VAT and Personal Data: The EU Confronts the “Free” Digital Service Model
On 11 November 2025, the European Commission published a working paper No. 1118 from the VAT Committee in response to a question submitted by Italy.
This document focuses on the VAT treatment of IT services provided “free of charge” by social media platforms in exchange for users’ personal data.
The issue arises in a highly sensitive environment:
- increasing fiscal pressure on tech giants,
- renewed trade tensions between the European Union and the United States,
- and, above all, a major ongoing tax dispute between Meta, X and LinkedIn and the Italian tax authorities.
The implications extend far beyond the tech sector: airlines, media groups, e-commerce platforms and retailers could also be affected if the Italian approach were upheld.
Italy’s position
For several years, Italy has argued that when users consent to the use of their personal data in exchange for access to a platform, this consent constitutes a real consideration, making the transaction subject to VAT.
In line with this position, the Italian tax authorities issued significant VAT assessments over 1 billion euros in 2025. The three digital groups jointly filed an appeal with the first-instance tax court after the deadline for responding to the assessments expired. This marks the first large-scale “tech” VAT litigation in Italy, in which no settlement was reached.
To support its stance, Italy referred the matter to the VAT Committee, seeking a non-binding opinion.
Italy argues that certain digital business models create a direct link between the quantity/quality of data provided and the level of service delivered. In such cases, the exchange of personal data for IT services would constitute a taxable transaction, subject to VAT in the Member State of residence of the users.
The EU position
The 2018 precedents
In October 2018, during its 111th meeting, the VAT Committee had already examined the issue (Working Paper No. 958). Its conclusions were:
- Providing personal data does not amount to an economic activity, unless the individual deploys resources comparable to those of a professional. A private user therefore does not act as a taxable person.
- IT services supplied in exchange for personal data are not taxable if all users receive the same service, regardless of the volume or quality of the data provided. No direct link exists between the service supplied and the alleged consideration.
These conclusions clearly ruled out VAT liability for “free access against data” models.
New conclusions from the VAT Committee
The conclusions of Working Paper 1118 do not constitute formal guidelines, but they refine the analysis and identify three distinct scenarios:
1. Free access with identical functionalities for all users
If the user does not restrict data collection and receives the same service as any other user, no VAT applies, due to the absence of a direct link.
2. Voluntary limitation of data sharing leading to reduced functionalities
When users restrict certain permissions and the platform proportionally reduces functionalities, the transaction becomes potentially taxable, as a direct link may exist between the amount of data provided and the service received.
A case-by-case assessment is essential, and determining the economic value of personal data remains extremely complex.
3. Paid subscriptions
When a user pays for a subscription (e.g. ad-free services), the transaction is taxable, as there is a monetary consideration. However, subscription prices cannot automatically be used to value non-monetary exchanges (scenario 2).
Overall, these conclusions do not support the Italian position.
Member States also failed to reach any consensus.
The VAT Committee emphasises that a legislative revision may ultimately be required to adapt VAT rules to the digital economy.
Implications for digital businesses
While awaiting a consolidated EU position, this case may encourage other tax authorities to examine similar models. Digital companies, as well as any business offering freemium services, should anticipate potential risks.
Recommended actions include:
- analysing service access models (functionalities, variations based on consent),
- assessing the potential economic value of collected data,
- identifying any situation that could create a direct link between data provided and the level of service,
- documenting the characteristics of services offered free of charge.
Close monitoring of EU developments is essential. Any amendment to the VAT Directive could impose a new VAT framework for data-driven business models. The Meta / X / LinkedIn case is likely to become a landmark decision in the future of data taxation within the EU.
