ECJ ruling on case 695/20 – Fenix International Ltd

On 23rd February 2023, the ECJ ruled against Fenix International (“Fenix”) in a case which could have a significant impact on operators of online platforms. The question posed by HMRC (the UK VAT Authority) to the ECJ, was whether Fenix could be considered a deemed supplier for services provided via its portal.

Background:

Fenix, established in the UK, runs an influencer portal “OnlyFans”. Creators can use the portal to upload content such as photographs and videos, and also have the option to offer live streams and private messaging to users.

The creator determines what the fee for access to their content should be, whether on an adhoc or monthly subscription basis, although Fenix sets a minimum fee both for subscriptions, and also for tips (fundraising donations with no service supplied in return).

Fenix provides the platform for this data exchange between creators and users, and handles the payments (bank charges show payments from and to Fenix). Furthermore, Fenix charges creators a 20% commission fee for its service, which it deducts from monies collected on behalf of same.

In terms of VAT, Fenix had accounted for 20% UK output VAT on the service fees collected from creators as a portal usage fee.

HMR raised 2 large UK VAT assessments against Fenix (the first for £8,222,566 for the periods from July 2017 – January 2020, and a second for £3,015,912 for the period April 2020) claiming that under Art. 9a para 1 VAT Implementing Regulation in conjunction with Article 28 of the EU VAT Directive, Fenix was to be considered as the deemed supplier, acting in its own name, and on behalf of a third party.

Despite Fenix appealing the decision, the ECJ has ruled the decision made by HMRC to be correct.

Consequences

Fenix, having been deemed to be a service provider in a supply chain between creators and users, now faces large VAT assessments, with the place of supply (for electronically provided services) being where the service recipient (end consumer) is established, meaning that it will be confronted with multiple world-wide VAT registrations and VAT payments, together with a horrendous administrative burden.

It is worth noting that not all services provided can be deemed to be electronic services, given the human resources required for live streams and messaging services.

The outcome for the industry is that platforms shall be required to review in detail electronic services which they facilitate, and consider the place of supply rules on such services, beyond simply charging output VAT on a commission fee.

For creators (in this case, based outside of the UK), their supply will be deemed to be a B2B supply with the platform provider, and the decision will mean that they may be in a position to request a refund of any previously charged output VAT.

Should you feel the above may impact your business and you would like to discuss the matter in further detail with any of our VAT consultants, please click here