“If the service is free, you are the product… and the taxable event”
The tax office gives Zuckprises
For years the mantra has been repeated: “if the service is free, you are the product.”
Social networks like Facebook or Instagram prided themselves on being free, but the Italian Tax Agency thinks otherwise.
Especially after Meta decided it was a good idea to implement the infamously controversial “consent or pay” model — and to assign a monetary value if you choose not to consent.
We were all waiting for the answer to the question “but is that weak consent really free?” and in fact, I pointed out at the time that Zuck had shot himself in the foot by putting a price on using his platform without ads (essentially quantifying the compensation owed to users for his endless breaches of privacy regulations).
But now the Italian tax authorities (and prosecutors) are asking another equally juicy question: Where is the VAT on the six euros Meta is charging today for the ad-free version?
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In the free time this newsletter leaves us, we enjoy solving complex issues in personal data protection. If you have one of those, give us a little wave. Or contact us by email at jgh(at)jorgegarciaherrero.com.
The “data-for-service” barter: Is it a taxable event? Legal soundness of the Italian thesis
The Milan Prosecutor’s Office has brought something revolutionary to the table: the supposed “free” nature of Facebook/Instagram actually hides a barter transaction subject to VAT.
According to the accusation, between 2015 and 2021 Meta failed to declare around €3.9 billion in taxable base, evading approximately €887 million in VAT.
If users “pay” for the use of the platform with their personal data—which Meta commercially exploits (mainly for targeted advertising)—then, from a tax perspective, there is a barter: the user provides a valuable asset (their data) in exchange for a digital service (access to the social network).
Unsurprisingly, Meta firmly denies this approach.
It argues that there is no reciprocity between the provision of the platform service and the transfer of data (technically: the user’s consent for Meta to profile them through their use of the platform).
In other words, Meta claims the data collection is an incidental or secondary element of the service provision, not a pre-agreed form of payment.
Pay or okay
A year and a half ago, I devoted a four-part series (ending with a complaint to the AEPD) to Meta’s “pay or okay” model.
Meta rolled out this brainwave on Facebook/Instagram after being sanctioned for using data without consent.
The EDPB specifically ruled on these “consent or pay” models, concluding they rarely comply with the GDPR.
Offering only a paid option to avoid behavioral advertising “should not be the default path,” says the EDPB, urging platforms to offer a truly free option without personalized ads (for example, contextual advertising that does not involve sensitive data).
In summary, for privacy authorities, forcing users to “pay with their data” undermines the freedom of consent.
The tax perspective
From the Italian tax lens, that lack of freedom is precisely the evidence of an economic agreement. What the GDPR sees as flawed consent (forcing the user to give up data to access the service), the tax authority sees as proof of a reciprocal transaction.
If users aren’t truly allowed to use Facebook without handing over certain data and accepting profiling, then it is implicitly understood that “free” access carries a hidden cost.
It’s barter and it’s taxable
According to European law (Directive 2006/112/EC), VAT applies to the supply of goods or services for consideration by a taxable person within the territory. “For consideration” means there must be a form of compensation (Art. 2.1 of the VAT Directive). This compensation doesn’t have to be money; it can be in kind.
Meta argues that data capture is a side effect of the service, not an individualized price.
But the amusing part is seeing how Meta contradicts itself across the many legal proceedings it’s involved in:
Recently, before the UK Competition Tribunal, Meta faced a class action lawsuit accusing it of abusing its dominant position by “exploiting user data without compensation.”
Plaintiffs claim an unfair barter: users gave up their data but received a service that is not equivalent, and demand Facebook compensate them for the disparity.
If a court quantifies the value of the personal data provided, that amount could determine the taxable base for VAT.
A few years ago, this bald guy had the wild idea that Zuck had essentially self-assessed the value of the compensation he owes, but hey, that works for tax purposes too.
It’s a given that tax agencies across Europe are watching Italy with one eye and the rest of Big Tech with the other.
Italy’s tax office is also demanding around €12.5 million in VAT from X (Twitter) and €140 million from LinkedIn for the years 2016–2022 under the same data-for-service barter theory.
Other not-so-obvious barters: crypto
The digital economy is full of in-kind transactions that challenge traditional tax paradigms.
In 2015, the CJEU had to rule on the Hedqvist case involving bitcoin trading, and surprised many by equating it to currency: exchanging bitcoin for traditional currency is exempt from VAT as a financial transaction.
No tax is charged for converting euros to bitcoins, just like converting euros to dollars. However, if crypto is exchanged for goods or services, VAT is due, calculated on the euro value of the crypto given.
And any token-for-token swap is a barter and taxed as such, my friend.
The irony of Al Zuckone – Will Meta fall because of taxes rather than its privacy track record?
History doesn’t repeat itself, but it rhymes. Al Capone “didn’t go to prison for his countless extortions or murders... He was convicted for failing to pay income tax.”
After years of GDPR fines—adding up to several billion—Meta may now face an equal or greater tax bill for unpaid VAT. And the funniest part? It would be precisely for monetizing users’ personal data, something Meta has always officially denied.
“Didn’t you say data isn’t money? Then pay taxes on the barter.”
For comparison, the largest privacy-related fine to date was €1.2 billion (for the illegal transfer of data to the USA).
We wish Carmen Machí the same luck with Zuck that she had when she nailed Zeleste/Shakira. And more luck with her next series, because Zeleste was pretty lousy.
Three final thoughts…
• The success of the Italian action would be continental: it would change the “free” internet economy forever.
• These major tax proceedings always come with a criminal case, something Zuck hasn’t faced until now.
• Lastly, and on a personal note: while I cheer any idea that reins in Meta, the fact that it’s the tax authorities—and not the data protection regulators—who might succeed, doesn’t say much about the system.
Al Capone dodged (and capitalized on) Prohibition, but not the tax inspectors.
… and one final LOL:
I’ll leave you with one of Roberto Benigni’s best performances, one of the funniest men in film history (best known for his sappy hit “Life is Beautiful”), in his segment of Jim Jarmusch’s Night on Earth.
Benigni confesses spontaneously in his taxi that he biblically “knew” — successively — a pumpkin (zucca in Italian, came to mind for some reason), then a peccorina... and then his sister-in-law.
TROCOTRON-TROCOTRON
Jorge García Herrero
Data Protection Officer