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“Free” digital services: toward VAT liability?

“Free” digital services: toward VAT liability?

Published on : 21/11/2025 21 November Nov 11 2025
Focus

The debate on taxing so-called “free” digital services has resurfaced following a question submitted by Italy to the VAT Committee, formalised in the Commission’s working document WP No. 1118 of 11 November 2025.

The issue: determining whether access to a platform or IT service, provided without payment but in exchange for the user’s personal data, could be considered a VAT-taxable transaction.

Why is this topic resurfacing now?

In 2018, the VAT Committee, already consulted on this issue by Germany, issued the following opinion (No. 967, 111th Meeting of the VAT Committee):
  • When a user provides personal data to gain free access to an IT service, this provision of data does not constitute a taxable economic activity, unless the user acts as a professional by deploying resources similar to those of a service provider.
  • When free IT services are supplied in exchange for the use of users’ personal data, this service is not taxable as long as the service is offered identically to all users and no direct link exists between the data provided and the service received.

But Italy now argues that this analysis—at least the part concerning services provided by platforms—no longer reflects the realities of modern business models:
  • The functionalities offered by some platforms may vary depending on the level of personal-data sharing chosen by the user.
  • A user who restricts data collection may be offered a less complete or less effective service.
  • This correlation could establish a direct link between the data provided and the services received—a key condition for characterising a taxable transaction.

Italy has therefore requested the VAT Committee’s opinion on the matter.

Three situations analysed by the Commission

According to the Working Paper presented by the Commission to the VAT Committee, three scenarios should be distinguished:
  • Free service with identical functionalities for all users → no direct link → no VAT.
  • Service whose functionalities decrease if the user restricts data sharing → possible direct link → potential VAT, but requiring case-by-case analysis and raising difficulties in quantifying the taxable base.
  • Paid service (e.g., ad-free subscription) → monetary consideration → VAT due.

A topic to watch closely

The second scenario—common in many Freemium models—is currently attracting the most attention. At a time when all States are seeking new tax revenues, some Member States may be tempted to pursue the possibility of subjecting certain ostensibly free services to VAT. This would have clear implications for digital-sector operators.

It will therefore be particularly interesting to follow the opinion the VAT Committee will issue. However, as this opinion is only consultative, it will be equally important to monitor the positions ultimately adopted by the Member States.

Conclusion

The issue of taxing “free” IT services is no longer purely theoretical.
It could fundamentally reshape digital business models.
Operators should prepare for possible developments and anticipate their impacts.
 
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