ECJ Case C-532/22: EU VAT Rules Redefined for Virtual Event Services

The case between the Romanian company Westside Unicat and the Romanian Tax Authority originates from the Tax Authority's decision to regard the services provided by that company as being provided in Romania, thus subject to VAT in Romania. In contrast, the company argued that it was not the organizer of live video sessions and that, as such, it should not pay more than USD 130,000 in VAT.

The specifics of this case and its impact on EU VAT rules align it with some of the most significant and influential ECJ cases. Moreover, the case substantially influenced the adoption of Directive 2022/542, which shifted the VAT treatment for virtual events.

Background of the Case 

To fully understand the importance of this case, it is necessary to explain the Westside Unicat working method and other business-related specifics. A Romanian company, Westside Unicat, operates a video recording studio for marketing digital content through online video chats involving performers. The US-based company StreamRay USA Inc. (StreamRay) live-streamed these video chats.

Although StreamRay enabled users to interact with performers and defined terms and fees for accessing the content, performers signed contracts and a declaration with Westside Unicat, authorizing it to collect all payments due from StreamRay and distribute a portion to them. On the other hand, StreamRay, which supplies the service to users, collects fees directly from them, retains a share, and transfers a percentage to Westside Unicat, which then compensates the performers under the contract.

After the Tax Authority conducted a tax audit, it determined that Westside Unicat must pay RON 640,433 (around USD 133,000) in VAT from September 1, 2019, to June 30, 2020.

This decision that Romania was the place of supply for the services Westside Unicat provided to StreamRay was contrary to Westside Unicat's belief that StreamRay was offering and enabling the live sessions. However, the Romanian Tax Authority concluded that Westside Unicat organized interactive performances, which is evident from the StreamRay agreement.

Under the Romania Tax Code and EU VAT Directive, such services qualify as entertainment events, and following the ruling in the ECJ case C-568/17, the place of supply of live-streamed interactive video sessions is where the supplier's business is established. In this case, it is Romania.

After an unsuccessful administrative appeal against the initial Tax Authority decision, Westside Unicat brought the case before the Regional Court, which decided in the company's favor. Contrary to the Tax Authority's claim, the Regional Court determined that StreamRay organized the entertainment events and, as such, allowed users to access interactive video sessions.

However, the Tax Authority appealed against this decision before the Court of Appeal, claiming that Westside Unicat, an organizer of the interactive video sessions, had to be regarded as the one granting access to those sessions, thus making it liable for VAT in Romania.

The Court of Appeal questioned whether Westside Unicat's services fall under the definition of supply of services regarding admission to entertainment events as outlined in Article 53 of the EU VAT Directive and was uncertain how that provision should be interpreted and applied to the situation that has arisen. Therefore, it decided to refer questions to the ECJ for a preliminary ruling.

Main Questions from Request For Ruling

The Court of Appeal sought clarification on two main issues related to this case. The first one was whether Article 53 of the EU VAT Directive applies to services provided by a video chat studio to a website operator that streams live interactive sessions. More precisely, does Article 53 apply to services a video recording studio provides to an online streaming platform that transmits live streams of digital content?

If Article 53 applies to the situation, the Court of Appeal requested that the ECJ interpret the phrase "the place where those events actually take place." Specifically, it asked whether that refers to the location where performers appear in front of the webcam, the location of the session organizer's establishment, where users view the content, or some other relevant location.

Applicable EU VAT Directive Article

When deciding on raised questions, the ECJ considered several articles from the EU VAT Directive, Directive 2008/8, Implementing Regulation (EU) No 282/2011, Implementing Regulation No 1042/2013, and Directive (EU) 2022/542.

Article 44 of the EU VAT Directive was relevant to this case since it defines the place of supply of services to another taxable person, B2B supply of services, as generally determined by the location of the recipient's business establishment, permanent address, or usual residence.

However, if the services are supplied to a non-taxable person, meaning B2C supply or B2C transaction, Article 45 states that the place of supply is generally where the supplier's business is established.

Articles 53 and 54 are also relevant to this case. They state that for services related to admission to cultural, artistic, sporting, educational, entertainment, or similar events, as well as any ancillary services, the place of supply for either B2B or B2C transactions is where the event physically occurs.

In Recital 6 of Directive 2008/8, which amends the EU VAT Directive in part relating to the place of supply of services, there are exemptions to the general rules for determining this location. Instead, specific rules are introduced, primarily based on the existing criteria, aiming to align with the principle of taxing services at the place of consumption.

Implementing Regulation (EU) No 282/2011 provides detailed rules regarding services related to admission to cultural, artistic, sporting, scientific, educational, entertainment, or similar events, and Article 32(1) states that such services include the granting of admission rights in exchange for tickets or payment, including subscriptions, season tickets, or periodic fees.

Article 33 of the same Implementing Regulation defines ancillary services as those directly related to admission to events that are provided separately for a fee, such as cloakrooms or sanitary facilities. However, intermediary services related to ticket sales are excluded.

Article 33a, added by Implementing Regulation No 1042/2013, specifies that the supply of tickets for such events by intermediaries or third parties acting on behalf of the organizer is also covered by the provisions of Articles 53 and 54 of the EU VAT Directive.

Recital 15 of the Implementing Regulation No 1042/2013 highlights that admission to cultural, artistic, sporting, educational, entertainment, or similar events must, in any situation, be taxed where the event physically occurs. This includes the intermediaries supplying tickets for such events.

Finally, Recital 18 and Article 1 of Directive (EU) 2022/542 emphasize the importance of ensuring taxation in the EU country of consumption, highlighting that digital services should be taxed where the consumer or user is located. Furthermore, Article 1 amended Article 53 of the EU VAT Directive, introduced a new provision, and excluded attendance at events from the scope of Article 53. Thus, VAT rules for event admission do not apply when attendance is virtual.

Romania National VAT Rules

Article 278 of the Romanian Tax Code sets rules for determining the place of supply of services. While paragraph 2 states that the place of supply for services provided to a taxable person is where the consumer has established business, paragraph 6 of the same article introduces an exclusion, stating that for services related to admission to cultural, artistic, sporting, scientific, educational, entertainment, or similar events, as well as ancillary services connected to admission, the place of supply is where the events physically occur.

The methodological rules for the application of the Tax Code, specifically paragraphs 4, 5, 7, and 8, provide further details on the place of supply for services related to admission to events, more or less aligning with the relevant provisions from the presented EU legislation.

Importance of the Case for Taxable Persons

The importance of this case can be seen in the fact that, together with ECJ C‑568/17 between the Netherlands Tax Authority and L.W. Geelen (Geelen case), it directly influenced the redefining of the rules for the place of supply of virtual events.

It was under the influence of this case ruling that the EU VAT rules for determining that organizing live streamed interactive sessions are not subject to VAT of the country where the event takes place, but that the customer's or platform users' location is relevant for this.

However, due to considerable differences between this and the Geelen case, the case before you is the one that, in the end, brought clarity to the taxability rules for online and virtual events.

Analysis of the Court Findings

In its judgment, the ECJ stated that Articles 44 and 45 of the EU VAT Directive provide a general rule for determining the place of supply, whereas Articles 46 to 59a provide specific rules. However, the ECJ underlined that if these specific rules do not cover the situation, it falls under the scope of the general rule.

From that perspective, Article 53 which states that for services related to admission to cultural, artistic, sporting, educational, entertainment, or similar events, as well as any ancillary services, the place of supply to taxable persons, either individual or business, is the location where the event physically occurs, should not be seen as a narrow exception to the general rule.

The court cited a 2019 Geelen case ruling that live-streamed interactive video sessions qualify as entertainment activities because they provide entertainment to recipients. The ECJ also emphasized that entertainment activities are not restricted to services where the recipients are physically present.

However, one notable difference between the Westside Unicat and the Geelen cases is that in the Westside Unicat case, the request for interpretation refers to a specific rule for determining the place of supply of services, which was not in effect at the time of the Geelen case. Therefore, while the Geelen case focused on applying the older rule, this ECJ case concentrated on using this newer rule.

More specifically, in the Geelen case, the rule in Article 53 of the EU VAT Directive, which was in force at the time, applied broadly to cultural, artistic, sporting, scientific, educational, and entertainment activities and covered ancillary services related to those activities.

In the present case, the rules under the same article are more specific and apply to services related to admission to such events and the ancillary services connected to that admission, mainly when supplied to a taxable person. In that regard, the conclusion in the Geelen case cannot directly apply to the current case, as the specific rule from Article 53 has a narrower scope than the previously examined rule.

The ECJ stated that the term “event” should be interpreted to mean a public presentation. The concept of “service in respect of admission to an event” refers to the services provided after the event's organization, focusing on granting the public access.

This conclusion is supported by Article 33 of Implementing Regulation No 282/2011. The stated article specifies that ancillary services related to admission are those directly linked to granting access and are supplied separately for a fee to attendees. In this case, website or platform. Thus, the main services must be perceived as the service provided to that person to grant him or her the right to be admitted to that event.

Article 32 of the same Implementing Regulation clarifies that services related to the admission to entertainment events primarily grant the right of admission to an event and that those services are characterized by providing access in exchange for a ticket or payment. Therefore, these services focus solely on marketing and granting customers the right of entry for the event in question.

The ECJ also noted that EU legislation in force confirms that Article 53 applies when event tickets are sold by intermediaries in their name rather than directly by the organizer. This further contributes to the conclusion that the services under Article 53 are specifically tied to marketing and distributing the right of admission to events for customers.

After all this, the ECJ found that services provided by a video chat recording studio, such as creating and recording interactive video sessions for the operator to stream to an online streaming platform, do not fall under the scope of Article 53 of the EU VAT Directive.

From the ECJ's point of view, these services do not grant platform users access to the content or provide ancillary services related to admission to an event. Services provided by the Westside Unicat to StreamRay are preparatory services that enable the platform to stream content to users.

The fact that Westside Unicat possesses and uses recording equipment does not constitute nor imply granting public access to the sessions, especially considering the company's limited role in creating content. This conclusion is in line with the VAT Committee guidelines, which state that when a taxable person supplies digital content to another taxable person, such as a platform operator, who then streams it to the final user, the initial supply cannot be seen as an admission to an entertainment event under Article 53.

Courts Final Decision

In the end, the ECJ ruled that Article 53 of the EU VAT Directive does not apply to services provided by a video chat recording studio to an online streaming platform operator when those services include creating digital content, such as interactive video sessions for the operator to stream. 

Services provided by Westside Unicat are classified as preparatory services, whose aim is to enable the platform operator to deliver content to end users, and as such, do not provide direct admission to an entertainment event or grant customers access to the content.

The purpose and role of Article 53 is to define the place of supply for services relating to admission to events, which, in essence, include granting rights to acces cultural, artistic, or entertainment events since the Westside Unicat's role as a recording studio was to produce content for StreamRay and not grant access or manage event admission, services provided by the Westside Unicat fall outside the scope of Article 53.

Conclusion

The ECJ's decision highlights several valuable matters. First, it distinguishes between this case and the Geelen case. Although they both have the same issue, the EU VAT rules in place at the time of each case were different. 

Second, it differentiates preparatory or necessary services from services directly related to granting access to events under EU VAT law. This contrast fortifies the principle that virtual events are taxed based on the customer’s location. In addition, it states that granting access to events is the key to VAT treatment of virtual services and underscoring the evolving nature of VAT regulations in the digital economy.

Source: Case C 532/22 - Regional Directorate-General for Public Finances of Cluj-Napoca, Romania and Provincial Administration of Public Finances of Cluj, Romania v. SC Westside Unicat SRL, EU VAT Directive, Directive 2008/8, Implementing Regulation (EU) No 282/2011, Implementing Regulation No 1042/2013