 54 of the VAT Directive.

[[xii]]  Paragraphs 43-44 of Westside Unicat (C-532/22).

[[xiii]] Paragraph 22 of Westside Unicat (C-532/22). See also Summary of the Request for a Preliminary Ruling pursuant to Article 98(1) of the Rules of Procedure of the Court of Justice, p. 3.

[[xiv]] Summary of the Request for a Preliminary Ruling pursuant to Article 98(1) of the Rules of Procedure of the Court of Justice, p. 3.

[[xv]] Pointing out a similar potential VAT “loophole”, see M. Merkx, Closing the Geelen Loophole and Creating New Issues, 33 International VAT Monitor 4 (2022), pp. 155-164.

[[xvi]] For a more elaborate comment, see G. Beretta, Westside Unicat. Place of Supply of Services. Streaming of Interactive Erotic Video Sessions. Court of Justice, Highlights & Insights on European Taxation, Issue 12 (2023).