The term ‘Metaverse’ is a concept that is now being widely discussed. Like a virtual world, users live as digital representations of who they really are. This technology could result in the extinction of traditional conferencing platforms and the adoption of virtual environments in which our incarnations would interact with those of various other people. How would such virtual reality services be treated for VAT purposes is an interesting debate as to whether they should be considered just like other digital services. Broadly, there are two types of pertinent services to be analyzed, namely,
- Electronically Supplied Services and
- Admission to Events
As per the EU VAT laws, “Digital Services” or “Electronically Supplied Services – ESS” would need to have the following features:
- Delivery over the internet or an electronic network
- Highest level of automation with the least amount of human intervention and
- Impossible to deliver in the absence of information technology.
More automation and very little human interaction, therefore, are crucial factors in determining whether an activity can be classified as an “ESS” or “digital service.” For instance, a virtual activity in which participants can enter the virtual space for any purpose, such as a conference or exhibition, online events that are pre-recorded, etc., but without any real-time interaction with the organizer (human intervention), could be considered as a “digital service/ ESS”. Under EU VAT laws, digital services are taxed at the location of the customer on a reverse charge basis.
On the contrary, a virtual seminar with real-time interaction with the faculty and between the participants may not qualify as a digital service/ ESS, since there is much human intervention involved in the process. While physical events are taxable in the country in which they are held, the above virtual events would be considered as being held in the customer’s country. It is important to note that there could be a hybrid scenario in which there are both actual attendees and virtual attendees. In this case, the service provider might have to treat the former as a local VAT transaction and the latter as a transaction in which VAT would be payable in the customer’s country (EU Member State).
The EU Council, in April 2022, adopted the directive 2022/542, amending the EU VAT directive concerning the place of supply for live virtual events. Effective January 1, 2025, the supply of a live virtual event is taxable in the customer’s country thereby aligning the place of supply for virtual events with that of electronically supplied services. The below table summarizes the provisions that would apply till December 2024, and thereafter.
The council has also recommended reduced rates for certain live-streamed activities.
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