EU Court Clarifies VAT Rules for App Stores in Landmark Case

In a landmark case, the Court of Justice of the European Union clarified the value-added tax treatment of digital platforms and online marketplaces.

The CJEU ruled in Finanzamt Hamburg-Altona v XYRALITY GmbH that where an underlying application developer of digital services—apps and related content—provides them via a portal (app store), the app store is treated as if it had received those services from the application developer and supplied them to end users.

The case relates to the German tax authority’s treatment of applications (games) for mobile devices developed by XYRALITY GmbH that were distributed via a digital platform operated by an app store established in Ireland. End users downloaded games free of charge; however, improvements and other additional services were paid for as “in-app purchases.”

The key dispute relates to whether the platform or the developer is considered to have supplied services for VAT purposes to end consumers, and what implications that has for their VAT liability and the place of supply of provided services.

The case concerns the applicability of Article 28 of the EU VAT Directive (a so-called commissionaire fiction) to the supply of in-app purchases. The commissionaire fiction, or deemed supplier rule, establishes that a taxable person who in the context of a supply of services acts as an intermediary in their own name but on behalf of another person, is presumed to be the supplier of those services.

In this case it means that the Irish app store is deemed to purchase the applications from the developer and resell them to final users. This would mean that the VAT treatment of the developer’s deemed supply to the app store would be determined by Article 44 of the VAT Directive and the reverse charge would apply in Ireland.

The app store, not the developer, would be responsible for charging VAT from the final user and for paying it to the tax authorities of the country where the deemed business-to-consumer supply is considered to take place for VAT purposes.

The facts in the case align with how many digital business models work in practice—with the platform setting terms, handling payments, and interacting with users. This means that the decision may have impact on many other similar digital supply chains.

The distinction between platform and underlying supplier obligations is crucial—not only for past transactions, but for ongoing compliance in the current VAT regime. Businesses operating app stores, SaaS platforms, or webshops should ensure they have clear agreements and understand whether they are treated as deemed suppliers for VAT purposes. Suppliers via such marketplaces should correctly determine their VAT obligations.

The Case

The referring German court asked the CJEU to clarify these issues:

• Is the operator of a digital platform (app store) deemed to receive and supply services on behalf of the app developer under Article 28 of the VAT Directive (so that a so-called commissionaire fiction applies)?
• Where is the place of supply of “fictitious” services provided by the developer to the app store?

The CJEU stated that the customer does not order the application from the developer, but downloads it directly from the app store, to which the developer must first upload it. The application is ready for use immediately after being downloaded from the app store, irrespective of confirmation of its purchase and irrespective of any subsequent action by the developer.

From the customer’s point of view, therefore, the store is the direct supplier of the application. In addition, the store charges a fee for providing the application and confirms the conclusion of the contract. It is the store that acts as a service supplier in relation to the customer.

Who is the supplier to a final customer? The CJEU confirms its decision in Fenix International that Article 28 may apply to supplies of digital services via a marketplace if certain conditions are met. Where a developer has supplied business-to-consumer services (apps and related content) through an app store, the app store is treated as if it had received and supplied those services to final customers.

The CJEU found that in this case:

• The app store is deemed to be the supplier to the end user.
• The developer is deemed to supply the services to the app store, not directly to the final customer.

The CJEU stated that the place of supply of the developer’s “fictitious”/"deemed” supply to the app store (under Article 28) must be determined under Article 44—that is, the place where the business customer, the platform, is established.

Therefore, in a case where the app store is based in Ireland, the developer’s supply to the platform was considered to take place in Ireland—not Germany—for VAT purposes.

Although the arguments included in the decision in XYRALITY have largely been included in the previous Fenix International decision, the CJEU still provides long-awaited clarification on how VAT should apply in platform-based digital supply chains.

Practical Implications

The decision reinforces the treatment of digital distribution platforms as deemed suppliers, particularly where the platform:

• Controls pricing or delivery.
• Authorizes the supply by making it available.
• Sets the general terms and conditions of the supply.
• Processes payment from end users.
• Interfaces with customers in the transaction.

For underlying suppliers via platforms:

• There is no VAT obligation for a sale to a final customer where platforms are considered deemed suppliers.
• Next to business reality, contractual arrangements and documentation are critical to determine VAT treatment.

For platforms:

• Clear designation as a deemed supplier entails VAT responsibility for sales to final customers.
• If liability for VAT arises under Article 28, it must be charged correctly and reported accordingly.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Aiki Kuldkepp is senior manager, VAT and customs, with Grant Thornton Netherlands.

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