Kevin Hall, Partner in our VAT team has recently been featured in Taxation Magazine, following an enquiry regarding the sale of a website domain.
Question
I am selling a website domain name I purchased in 2020 as a business asset, to an interested party via a domain trading platform. The trading platform will act as an intermediary and earn 25% commission from the deal – they take the payment from the buyer, and when the transfer of ownership is confirmed they release the funds to me, less their 25% cut.
I do not, and will not know the location or tax status of the end buyer, but the trading platform is based in the Netherlands and has both a Dutch VAT number and company registration. The platform gives me the option to calculate VAT based on the country of the seller or buyer – I imagine they give this option as I can buy or sell on the platform, but in this case I’m a seller. All my dealings with the buyer are via the trading platform. What is the VAT position here? Do I need to consider registering for the mini one-stop shop scheme? - Dominic
Answer
The seller should not apply any VAT
If the vendor does not know the identity of the buyer and vice versa, the intermediary must be an ‘agent acting in their own name’. For VAT purposes, such an agent is treated as a principal, even if they are contractually only an intermediary in a transaction between the two other parties. In UK law, that is provided for by VATA 1994, s 47; because the trading platform is in the Netherlands, it is more important that the UK provision is based on art 28 of the Principal VAT Directive, which states: ‘Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.’
The trading platform is clearly a business, and a domain name is ‘services’ for VAT. This should therefore be treated as a business-to-business supply of services which is outside the scope of UK VAT. The trading platform should apply a reverse charge based on the 75% it keeps, and should separately account for its own sale to its customer. It is not clear why the platform ‘gives the option to calculate VAT based on the country of the seller or buyer’ – the seller should not apply any VAT, so should not have to calculate it. The only situation in which the seller would apply VAT would be if it was a business also established in the Netherlands, when there would be a domestic supply subject to Dutch VAT.
The fact that this option is given raises the concern that someone has misunderstood the situation or the rules – whether the querist is actually supposed to know the identity of the buyer, but has not worked out how, or whether the trading platform is not aware of art 28, I cannot say. But even if the trading platform was a ‘disclosed agent’, presumably the supply would still be outside the scope of UK VAT – if supplied directly to the purchaser, it would probably be a B2B supply, or else perhaps a B2C supply covered by VATA 1994, Sch 4A para 16(a) ‘transfers and assignments of copyright, patents, licences, trademarks and similar rights’. The only difference would be that the ‘outside the scope’ output would be 100% of the value, and there would be a reverse charge on the 25% agency fee from the Netherlands business (which would cancel out on the seller’s VAT return as it would be deductible as input tax). - Gardener
Review Fenix International v CRC
Further to the first response, it is recommended that Dominic should review EU Implementing Regulation 282/2011, art 9a even if the Belgian online marketplace has disclosed to the purchaser that Dominic is the seller.
The term ‘acting in the agent’s own name’ (VATA 1994, s 47(4); reflecting EU Principal VAT Directive, art 28) does not necessarily have its intuitive meaning. Its meaning is prescribed by EU VAT regulations. The UK VAT legislation remains largely unchanged since Brexit and the precise meaning of this particular VAT concept was ruled upon by the European Court of Justice in the UK VAT case of Fenix International Ltd v CRC (C 695/20), also known as ‘Only Fans’.
This part of the EU VAT legislation, as supported by the subsequent CJEU ruling, states the presumption that electronically-supplied services provided via an online marketplace are supplied (for VAT purposes) by the online marketplace and not by the content-provider. The presumption is rebuttable, but only in limited circumstances. Explicitly, this presumption cannot be rebutted where the online marketplace has a certain level of involvement in the supply, including areas where online marketplaces are usually involved such as charging or listing terms and conditions.
There is therefore a significant risk that the facts in this case will be subject to art 9a and should be determined fully before concluding the applicable rate of VAT.
The Retained EU Law (Revocation and Reform) Act 2023 has weakened the influence of EU law on UK legislation. EU VAT law concepts remain important in understanding UK VAT law, but the question arises as to what ‘acting in the agent’s own name’ means in the UK today. In any case, the Belgian marketplace might be subject to art 9a. This is important, because even if the Belgian marketplace is a ‘disclosed agent’ and HMRC alleges that the customer is located in the UK in the absence of other evidence (i.e. potentially subject to UK VAT in Dominic's hands), which we have seen with our clients, art 9a’s meaning could still require that Dominic’s supply is VAT-free to the online marketplace in Belgium.
It is highly recommended that Dominic reviews art 9a and the Fenix case, determines the relevant facts and communicates with the Belgian customer in order to avert any risk of double taxation. - Kevin Hall, Wright Hassall
First published by Taxation Magazine.
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