AI Training Services VAT Rules for Non-EU Platforms

The Spanish Tax Agency clarified whether programming services, consisting of the training of an artificial intelligence (AI) system provided to a non-EU platform, are subject to VAT. In addition to providing a clear answer to this issue, the Tax Agency offered a straightforward explanation of the principles that apply to this matter.

VAT Treatment of AI Training Services 

The Tax Agency unequivocally confirmed that programming services involving the training of an AI system for a platform established in a third country are not subject to Spanish VAT under the rules governing the place of supply of services. Furthermore, the Tax Agency stated that training an AI system through a platform is considered an electronically supplied service.

Given that the customer is a non-EU business, located outside the Spanish VAT territory, and does not have a permanent establishment there, the services are deemed to be supplied to the client’s headquarters abroad. As a result, transactions relating to these services fall outside the scope of Spanish VAT.

This interpretation aligns with the EU-wide VAT rules, where the place of supply for services provided to a business customer, meaning a B2B transaction, is generally the country where that customer is established. Consequently, when a service recipient is based outside the EU entirely, the transaction is effectively removed from the EU VAT net. 

Additionally, the classification of AI training as an electronically supplied service is also noteworthy. The EU VAT regulations broadly define electronically supplied services as those delivered over the internet or an electronic network, requiring minimal human intervention. Since AI model training involves the automated processing of large datasets through digital platforms, it fits squarely within this category.

Conclusion

In addition to clarifying an important matter, particularly in an era where AI-related services are on the rise, the clarification provided by the Spanish Tax Agency also reflects on key principles of the EU's VAT system concerning the VAT treatment of electronically supplied services, as well as what falls under the scope of those services. Therefore, the Tax Agency's response holds broader relevance beyond the specific taxable persons who submitted the query.

Source: Spanish Tax Agency