Article 28 & E-Commerce Platforms: The Xyrality Case Changes Everything?

Your platform processes payments. You set the terms and conditions. Your branding dominates the customer experience. But you only charge VAT on your commission.

After the Xerality case (C-459/24), that position needs a second look.
In this episode, Matthias Luther (Alvarez & Marsal) – attorney before the ECJ in this landmark case – explains how Article 28 creates deemed supply chains for VAT purposes, even when civil law says otherwise.

We cover: why Article 9a’s conditions now inform Article 28 interpretation, how the German Federal Fiscal Court tried three different arguments to deny the refund, and why „look and feel” toward the customer matters more than your contracts.

The bottom line: if you dominate the customer relationship, you may be the supplier for VAT purposes – with VAT due on the full transaction amount, not just your fee. Essential listening for anyone running or advising e-commerce platforms.

This article summarizes a discussion with VAT and e-commerce expert Matthias Luther and does not constitute a sourced academic paper. The analysis presented reflects the conversation’s key insights rather than comprehensive research.

The Xyrality Case: Article 28, Deemed Supply Chains, and What It Means for E-Commerce Platforms

Introduction

This article summarizes a podcast conversation between Paweł Mikuła, partner and founder of „Halcyon | Tax. Customs. Legal.”, and Matthias Luther, Managing Director at Alvarez & Marsal and attorney before the Court of Justice of the European Union in the Xyrality case. The discussion explores the interplay between Article 28 of the VAT Directive and Article 9a of the VAT Implementing Regulation, examining how these provisions create deemed supply chains and what this means for platforms operating in the digital economy.

The Foundation: Article 28 and Article 9a

Article 28 of the VAT Directive

Article 28 creates what Matthias describes as a „deemed supply chain” for VAT purposes. In a typical scenario involving three parties – a service provider (A), an intermediary (B), and a customer (C) – Article 28 transforms what would normally be an intermediary service into a full supply chain. Instead of A supplying directly to C with B merely facilitating, Article 28 treats B as having purchased the service from A and then resold it to C.

The key trigger is whether the intermediary acts „in its own name but on behalf of” the actual service provider. When this condition is met, VAT law creates a supply chain that may not exist under civil law.

Matthias emphasizes that this creates significant practical difficulties. Companies face a VAT setup that does not match their contractual arrangements, affecting invoicing, cash flow recording, and even direct tax treatment. The deemed supply chain for VAT purposes can conflict with how transactions are treated for civil law and corporate tax purposes – particularly regarding what constitutes revenue versus expenses.

Article 9a of the VAT Implementing Regulation

Article 9a was specifically created to regulate how app stores are taxed for electronically supplied services. Under this provision, when a customer purchases an app through a platform like Google Play Store or Apple’s App Store, the app developer is not – for VAT purposes – selling directly to the customer. Instead, the developer sells to the App Store, which then sells to the customer.

Article 9a establishes a presumption that the platform acts in its own name. This presumption can be rebutted, but crucially, there are three conditions under which rebuttal is impossible: when the platform authorizes the charge or payment, or delivery of the service, or when the platform sets the general terms and conditions.

These three conditions do not directly mirror the „acting in own name” language of Article 28, which raises a fundamental question: does Article 9a create new law, or does it merely interpret existing law under Article 28?

The Xyrality Case: Background and Journey

The Setup

Xyrality is a German app developer that provides gaming apps through various app stores, including Google Play Store. The apps themselves are free to download, but users can purchase in-app items and improvements. When a user makes a purchase, a Google Play Store-branded payment window appears, guides them through the transaction, and then closes – returning the user to the game with their purchased items.

The case concerns transactions before 2015, when place of supply rules were different. At that time, for B2C supplies of electronically supplied services, VAT was due where the supplier was established. Xyrality, being German, charged German VAT on all transactions, treating itself as the supplier to end customers.

The Challenge

The fundamental question was: who is actually the supplier of the in-app purchases (of the service) for VAT purposes? Is it Xyrality (the app developer) or Google Play Store (the platform)?

Matthias recounts attending a gaming industry meeting where civil law experts surprisingly argued that even from a civil law perspective, Google Play Store was the one providing the service – not just from a VAT perspective. This sparked the idea of challenging the existing treatment.

For years, no one in the industry wanted to challenge the status quo, fearing they might be removed from an app store – potentially their only source of income. Xyrality eventually did challenge it during a contentious tax audit, demanding a refund of all VAT it had paid on the basis that it had actually provided B2B services to Google Play Store in Ireland, not B2C services to German customers.

For the German tax authorities, the stakes were significant: accepting Xyrality’s position meant refunding all collected VAT plus interest and receiving nothing in return, as any VAT would then be due in Ireland.

The Court of First Instance

At the Hamburg Fiscal Court, Xyrality presented two lines of argument. The primary argument was that Article 28 already created a deemed supply chain based on the contractual arrangements and actual service delivery. The secondary argument – even before the Fenix International judgment – was that Article 9a’s interpretive principles should apply retroactively since implementing regulations do not create new law but merely interpret existing provisions.

The court ruled entirely on the Article 28 basis, finding that from a civil law perspective, Google Play Store was acting in its own name. They did not even need to address Article 9a.

Matthias explains this was crucial: the court established facts, not just legal reasoning. Under German procedural law, the Federal Fiscal Court cannot change facts found by the lower court – only discuss legal reasoning. At this point, Matthias believed victory was certain.

The Referral to the ECJ

The German Federal Fiscal Court, however, referred three questions to the European Court of Justice. Matthias characterizes these questions as attempts to find reasons for Xyrality to lose.

The first question asked whether Article 28 actually applies. The second question proposed that even if a deemed supply chain exists, the place of supply rules should treat the B2B supply (developer to platform) as if it were B2C – which would keep VAT in Germany. The third question invoked Article 203 of the VAT Directive, arguing that since Google issued invoices showing Xyrality’s name with German VAT, Xyrality should be liable for that VAT regardless of the supply chain analysis.

Notably, the Article 203 argument had not been raised by the tax authorities throughout the proceedings – it was introduced by the Federal Fiscal Court itself.

The ECJ Decision

The Court of Justice, as Matthias puts it, „didn’t take the bait.” The decision was minimal, not addressing all the legal issues that could have been discussed.

On the first question, the Court did not positively state that Article 28 applies. Instead, it ruled negatively: you cannot deny the application of Article 28 simply because of an invoice raised after the transaction took place. The disclosure of the developer’s name on a post-transaction email from Google was insufficient to prevent Article 28 from applying.

Matthias notes an important detail: what was disclosed was merely the name under which the developer registered on Google Play Store – which could be any name, not necessarily their actual company name. Xyrality happened to use their real name, but this was not required.

The Court’s approach confirms that Article 9a does not create new law but interprets Article 28. The deemed supply chain exists because of Article 28, with Article 9a providing interpretive guidance.

Implications for the Platform Economy

Beyond Electronically Supplied Services

The significance of Xyrality, Matthias emphasizes, is that it is an Article 28 decision – not an Article 9a decision. Article 9a applies only to electronically supplied services, but Article 28 applies to all services. This distinction has profound implications for the broader platform economy.

There are numerous platform business models that may face similar questions: hotel booking platforms, travel services, transportation tickets, apartment rentals, food delivery, service marketplaces for gardeners, teachers, handymen, architects, couriers, and event tickets. All these platforms must consider whether Article 28 applies to their business model.

The German Approach

Germany took a distinctive approach when Article 9a came into effect in 2015: the German legislator extended Article 9a’s conditions to all services, not just electronically supplied services. Whether this is compliant with EU law has not been tested, but it means that in Germany, platforms providing any type of service must consider whether they fall within the deemed supply chain rules.

The „Look and Feel” Factor

Matthias stresses that terms and conditions alone will not determine VAT treatment. What matters most is how the platform presents itself to customers – the „look and feel” of the transaction.

Platforms typically want to dominate the customer relationship. They use their own branding prominently, maintain consistent invoice styling, and make the actual service provider’s name difficult to find. The customer has to actively look for who they are actually purchasing from because the platform puts its brand first.

This creates the critical question: can you really claim to be acting in someone else’s name when you completely dominate the entire customer experience?

Practical Recommendations

Matthias offers concrete advice for platforms and their advisors. When discussing these issues with tax authorities or courts, bring screenshots. Show exactly how transactions work, what the customer sees, how payment processes appear. Do not merely describe the process or focus only on terms and conditions – demonstrate the actual customer experience.

He emphasizes that many platforms do not consider themselves part of a deemed supply chain. They push VAT responsibility to the suppliers using their platform. After Xyrality, this assumption deserves a second look – particularly for platforms that process payments, set terms and conditions, or dominate the customer relationship through branding.

The Ongoing Case

As of the recording, the German Federal Fiscal Court has not yet issued its final decision following the ECJ ruling. The case has been ongoing for approximately six years, covering tax audit periods from 2011 to 2014.

Matthias expects Xyrality to receive their refund. He sees no basis for the Federal Fiscal Court to deny recovery after such a clear ECJ decision. German law provides 6% annual interest on tax refunds – which, Matthias notes, means his client will earn more from interest than from the original VAT amount.

Conclusions

The Xyrality case carries significant implications for the platform economy. Its core message is that Article 28 creates deemed supply chains based on how transactions actually function, not merely how they are documented in contracts.

For platforms, the key considerations are: How do you present yourself to customers? Do you dominate the transaction through branding and user experience? Do you process payments? Do you set terms and conditions? If the answer to these questions suggests you are acting in your own name, Article 28 may apply – meaning you purchase services from providers and resell to customers, with full VAT responsibility on the entire transaction amount, not just your commission.

The fact that Xyrality was decided under Article 28 rather than Article 9a extends its relevance beyond electronically supplied services to any platform-mediated service. Platforms should review their arrangements, not to draft clever terms and conditions, but to honestly assess whether their operational reality places them within a deemed supply chain.

As Matthias observes, he initially viewed Xyrality as a singular case addressing a specific historical situation. Through subsequent discussions and analysis, his view has evolved: the case does have broader significance, particularly for service platforms that have not previously considered themselves as VAT-liable parties in the supply chain.

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