Prior to the introduction of commonly accepted currencies and coins; trade and business activities were carried out using the barter system. Webster’s definition of Barter is “to trade by exchanging one commodity for another”. For a particular commodity or service, another commodity or service was given as an exchange instead of currencies; on the same line, a concept that has come up recently is ‘Data Bartering’ and the VAT implications on transactions that are considered as data barter.
This issue began when the Italian VAT authorities charged a social media company (referred henceforth as ‘company’) VAT on certain transactions of user data that was collected in exchange for granting access to their platforms. The company seems to have treated these transactions as services without any VAT consideration. The barter, according to the tax authorities was between the company and its users who signed up for its services in the form of digital content, for which the consideration they gave is their personal data which was exploited by the company to earn revenues.
To fall within the purview of VAT, supplies must be made for consideration; however, it need not be in cash or monetary form. Consideration in the barter mode is sufficient to establish a legal relationship between the parties to the transaction. Also, the consent being given by the user to the company for the use of their personal data could imply that the mutual supplies are directly related to each other.
It may be noted that there could be a distinction in the treatment of active users of the company, who keep supplying data (by frequently accessing the website and continuously uploading content – which effectively is like giving more and more consideration), and passive users who just browse the company content, but upload less or no data.
There may also be users who would have deleted their accounts, but the content they supplied continues to be with the company which could still be exploited. Moreover, the company may install tracking cookies on the devices of these users who have deleted their content, and the company continues to track their digital footprints. The browsing data thus collected even after the account is deleted, can be sold by the company to product or service providers who make their advertisements appear on the screens of such users.
The critical point to be addressed here is the ‘taxable amount’ or the ‘tax base’ on which VAT must be levied. How can the data given by a service recipient be valued to arrive at the consideration for VAT purposes? Should the value or quality of the data be mirrored to the extent to which the company can exploit the same and earn revenues? What would be the VAT rate? How about false data that is uploaded and accounts created on the company platform? How to verify the veracity of the data which users upload? It is pertinent to note that the company does not provide varying levels of service to subscribers based on the volume or quality of data they provide and hence standardization of the consideration may be arduous. Another bone of contention is that the ‘consideration’ in such cases includes the VAT component also, and as such, either (or both) parties can argue that what they have given as the barter includes the VAT and the other party should remit the same to the government.
There is also litigation under UK VAT involving social media companies, but here again, the point whether VAT can be levied on data that can merely be obtained by going through a particular website is arguable. The social media companies might argue that data collection is not a supply for consideration. VAT is a tax on consumption and taxation of consumption of digital supplies, in exchange for data remains an ambiguous concept.
