Tax equalization of e-commerce

The EU experience

In October 2025, the EU Court ruled on a dispute over the collection of VAT on in-app purchases made prior to 2015 through an app store platform operated by a company in Ireland. After 2015, the German tax authorities audited German mobile game developer XYRALITY, which sold content within its apps through the AppStore, whose owner is registered in Ireland. The German tax authority decided that although the payments went through Ireland, the actual buyers were located in Germany, so the company was allegedly obliged to pay VAT in Germany.

The German tax authority took the position that the AppStore was only an¹ intermediary for processing payments, and that the supplier to users was the German developer, meaning that VAT should be charged in Germany. In addition, the authority argued that XYRALITY was listed as the service provider in the purchase confirmations, which allegedly confirmed the company's obligation to pay VAT. XYRALITY, on the other hand, claimed that the AppStore acted “in its own name but on behalf of” the company, and therefore it was the AppStore that was considered the supplier to end users, with the developer merely providing a service to the platform. Consequently, VAT should be paid in Ireland, not Germany.

The EU Сourt referred to Article 28 of the² EU VAT Directive: if a taxable person takes part in the provision of a service “in his own name but on behalf of” another person, then for VAT purposes they are considered to have received and then provided the same service – they are recognized as the supplier to the end buyer. The court identified two instances of service (content) provision in the case: from the developer to the App Store, which is a B2B transaction, and the place of supply is Ireland because that is where the platform is located; and from the App Store to the user, which is a B2C sale, and the place of supply is determined by the location of the supplier, i.e., also Ireland. This means that VAT is due in Ireland, not Germany.

Notably, since 2017, the OECD has established the principle of taxation at the place of consumption: VAT on international services must be paid where final consumption takes place. For digital services purchased by individuals (B2C), this is the country of residence of the buyer, and for B2B supplies, it is the country where the buyer is located. When determining the parties to a transaction, the OECD suggests proceeding from who is listed as the buyer and seller in the contract or invoice. At the same time, the direct provision of a service to a third party or payment by a third party does not change who is considered the supplier or the place of taxation. In other words, the EU Court applied the “supplier location” model (Ireland as the AppStore jurisdiction) that was in force in the EU during the disputed period (2012-2014), while the OECD describes the “consumer location” model.

The approach formulated by the OECD is now generally accepted worldwide, whereas previously countries collected VAT on digital services in different ways. This led to tax disputes between businesses and authorities, as well as between countries. The case in question shows that this problem is still relevant today, even though the OECD's unified approach was developed eight years ago. It is important for digital companies to remember that VAT claims for digital services in Russia until 2017 (in the EU until 2015) must be considered in accordance with the rules for determining jurisdiction that were in force at the time. In some cases, VAT was payable at the location of the service recipient (user), in others – at the location of the supplier (developer or platform owner).

Russia’s experience

In Russia, until 2017, online services provided by foreign companies to Russians were in most cases not subject to Russian VAT: the general rule “at the place of the buyer” (Article 148) did not apply to them, and the place of sale was considered to be the place of activity of the foreign contractor — outside the Russian Federation (Article 161 of the Tax Code of the Russian Federation). This gap was closed in 2017, when Article 174.2 of the Tax Code of the Russian Federation came into force, according to which the OECD approach described above is now applied.

In October 2025, the Russian Ministry of Finance developed a draft law on VAT on ecommerce goods (from marketplaces) from EAEU countries. The rates will increase gradually: in 2027 – 5%, in 2028 – 10%, in 2029 – 15%, and from 2030 – 20%. Currently, if goods are imported into Russia by mail or courier for personal use and their value does not exceed the EAEU duty-free threshold, VAT is not³ payable. Therefore, it is sometimes more profitable to buy goods on marketplaces than offline. The introduction of VAT may lead to an increase in prices for goods on online platforms, as VAT payers (platforms or sellers) will include the VAT amount in the price.

The collection of VAT on goods in ecommerce is a global practice (already⁴ implemented in more than 40 countries ). Goods become more expensive by the standard⁵ tax rate – about 19.3% in OECD countries, and⁶ demand for purchases decreases by 50%.

Globally, the international taxation system for digital commerce will be brought into line with a single set of rules. To date, more than 100 countries have already implemented VAT reforms for cross-border e-commerce based on OECD standards, with more than 30 others⁷ preparing to do so. The issue of international taxation of goods and services sold online has not been fully resolved—for example, questions remain about how countries should distribute the profits of “digital giants” and what rules should be used to collect VAT reports from⁸ companies.

From the monitoring issue No. 10 (22), October 2025. Download the full issue (PDF) · issue page at the Gaidar Institute