One of the relatively common questions we receive from our ebiz clients these days is very logical: What are eservices? Let’s start with the terminology and follow it up with examples.
There are many different expressions for this kind of services: electronic services, electronically supplied services, digital services, digital products… We will call them eservices – if the European Commission can live with this, so can we. And it is such a nice, short, effective word.
Further it is important to understand that the various countries define eservices differently. Definition and examples below are specific for the EU – definitions of eservices in other countries might differ. This includes some of the EU countries, which have published additional explanations on eservices and treatment thereof.
Last but not least there is no exclusive list of eservices available – not even in the EU. The legislators have finally figured out that they cannot predict how the technology and human society employing it will develop in the future. They have settled up with a broad and open definition of eservices and have provided some indicative list of examples of what eservices are and what they are not.
Definition of eservices in the EU
Surprisingly the EU VAT directive does not provide for a definition of eservices. The definition is found in the Implementing Regulation 282/2011. The fact that the definition is provided in the Regulation means that the EU is able to change the eservice definition faster. This means that the definition might be adjusted sometimes in the future.
The following elements together form an eservice:
- service (i.e. not goods)
- delivered over Internet or an electronic network
- supply is essentially automated or involves only minimal human intervention
- it is impossible to ensure in the absence of information technology
There is also an additional condition, which is not explicitly stated in the legislation, but can be deducted upon the existing EU VAT case-law:
- supply is made for consideration (i.e. for payment)
Examples of what are eservices
The implementing regulation further provides some examples of eservices. These are:
- The supply of digitised products generally, including software and changes to or upgrades of software;
- Services providing or supporting a business or personal presence on an electronic network such as a website or a webpage;
- Services automatically generated from a computer via the Internet or an electronic network, in response to specific data input by the recipient;
- The transfer for consideration of the right to put goods or services up for sale on an Internet site operating as an online market on which potential buyers make their bids by an automated procedure and on which the parties are notified of a sale by electronic mail automatically generated from a computer;
- Internet Service Packages (ISP) of information in which the telecommunications component forms an ancillary and subordinate part (i.e. packages going beyond mere Internet access and including other elements such as content pages giving access to news, weather or travel reports; playgrounds; website hosting; access to online debates etc.);
The Annex to the VAT Directive provides a short indicative list of eservices, which is further expanded in the Annex to the Implementing Regulation. Please find below the consolidated version of the examples from the two documents:
1. Website supply, web-hosting, distance maintenance of programmes and equipment:
- Website hosting and webpage hosting;
- Automated, online and distance maintenance of programmes;
- Remote systems administration;
- Online data warehousing where specific data is stored and retrieved electronically;
- Online supply of on-demand disc space.
2. Supply of software and updating thereof:
- Accessing or downloading software (including procurement/accountancy programmes and anti-virus software) plus updates;
- Software to block banner adverts showing, otherwise known as Bannerblockers;
- Download drivers, such as software that interfaces computers with peripheral equipment (such as printers);
- Online automated installation of filters on websites;
- Online automated installation of firewalls.
3. Supply of images, text and information and making available of databases:
- Accessing or downloading desktop themes;
- Accessing or downloading photographic or pictorial images or screensavers;
- The digitised content of books and other electronic publications;
- Subscription to online newspapers and journals;
- Weblogs and website statistics;
- Online news, traffic information and weather reports;
- Online information generated automatically by software from specific data input by the customer, such as legal and financial data, (in particular such data as continually updated stock market data, in real time);
- The provision of advertising space including banner ads on a website/web page;
- Use of search engines and Internet directories.
4. Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events:
- Accessing or downloading of music on to computers and mobile phones;
- Accessing or downloading of jingles, excerpts, ringtones, or other sounds;
- Accessing or downloading of films;
- Downloading of games on to computers and mobile phones;
- Accessing automated online games which are dependent on the Internet, or other similar electronic networks, where players are geographically remote from one
5. Supply of distance teaching:
- Automated distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention, including virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and student;
- Workbooks completed by pupils online and marked automatically, without human intervention.
Examples of what are not eservices
Besides this very useful list of eservice examples the VAT Directive also explains that communication via email does not of itself mean that the service supplied is also an eservice. This means that even if a “product” has been provided over email it is not necessary to be considered as eservice if the other conditions are not fulfilled.
This has been also confirmed by the European Commission:
- What services will not be affected by the Directive?
Where the Internet or another electronic network is used simply as a means of communication, this does not necessarily create an electronically supplied service. Any one of the national tax administrations will be happy to provide more guidance on what services are affected.
Implementing Regulation provides further useful examples of supplies that are not eservices:
- radio and television broadcasting services;
- telecommunications services;
- goods, where the order and processing is done electronically;
- CD-ROMs, floppy disks and similar tangible media;
- printed matter, such as books, newsletters, newspapers or journals;
- CDs and audio cassettes;
- video cassettes and DVDs;
- games on a CD-ROM;
- services of professionals such as lawyers and financial consultants, who advise clients by e-mail;
- teaching services, where the course content is delivered by a teacher over the Internet or an electronic network (namely via a remote link);
- offline physical repair services of computer equipment;
- offline data
Finally there is the requirement that all services (inclusive of eservices) have to be provided for a consideration (otherwise they are not subject to VAT taxation). This means that games, data, software and other items provided for free do not qualify as eservices even though they meet all other criteria. However if an alternative or hidden payment is conducted (e.g. swap of services, access to data or permission to do something) then the payment condition is fulfilled and the supply probably qualifies for eservice provided for consideration.
Here you have it – the most comprehensive summary of eservice in the EU up to date. Granted, the above examples are all very straightforward, obvious and logical. Granted, they will work for the EU countries – and may or may not work outside the EU. And granted, the key questions to be resolved in the future have much less obvious answers – these questions being for example:
- Is a remote computer access by a human operator to be treated as an eservice or as a “normal” service?
- Where is the border between broadcasting and video life streaming and how far can it be pushed?
- Where is the border between telecommunication and internet chat and how far can it be pushed?
- Does user’s agreement to allow access to its data or its consent to accept advertisements implicate a “swap” and thus change the otherwise free service (e.g. free online game access) to a “fully fledged” eservice?
- Will we ever get a worldwide definition and tax treatment of eservices?
Let’s leave these questions and their answers for the future – for when we will have to face them. The technology will develop and with it also the definition of eservices.
I am far more interested to hearing it from you: What are your issues with the eservices?