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International > VAT on Google search engine?

VAT on Google search engine activity?                                                                 Share                                             

The article below is the second part of a study of the exploitation of users' personal data by Google. The first part of the study explains how Google exploits these personal data for advertising purposes. The second part asks the question whether the monetization of these data may have tax consequences for users. Through the case of Google, this article deals with the application of VAT to services that are funded by monetizing personal data of customers.

1. A free service that actually is expensive.

Most people believe that using Google search engine is free i.e. that Google requires no consideration from users. They know of course - at least, we may suppose so - that Google search engine, as many other service providers, is funded by advertising.

For instance, when you watch the programs of a commercial television channel funded by advertising, such as FOX in the United States or ITV in the United Kingdom, you don't have to pay the television company for that. You do not give it anything. You do not supply it with any service. You do not provide the company with any information about yourself or about your attitude towards the programs or the advertisements. The television company does not even know whether you watch its programs or not. In short, watching such television programs is really free of charge.

Offering a service free of charge or at a lower price thanks to advertising is a common practice. This is the way Google operated in its early years.

However, since the 2000s, Google has turned into a quite different system. In order to maximize its profits, Google indeed chose to monetize the personal data of the users of the search engine by collecting and exploiting these data for advertising purposes in the way we have described in the first part of this study.

Over time, that financial scheme has been developed further and further with regard to the collected personal data (well beyond what is required for the running of the search engine), the application field (well beyond Google’s web sites) and the exploitation techniques (as for example the technique of “remarketing"). The move did not result in a change of the search engine results pages and, for several years, users of the search engine did not know much about that exploitation.

2. Tax consequences.

So far, only the authorities in charge of privacy protection have worried about this development. However, we should also wonder whether providing Google's advertising branch with users' personal data and allowing it to exploit these data in an industrial way may make the use of the engine subject to value added tax (VAT).

The question may sound silly at first glance. Yet, throughout the European Union, the use of search engines is an "electronic service" (e-service) legally subject to VAT in the country where the user is located, even if the search engine provider is based outside the European Union. The tax must be paid when the service is supplied by a taxable company for consideration i.e. in exchange for any payment in money or in kind, including anything which is itself a supply. VAT is actually due even if the service is paid in kind or if the consideration does not correspond to the normal value of the service.

It is a common practice that services (or goods) paid in kind are subject to VAT since this is required by law. The Court of Justice of the European Union ruled on these matters on various occasions. According to the Court, the principle of equal treatment would be disregarded if the application of VAT depended upon the form of the consideration that is supplied by the customer. The Court ruled that VAT is due provided that there is a direct link between the supply of services and the consideration and if the value of the consideration can be expressed in monetary terms.

Specifically, we must wonder if users who allow Google's advertising branch to exploit their own personal data in an industrial way are providing Google with a consideration (payment in kind) for the use of the search engine. If this is the case, the search engine may be used in the following ways as for VAT:

CASE 1. The user pays an amount of money (e.g. a subscription) as set by the company that supplies the search engine. The supplier doesn't exploit personal data of the user for advertising purposes. It collects VAT from the user and pays it to the Treasury.

CASE 2. The user does not provide the supplier with an amount of money or any other kind of consideration. The search engine is fully funded by advertising without exploiting users' personal data. Using the search engine is actually free of charge. No VAT is due. Funding the search engine by advertising is obviously not the problem.

CASE 3. The user does not pay an amount of money, but he allows the supplier to exploit his personal data for advertising purposes (or he provides the supplier with any other consideration). Then, VAT is due on the value of the consideration provided by the user. It must be collected by the search engine supplier. The latter is then able to maximize its profits by displaying customized, much more profitable advertisements.

Why to raise that issue? This is first a matter of tax fairness. The law must be applied to all in the same way: dura lex, sed lex. Furthermore, competition distortions are to be avoided between suppliers which exploit personal data of their users and suppliers that do not do so, whether they are search engines or advertising media. Concretely, we think of the competition between search engines that exploit users’ personal data and those that do not do so and the competition between Google's advertising services and those of other media (press, TV, and others).
As we shall see below in detail, this analysis does not aim to charge users with additional tax levies since users may always prohibit Google from exploiting their own personal data so that they do not have to pay VAT.

We shall first check whether Google's search engine is actually supplied for consideration. Exploiting personal data becomes nowadays quite common. However, this is not always a consideration as defined by the tax law, in particular when it occurs only in order to improve the service supplied to customers.

3. An extended consideration.

Google is actually two businesses: a search engine and an advertising network. The latter has become one of the largest advertising networks in the world after the acquisition of DoubleClick by Google in 2008.

Whenever you use the Google search engine (or other services of Google), you automatically agree that your personal data, as collected by the search engine (i.e. those you give it and those it collects by itself), are transferred to and exploited by Google's advertising branch. The collected data include your interests, the time when you expressed them, your language, your geographic location, information about the device you used, as well as how you interacted with displayed ads and content, and more generally how you use Google's services.

You further agree:

a) that Google stores these personal data, that it combines them with information from other Google services (e.g. your Gmail account: name, email address, telephone number,...), that it compiles them over time to form history on an individual basis over a period of 18 months and on an anonymous basis subsequently; in other words, you agree that it builds up coherent data sets so that your profile can be defined as precisely as possible;

b) that Google puts these pieces of information in an aggregate, but sufficiently detailed form at the disposal of third parties, in particular the potential advertisers;

c) and that all this serves to show you customized ads, immediately along with the results of your query and subsequently in other Google services (Gmail,...) but also elsewhere in countless other web sites or mobile applications.

In other words, you agree that personal data that are collected at the time of your search are also exploited later on completely outside of the Google search engine, when you simply browse the web or use a mobile application.

You agree also that, in addition to technical cookies (e.g. those used to track your language, as countless other sites do so), Google uses cookies for advertising purposes, especially to track your behavior in relation to its advertisements.

For more details, please read our article about these matters. The article shows also how you may limit the exploitation of your personal data, these possibilities being little known and rarely 100% effective.

In summary, when you use Google search engine, you allow Google to exploit your personal data for advertising purposes (i.e. for purposes other than the quality of the search engine results) and to do so in the industrial way it has set. Thus you enable it to maximize the profits from its advertisements, regardless of the place where and the time when they are displayed.

Therefore it seems that you provide Google with an extended consideration in exchange for the use of the search engine.

Last but not least, a recent trend of Google search engine enhances substantially the consideration users supply to Google. Indeed, for several years, advertisements, including those presented in the form of price comparators, have occupied the largest part, if not the whole part, above the fold of Google's results pages.

In such cases, the search engine collects personal data primarily for advertising purposes. It does so exclusively for that purpose when users do not scroll down the page and they (often unknowingly) see/click only ads. The web search engine serves then as bait and scenery for a system that exclusively consists of collecting and exploiting personal data for advertising purposes.

This is not a mere bagatelle. This happens more and more often. The trend is likely to grow still further because, in response to complaints of abuse of a dominant position in Europe by promoting its own services, Google has proposed to add (against payment) similar services of competitors next to its own services in the results pages. This would enlarge again significantly the amount of paid ads. The case is still pending.

4. A direct link between the use of the engine and the consideration.

VAT is due provided that there is a direct link between the supply of services and the consideration (Court of Justice of the European communities, March 8, 1988).

The use of the Google search engine triggers ipso facto the acceptance of the exploitation of users' personal data for advertising purposes so that there is definitely a direct link between the service and the consideration.

Indeed, Google's terms of service explicitly state that, when using its services, you agree that Google may collect your personal data and use them in the way it has set itself, includes the provision of "more relevant" ads: "By using our Services, you are agreeing to these terms... Google’s privacy policies explain how we treat your personal data ... By using our Services, you agree that Google can use such data in accordance with our privacy policies"(1). "We also use this information to offer you tailored content – like giving you more relevant search results and ads" (2).

The consideration for using the search engine is thus clearly stipulated. Google’s privacy policies point out both what personal data Google collects and how it uses them.

The fact that you possibly enjoy taking advantage of the customized ads does not prevent VAT from being due.

The fact that advertisers pay Google only when users click (CPC) or see (CPM) ads is also irrelevant here. Users are free to take advantage of ads or not. This is not part of the conditions for using the search engine.

5. The value of the consideration can be expressed in monetary terms.

For the layman, it seems difficult to assess the value of the consideration provided to Google. This is not actually the case. In fact, this value should in principle be already recorded in Google's financial accounts.

Nowadays, there is a market for personal data just like for goods.


According to the above analysis, VAT appears to be due when users allow Google search engine to collect and exploit their personal data for advertising purposes in the way Google has set up.

It is the job of the national tax authorities and, in the last resort, the Court of Justice of the European Union to confirm or disprove that conclusion.

Case 1
If the tax authorities disprove the above analysis, VAT is not due. Then, for tax transparency, one may be entitled to have the reasons of that tax exemption published, so that citizens can judge the legality of that decision and, of course, take advantage of it in a similar way when they want to use other services or purchase goods without paying VAT.

Case 2
If the tax authorities confirm the analysis, VAT is due on the use of a search engine in the European Union when users allow it to collect and exploit their personal data for advertising purposes. Otherwise it is not due. According to the legislation about privacy protection in Europe, personal data may be collected and exploited only with the agreement of the client so that the search engine knows always whether VAT is due or not.

What would be then the tax base and in which country would the tax be due?

Tax base.

The taxable amount includes everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party.

When the payment is not made of an amount of money, the tax base is the normal value of the supplied consideration and, when this cannot be fixed, the market price of the service (i.e. the price of the service if the latter was provided by a third party against payment of an amount of money). It cannot be lower than the cost price of the service.

If VAT is due on the use of the search engine, Google has to determine the tax base under the control of the tax administration. Basically, the added value of personal data corresponds to the difference between the value of advertising targeted at the user's personal data and the value of advertising not based on these data.

Anyway, you may not underestimate the financial value of these personal data, often nicknamed gold of the 21st century.

Where would VAT be payable?

Currently, in the European Union, VAT on electronically supplied services, such as the use of a search engine, is due in the country where the user of the service resides and at the rate in force in this country, for example in the United Kingdom for users established in the United Kingdom and Ireland for users living in Ireland. Whether the service provider is established within or outside the European Union does not matter.

Since suppliers would be obliged to register for VAT, submit VAT returns and make payments in each Member State in which they make supplies, an optional scheme (VOES before January 1, 2015 or the Mini One Stop Shop/ MOSS since then) allows foreign businesses to do so in one Member State only.

Before January 1, 2015, the tax was due in the country where the supplier was established if the supplier and the customer were established in the European Union and if the client was a non-taxable person (B2C). This provision was dropped because suppliers moved to a country with low VAT rates. This distorted competition within the European Union.

As for the Google search engine, the supplier is currently, in most (if not, all) cases, Google Inc. established 1600 Amphitheatre Parkway, Mountain View, California (United States) since it owns the domain names such as,,,,,, and so on and it is the author of the search engine used by these sites. Some other domain names, such as and, belong to its subsidiary, Google Ireland Holdings.

If the use of the search engine is subject to VAT and since the tax is then due in the country where users normally reside, VAT is payable regardless of the national or international version you use. So, for instance, with regards to users in the United Kingdom, whether people use, or any other national version of the search engine doesn't matter. In particular, the international version ( is used along with the local version in all European countries.

The relevant VAT rate currently varies between 17% and 27% depending on the country. It lies mostly between 19% and 21%. Furthermore, the limitation period varies also from country to country. It is usually from 5 to 7 years.


Consequences of the application of VAT.

a) As for tax revenues. If VAT is not due on the use of the Google search engine in the European Union despite clear legal texts, we may fear that VAT will disappear sooner or later since companies will seek to take advantage of similar loopholes. Escaping VAT means gaining a competitive advantage over competitors. 

The "Google system" is already largely copied in the digital industry. Some people call this practice "foofling". In the traditional economy, collecting clients' personal data for advertising purposes is spreading too.

If, on the contrary, VAT is due on the use of Google search engine, other services suppliers may also be affected provided that the above strict conditions are met.  

b) Users of the search engine are in no way concerned for the past years, since they fulfilled all the conditions set by Google and they owe nothing more. Prices are always including VAT.

With regards to the use of the search engine in the future, laws dealing with privacy protection always allow users to prohibit Google from monetizing their personal data. Google will have no choice but to make the option more visible, more effective, and more stable.

Specifically, we should get an opt-in system (the user is supposed to refuse the monetization of his own personal data unless he explicitly allows it and pays VAT) instead of the current opt-out system (Google monetizes your data unless you request Google not to do so).  

Only users who allow Google search engine to monetize their personal data are required to pay VAT (unless Google pay it for them). Given the popularity of Google search engine in Europe, the amount of those users may be high. 

On the other hand, the authorities in charge of privacy protection retain all their prerogatives. 

Users will also enjoy a more balanced and more diversified search engine market. The current loophole creates a competition distortion by promoting search engines that exploit personal data of users for advertising purposes at the expense of the search engines that don't do so. No wonder then that the latter are so rare.
c) As for Google, the move is neutral since VAT is charged to the final consumer. However, Google should pay the VAT due in the last years within the limitation period. In addition, the ban on monetizing personal data of an amount of users in Europe would result in a reduction of the financial bubble that it has enjoyed so far.

d) For adsense publishers. If VAT is due on the use of the Google search engine in the European Union, this does not directly concern the numerous sites that display Google ads. Indeed, their webmasters just make parts of their sites available to Google against compensation and VAT is already charged on this service according to VAT regulations. However, since Google exploits the personal data of the users of these sites too, they may suffer indirect consequences, which can put the survival of their site into danger.

Currently, these webmasters have only few alternatives. Ads at Google and other search engines have nofollow links. Google is the market leader as for such ads. Furthermore, Google forbids any online advertisement if the link is not nofollow.

Any site that violates this prohibition may be eliminated completely from Google's search results pages regardless its relevance to the query and the quality of its content. The penalized site no longer appears in the results even on queries related to its own brand. Since most users enter merely the name of the site (not the full URL) in the browser, the penalized site loses any visibility in the web. Google even encourages webmasters to denounce competitors that violate its ban.

Here is not the place to develop the reasons why Google impose such a ban and those why, instead, this ban is unfounded and anyway disproportionate. The European Commission should address this obstacle to free competition in the advertising market in the European Union and rule on its compliance with European legislation. Currently, the Commission deals only with a minor part of that issue (restrictions on the use of advertising platforms of other search engines).

Willgoto, June 3, 2015.

Read also: How does Google exploit users' personal data?

(1) >> Terms of Service.
(2) >> Privacy policy.


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International > Use of personal data by the Google search engine
International > Guide to Willgoto

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In the European Union, VAT is due on the use of a search engine as soon as the user of the seach engine provides it with a consideration. Case of the monetization of users' personal data by Google.