A Debate That Just Became More Serious

For years, policymakers and tax authorities have discussed a provocative question: Are users “paying” for digital services with their personal data?

Italy pushed this question further than any other Member State — issuing billion-euro VAT assessments against major US platforms, arguing that the provision of personal data constitutes consideration for platform access [1].

On 17 November 2025, the European Commission published a new working paper that reframes this debate in a fundamental way [2]. The paper provides the most structured and technically nuanced analysis since 2018. And it challenges some of the key assumptions underlying the Italian approach.

The result:

• Italy’s legal position appears significantly weaker than before.
• At the same time, the Commission highlights scenarios where VAT liability could indeed arise for data-driven business models.

The discussion is evolving — and digital platforms, app ecosystems and subscription-driven models should take note.

Italy’s Position: A Data-for-Service Barter Transaction

Italy’s argument has been clear:

• Users grant access to personal data.
• Platforms grant access to their services.
• Therefore, a barter transaction takes place.
• That transaction should be subject to VAT under Article 2(1)(c) of the VAT Directive.

Italian courts have supported the idea that social media services are not “free”, but rather compensated by data. This interpretation underpins Italy’s ongoing VAT assessments of approximately EUR 1 billion.

But the Commission’s new analysis takes a much more granular approach.

The EU Commission’s Response: Structured, Nuanced, and Partly Contradictory to Italy

The Commission distinguishes three categories of business models — and the implications are significant.

1. Traditional “Free” Services: No VAT Liability

Where all users receive the same level of service, regardless of how much data they provide, the Commission sees no direct link between services and user data.

In today’s market, this covers the vast majority of large-scale platforms.

Implication:
Italy’s general “data = consideration” model is incompatible with EU VAT principles for this category.

2. Data Restrictions Lead to Reduced Functionality: Possible VAT Liability

If users who restrict data sharing experience limited platform functionality, a direct link between data and the level of service may exist.

However, the Commission cautions:

• Some functional restrictions may be technical, not contractual.
• Valuation of “data consideration” remains extremely difficult.
• Assessments must be made case by case.

Implication:
This is the only area where Italy’s argument could, in principle, find traction — but only for business models where the service offering is explicitly tied to the degree of data access.

This could affect:

• App-store ecosystems
• Systems relying on granular user profiling
• Platforms linking login or inter-app functionality to data permissions

3. Subscription Models (“Ad-Free” or Premium Access): VAT Applies — but for Money Only

Where users pay monetary fees, the VAT treatment is straightforward.
Critically, however, the Commission rejects the assumption that subscription prices can be used to infer the “value” of the data provided by non-paying users.

Implication:
Subscriptions do not help justify VAT on data-driven free models. They only confirm VAT for the paid versions themselves.

What This Means for Italy’s Current VAT Cases

The Commission’s analysis clearly narrows the circumstances under which VAT could apply. For Italy’s billion-euro cases, the implications are stark:

• The general barter theory is not supported.
• The majority of conventional social media offerings fall into the “non-taxable” category.
• Only highly specific, data-dependent feature models could potentially be taxed — and even then, subject to complex fact-finding and valuation issues.

In effect, the new working paper significantly weakens the legal foundations of Italy’s position.

What This Means for Businesses: A Warning for the Next Generation of Models

While the paper weakens Italy’s approach, it sends an important strategic signal:

Businesses whose service levels depend on data permissions should consider themselves on notice.

Relevant examples include:

• “Data-for-features” models
• Platforms integrating external services or login functions
• Multi-app ecosystems where data unlocks functionality
• App stores with cross-application user tracking or profiling

These models are precisely what the Commission highlights as potentially taxable.

What Comes Next?

The topic was discussed last week in the 128th meeting of the EU VAT Committee.
The meeting minutes have not yet been published; we will provide an update once they become available.

The Commission itself hints that legislative action may ultimately be required. Relying on creative interpretations of existing rules seems unsustainable — especially as digital business models grow more complex.

Conclusion: Italy’s Theory Is Weaker — but the Debate Is Stronger

The EU Commission’s working paper shifts the debate from political headlines to legal substance. It limits Italy’s ability to argue that “data equals consideration” in a general sense. At the same time, it identifies new areas where VAT could indeed become relevant for digitally integrated and data-dependent services.

For platform operators and multinational groups, the message is clear:
Reassess your data-based service models — not because Italy is right, but because the Commission has opened the door to a narrower, more precise VAT discussion.

Alvarez & Marsal will continue to monitor developments and provide updates as soon as further EU documentation becomes available.