i. The current economic and legal context
We live in an increasingly uncertain and unpredictable period from a social, economic and, not least, legal perspective, generated by the Covid pandemic and recently aggravated by the military attacks initiated by Russia against Ukraine. Against this backdrop, Romanian fiscal authorities have begun conducting extensive revenue collection activities targeting, in particular, those sectors that offer some guarantee of the possibility of additionally imposing significant sums of money.
In recent times, the fiscal inspections conducted at companies operating in the webcam industry (so-called webcam studios) have attracted considerable notoriety, especially because they were extensively publicised, particularly during the early period of the pandemic, when interest in and demand for such services increased significantly — suggesting the likelihood of exponentially higher earnings for those active in the sector.
ii. The legality and legitimacy of requiring studios to collect VAT in Romania
In the case of webcam studios, given that we are dealing primarily with services rendered to foreign legal entities — typically from other EU Member States — that own digital live-streaming platforms (websites), ANAF's goal is unequivocal: to compel studios, at all costs, to collect and remit VAT to the state budget for services rendered to these companies.
We consider that these intensive fiscal inspections are based on the conclusions issued by the Court of Justice of the European Union in Case C-568/17 – Geelen. However, this decision, while concerning webcam services, is no longer current given the technical and technological advances recorded in recent years, and moreover it concerns a different business model from those currently operated by studios.
What do webcam services consist of?
The majority of webcam studios in Romania provide, for remuneration, digital content consisting of interactive sessions (erotic or otherwise), filmed and broadcast in real time via electronic means/Internet, to companies from EU and non-EU states that own live-streaming websites. This content is automatically transferred by these latter companies to their clients, individuals from around the world.
Webcam models are independent, not subordinated to the studio; they conclude a service provision and copyright assignment agreement with the studio, which in turn cedes the digital content — together with all copyright — to the owner of the foreign website.
Where do these services take place, in ANAF's view?
According to ANAF's position, the services provided by studios represent entertainment services, the place of supply being in Romania (where the studios and models are located). For this reason, ANAF requires all providers of such services to collect VAT in Romania — and the additionally imposed sums are enormous. It is sufficient to note that enforcing these assessment acts could easily drive any of these companies, which are profitable and remit significant sums to the state budget annually, to the brink of insolvency or even bankruptcy.
Is the situation of studios identical to that in the Geelen case?
The answer is: NO!
Case C-568/17 analysed by the CJEU concerned legislation applicable until 1 January 2010 and involved services provided in the period 2006–2009. Since then, EU legislation on the matter has undergone significant changes and is no longer applicable. Furthermore, the current business model of studios is manifestly different from that of Mr Geelen in the case decided by the European court.
Mr Geelen had his own employees (models located in the Philippines) and owned both the webcam studio and the digital platform providing access to the interactive webcam session. He had direct contact with end users (final clients) who purchased the webcam services, including as regards invoicing. Romanian webcam studios, by contrast, do not own live-streaming platforms and do not grant access to the interactive sessions between models and final clients — thus a valid analogy with the Geelen case cannot be drawn.
The view of the European authorities
On this point, in an initiative we welcome, the Ministry of Public Finance, recognising the controversial nature of the issue, decided to submit a question to the VAT Committee of the European Commission for resolution. The VAT Committee — although it does not issue decisions with the binding force of court judgments — is an advisory body in VAT matters established under the auspices of the European Commission since 2009, responsible for the uniform application of the VAT Directive provisions.
In response to the query from Romanian fiscal authorities, the VAT Committee issued a clear and assumed answer: the supply of digital content by studios to live-streaming platforms does not constitute admission to an entertainment event under Article 53 of the VAT Directive, and accordingly the general rule for the place of supply under Article 44 of the VAT Directive applies, meaning VAT must be charged at the place of business of the streaming site owner — not at the seat of the Romanian webcam studio.
For the time being, ANAF refuses to recognise the authority of the VAT Committee, even though the Ministry of which it forms part addressed this European authority directly; consequently, it continues to issue assessment acts requiring webcam studios to collect VAT for the last five years of activity in Romania. Our law firm has decided to submit a request for a referral to the Court of Justice of the European Union, considering that a pragmatic and up-to-date approach to this question is needed.
