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Appstore VAT Ruling: Who owns your In-App Purchase tax? C-101/24

October 10, 2025

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VAT Liability for Electronically Supplied Services via Digital Platforms

Summary

1. The application of the Article 28 commissionaire fiction is not excluded merely because post-purchase order confirmations provided to non-taxable customers named the developer as the supplier and included the developer's domestic VAT rate.

2. If the Article 28 fiction applies, the place of supply for the resulting fictional service from the developer to the Appstore operator must be determined according to the B2B rule found in Article 44 of the VAT Directive.

3. Article 203 (VAT on invoice) is inapplicable for transactions involving non-taxable end-customers because there is no threat to tax revenue arising from the right to deduct input tax.

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1.0 Case Identification

Case Name:	Finanzamt Hamburg-Altona v. Xyrality GmbH
Case Number:	C-101/24
Court:	Court of Justice of the European Union (First Chamber)
Date of Judgment:	9 October 2025
Core Legal Area:	EU Value Added Tax (VAT), Electronically Supplied Services

2.0 Factual Background

This case examines the complex question of who is liable for Value Added Tax (VAT) when digital services are sold to consumers through an online platform. This section outlines the commercial arrangement between the application developer (Xyrality), the platform operator ("X"), and the end customer, which formed the basis of the legal dispute over VAT liability.

The core facts of the case during the relevant period of 2012-2014 are as follows:

Parties Involved: The dispute involved Xyrality GmbH, a German game developer; "X", an Irish company operating a major app store; and end customers, who are non-taxable persons (i.e., private consumers).
Business Model: Xyrality developed and distributed free-to-play mobile games. Revenue was generated through "in-app purchases," where players could buy virtual items or advantages to enhance their gameplay.
Transaction Flow: When a customer decided to make an in-app purchase, a series of three pop-up windows would appear within the game. These windows displayed the product, price, and payment method, guiding the user through confirmation. Crucially, these pop-up windows exclusively featured the app store's logo; there was no mention of Xyrality as the supplier during the actual purchase process.
Post-Purchase Communication: After the transaction was completed, the end customer received an email confirmation from the app store operator (X). This email contained a critical piece of information: it stated that the purchase was made from Xyrality and included German VAT in the price breakdown.
Commercial Terms: The app store operator (X) retained a 30% commission from the revenue generated by all in-app purchases and remitted the remaining 70% to Xyrality.

This operational structure, particularly the conflicting information presented to the customer during versus after the sale, created ambiguity over the correct VAT treatment and led to the ensuing legal challenge.

3.0 Procedural History

The strategic importance of this case is highlighted by its procedural history, which traces the evolution of the legal arguments from the initial tax filings through the German court system to the ultimate referral to the EU's highest court. This journey reveals the fundamental legal uncertainty surrounding VAT liability in digital platform economies.

Xyrality's Initial Position & Correction: Xyrality initially declared and paid German VAT on its in-app sales, assuming it was the direct supplier to end customers. However, on 29 January 2016, it filed corrected tax returns for 2012-2014. It argued that its arrangement with the Irish app store operator (X) constituted a "commissionaire" relationship under Article 28 of the VAT Directive. In this view, Xyrality was supplying services to the Irish platform (a non-taxable supply in Germany), which in turn was the deemed supplier to the final customers.
Finanzamt's Assessment: The German tax office (Finanzamt Hamburg-Altona) rejected Xyrality's corrected returns. It contended that the app store was merely an intermediary and that Xyrality remained the direct supplier to the end customers. The tax office argued that since the end customer was pointed to the terms of service with every step of the purchase, it was clear that the platform was merely facilitating the transaction for another party. Therefore, the sales were subject to German VAT.
Ruling of the Finanzgericht Hamburg: Xyrality challenged the tax office's assessment and prevailed at the lower finance court (Finanzgericht Hamburg). The court ruled in favor of Xyrality, finding that the app store operator (X) acted "in its own name." Its reasoning focused on the perception of the average customer, who would view the app store as their contractual partner due to the dominant branding in the purchase interface and the requirement to accept the platform's terms of service.
Appeal and Referral: The tax office appealed this decision to the Bundesfinanzhof (Germany's Federal Finance Court). The Bundesfinanzhof noted that, under its established "shop jurisprudence" (Laden-Rechtsprechung), a customer is generally assumed to be contracting with the shop owner, not the underlying product supplier. However, recognizing the EU-wide implications and the need for a consistent interpretation of the VAT Directive, it referred three specific questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling.

This procedural path set the stage for the CJEU to clarify the application of foundational EU VAT principles to modern digital supply chains.

4.0 Questions Referred for Preliminary Ruling

This section presents the precise legal questions submitted by the German Federal Finance Court to the CJEU. These questions were designed to resolve the core ambiguities in applying the VAT Directive to the complex, multi-layered transactions common on digital platforms.

These questions sought definitive guidance from the CJEU on how to interpret and apply the VAT rules in this scenario.

5.0 Judgment of the Court of Justice (Holdings)

This section provides the CJEU's direct and conclusive answers to the referred questions. The Court's holdings establish a clear framework for determining VAT liability in similar platform-based transactions.

On the Application of Article 28: The Court held that the application of Article 28 (which treats the platform as the deemed supplier) is not excluded merely because a post-purchase confirmation identifies the developer as the supplier. The reality of the transaction itself takes precedence.
On the Place of Supply (Article 44): The Court found that when Article 28 applies, the place of the deemed supply from the developer to the app store is determined by Article 44 of the VAT Directive. This means the supply is located where the business recipient (the app store operator) is established.
On VAT Liability (Article 203): The Court ruled that the developer is not liable for VAT under Article 203 (liability for VAT shown on an invoice). The conditions for this article's application are not met because the customer is a non-taxable person with no right to deduct input tax, meaning there is no risk to tax revenue.

The following section delves into the detailed legal reasoning that underpins these definitive holdings.

6.0 The Court's Reasoning and Analysis

This section dissects the Court's legal logic for each of its holdings. It provides the analytical foundation for the judgment and clarifies the interpretation of key articles in the VAT Directive for digital platforms, offering critical insights into the Court's approach to substance over form.

6.1 Analysis of Question 1: The App Store as a Deemed Supplier (Article 28)

The Court affirmed that the app store should be treated as the deemed supplier under Article 28. Its reasoning was based on the following principles:

Primacy of Transactional Reality: The decisive factor for applying Article 28 is whether the intermediary (the platform) acts "in its own name" from the customer's perspective. The Court emphasized that the customer's perception during the transaction is paramount. In this case, the user only interacted with the app store's interface, saw its branding, and accepted its terms. This created the commercial reality that the app store was the contractual partner.
Irrelevance of Post-Facto Information: The Court's key argument was that information provided after a purchase is legally finalized cannot retroactively alter the nature of that transaction. The email confirmation, sent after the sale was complete, was deemed insufficient to override the facts established during the purchase process itself.
Clarifying Role of Implementing Regulation 9a: The Court referenced Article 9a of the VAT Implementing Regulation. Although this article, which codifies the "deemed supplier" principle for app stores, only came into force on January 1, 2015 (after the period in dispute), the Court viewed it as a clarification of the pre-existing principles of Article 28. This reinforced its interpretation that the platform was the deemed supplier even before the new rules were formally enacted.

6.2 Analysis of Question 2: The Two-Step Fiction and Place of Supply (Article 44)

The Court clarified how to determine the place of supply within the "commissionaire" structure created by Article 28. Its logic follows a clear, two-step analysis.

First, Article 28 creates a legal fiction of two distinct, sequential supplies:

Supply 1: From the developer (Xyrality) to the app store (X).
Supply 2: From the app store (X) to the end customer.

Second, the Court reasoned that the VAT treatment for each supply must be determined independently. Supply 1 is a business-to-business (B2B) transaction between two taxable persons. Therefore, the general B2B place of supply rule in Article 44 applies. This rule states that the service is supplied where the recipient has its place of business—in this case, Ireland, where the app store operator was located.

Crucially, the Court established that the nature of Supply 2 (a B2C transaction) has no influence on the VAT treatment of the separate B2B transaction in Supply 1.

6.3 Analysis of Question 3: The Limited Scope of Erroneous Invoice Liability (Article 203)

The Court found Article 203 inapplicable, thereby shielding Xyrality from liability for the German VAT mentioned in the confirmation emails. The reasoning was precise and purposive:

Purpose of Article 203: The Court reiterated that the core purpose of this article is to eliminate any risk to tax revenue. Such a risk arises when a recipient of an invoice incorrectly deducts VAT that was improperly charged by the sender.
Absence of Risk: In this case, the end customers were non-taxable private consumers. As such, they have no right to deduct input VAT.
Conclusion: Because there was no possibility of an improper VAT deduction by the recipient, there was no corresponding risk to tax revenue. Therefore, the fundamental condition for applying Article 203 was not met.

The Court's detailed reasoning provides a robust legal framework that translates directly into significant practical consequences for the digital economy.

7.0 Key Implications for Tax Professionals and Digital Platforms

This final section moves from legal analysis to practical application, distilling the most critical strategic takeaways from the Xyrality judgment for businesses operating in the digital economy and their tax advisors.

Confirmation of the Platform's Role as Deemed Supplier: The judgment's primary significance is its retroactive clarification that the "deemed supplier" principle applied to app stores even before the explicit rules in Implementing Regulation Article 9a took effect in 2015. By confirming that platforms controlling key transactional elements (branding, payment, terms) were already covered by Article 28 of the VAT Directive, the ruling provides crucial legal certainty for tax periods prior to 2015 and solidifies the "substance over form" approach for all such arrangements.
Clarity on Place of Supply in Commissionaire Chains: The Court's clear separation of the two deemed supplies provides crucial clarity for tax planning. It confirms that the supply from a developer to a platform is a B2B service, with VAT obligations determined by the platform's location (under Article 44), not the developer's or the end customer's. This simplifies VAT compliance for developers selling globally through centralized platforms.
Narrow Interpretation of Article 203 Liability: The decision to strictly limit Article 203 liability to situations with a genuine risk of revenue loss from input tax deduction is a significant finding. It offers a degree of protection for businesses against liability for VAT incorrectly stated on receipts or confirmations sent to final consumers, preventing disproportionate penalties where no tax revenue is actually at risk.

Overall, the Xyrality case stands as a landmark precedent, providing essential clarity and predictability for the VAT treatment of sales made through the global platform economy.

Source: https://curia.europa.eu/juris/document/document.jsf?text=&docid=305025&pageIndex=0&doclang=DE&mode=req&dir=&occ=first&part=1&cid=1253328

What was the central VAT dispute in Case C-101/24 concerning Appstore transactions?

The case concerned the VAT liability for electronically supplied services, specifically in-app purchases, provided by the German developer (XYRALITY GmbH) to non-taxable end-customers in the EU via an Appstore operated by an Irish company (X) during the years 2012 to 2014. The main question was whether the Irish Appstore operator (X) should be treated as the actual supplier of the service to the end-customers under the commissionaire fiction established in Article 28 of the VAT Directive.

Did the developer's inclusion on post-purchase order confirmations prevent the application of the Article 28 commissionaire fiction?

No. The Court ruled that the application of Article 28—which treats the intermediary (X) as having received and supplied the services themselves—cannot be excluded simply because the post-purchase order confirmations sent by the Appstore operator (X) to the end-customers named the developer (Xyrality) as the supplier and indicated German VAT. The applicability of Article 28 depends primarily on the powers the intermediary held regarding the provision of the service. Since the purchase process itself was conducted under the dominant logo of the Appstore, and the end-customer was virtually routed into the Appstore interface during the transaction, the national court had found that the average customer expected the Appstore operator (X) to be the contracting party and seller.

How did the Court determine the Place of Supply for the fictional transaction between the developer and the Appstore operator?

If Article 28 (commissionaire fiction) applies, creating two successive, identical services, the fictional supply from the developer (Xyrality) to the Appstore operator (X) must be determined according to the VAT Directive's rules. Since X, the Appstore operator, was a taxable person acting as such and was established in Ireland, the place of supply for this fictional B2B service is determined by Article 44 of the VAT Directive. Therefore, the place of supply for Xyrality's service to X was in Ireland, where X had its seat of economic activity.

Why did the CJEU consider Article 9a of Implementing Regulation 282/2011, even though the transactions occurred before its 2015 effective date?

Although Article 9a of Implementing Regulation No 282/2011 (which defines when an Appstore is deemed the supplier) only applied starting January 1, 2015, the Court noted that this provision serves to clarify and illuminate a concept already present and applicable within Article 28 of the VAT Directive. The general principles derived from this clarifying provision must, therefore, be considered when interpreting Article 28, even for transactions occurring before 2015.

Was the developer liable for German VAT under Article 203 because German tax was listed on the confirmations?

No. Article 203 of the VAT Directive, which mandates that VAT must be paid by any person who shows the tax on an invoice, is designed to counteract the threat of tax revenue loss arising from a recipient's potential undue right to deduct input tax. Since the electronic services in this case were supplied to non-taxable end-customers who had no right to input tax deduction, the essential risk to the tax revenue that Article 203 aims to prevent was absent, meaning Article 203 was inapplicable.

What role does the intermediary's authority play in determining if the Article 28 fiction applies?

The application of Article 28 depends primarily on the powers that the intermediary (the commissionaire, X) holds regarding the service in which it is involved. While the existence of an underlying mandate or the end-customer's knowledge of the developer's identity may be relevant, these factors alone are insufficient to exclude the commissionaire fiction. The national court must assess all circumstances, especially the contractual obligations of the commissionaire toward its customers. In this case, the national court noted that the purchase process, controlled by X's logo and requiring acceptance of X's terms, led the average customer to expect X to be the contracting party.

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