The CJEU Xyrality Judgment: A Landmark Decision for Mobile Application Developers
The Court of Justice of the European Union’s judgment of October 9, 2025, in Case C-101/24 (Finanzamt Hamburg-Altona v. XYRALITY GmbH) carries profound implications for the taxation of mobile application developers, game creators, and other digital service providers operating within the European Union’s digital economy. While ostensibly addressing a technical procedural question, the ruling resolves fundamental uncertainties regarding VAT liability allocation: specifically, who constitutes the actual service provider under EU VAT law when digital content creators distribute their products through international platform intermediaries?
The practical significance of this determination becomes readily apparent through concrete illustration. Consider a Polish development studio based in KrakĂłw that creates a commercially successful mobile game and distributes it through an international digital marketplace to end users throughout the European Union. Over the course of a fiscal year, the game generates five million zĹoty in revenue from players in Germany, France, Spain, Italy, and other EU Member States. Prior to the Xyrality decision, such an enterprise confronted a critical dilemma: must it account for VAT in Poland on all cross-border transactions, or should it instead register for VAT purposes in each Member State where it maintains customers?
The first alternative would entail treating the Polish firm as directly supplying services to end users across multiple EU jurisdictions. Under applicable rules governing the place of supply for electronic services to consumers, the enterprise would theoretically be required to account for VAT at rates prevailing in each customer’s Member State of residence. While the One Stop Shop (OSS) procedure nominally simplifies compliance, it nevertheless mandates registration, monthly declarations disaggregated by jurisdiction and VAT rate, and exposure to audit risk across multiple tax authorities. For smaller development studios, administrative and legal compliance costs may reach tens of thousands of zĹoty annually, necessitating engagement of specialized accounting personnel or costly advisory services.
The second alternativeâpremised on the digital distribution platform functioning as an intermediary within the meaning of VAT provisionsâfundamentally transforms the compliance landscape. Under this construction, the Polish firm provides a single service to the platform in another Member State, receiving from the platform payment net of commission (typically thirty percent) and VAT accounted for by the platform vis-Ă -vis end users. The entire complexity of multi-jurisdictional VAT compliance devolves to the platform, which possesses requisite systems, legal teams, and infrastructure for such administration. The Polish enterprise maintains accounts with a single counterparty in a single jurisdiction, radically simplifying bookkeeping and reducing compliance costs. The CJEU’s Xyrality judgment confirms that this latter scenario may properly characterize the VAT treatment where the platform possesses genuine economic and legal authority over the service provision process.
The judgment’s potential significance extends well beyond mobile application developers. It may encompass other Polish enterprises providing electronic services in cross-border transactions through intermediary platforms, though each case demands individualized analysis of the platform’s actual economic powers. Polish online course creators selling products through international educational platforms, Polish musicians publishing works through streaming services, and Polish graphic designers offering designs through international marketplaces may potentially invoke principles derived from this judgment, provided their platform cooperation model corresponds to that examined by the Court. In all such instances, the critical inquiry examines whether the platform controls the purchase process, authorizes payments through its proprietary systems, establishes general terms of service, and bears liability vis-Ă -vis end users.
Genesis of the Dispute and the German Developer’s Factual Context
XYRALITY GmbH, a company established in Germany, developed mobile game applications that it distributed during 2012-2014 through an app store operated by an Irish undertaking. The business model relied upon the ubiquitous free-to-play scheme with paid enhancementsâa monetization architecture familiar to anyone who has engaged with mobile games. Users could download games without charge, but obtaining competitive advantages or additional functionalities required purchasing paid upgrades directly within the application. This in-app purchase model has emerged as the dominant monetization mechanism in the mobile gaming industry, generating global revenues reaching tens of billions of dollars annually.
The purchase process proceeded in a manner that ultimately proved determinative for the Court‘s resolution. Upon selecting a paid element within the game, the user encountered a series of three dialog windows bearing the Irish platform’s logo. Significantly, throughout the entire purchase process, Xyrality was not identified as the service providerâusers encountered solely the platform’s interface, logo, and transaction terms established by the platform. Customers first had to register with the app store and accept its terms of use, suggesting that the platform constituted their contractual counterparty. Only after transaction completion did users receive an email confirmation from the platform that identified Xyrality as the actual seller and specified German VAT charged on the price. This temporal sequenceâthe absence of information regarding the actual service provider during the purchase process, with disclosure of identity only post-transactionâproved pivotal to the Court’s determination. The platform itself retained a commission of thirty percent from each transaction, consistent with industry standards for distribution platforms.
Initially, Xyrality regarded itself as the direct service provider to end users and remitted German VAT for all customers resident within the European Union. However, in 2016, following more thorough legal analysis, the company revised its position, contending that it had entered into a commission agreement for service provision within the meaning of Article 28 of the VAT Directive. According to this revised interpretation, Xyrality provided services to the Irish platform as a taxable person, which in turn functioned as service provider vis-Ă -vis end users. The consequence of such characterization was relocation of the place of taxation from Germany to Ireland pursuant to the principle that the place of supply of services to a taxable person is where that taxable person maintains its business establishment. The company filed amended VAT returns for 2012-2014, reducing the taxable base for its German transactions by the value of all purchases made by EU users, resulting in substantial refunds of overpaid VAT.
The German tax authority, Finanzamt Hamburg-Altona, categorically rejected this amendment, initiating a dispute that ultimately reached the CJEU. The German fiscal authority’s argument appeared facially straightforward: the Irish platform served merely as an ordinary technical intermediary that expressly informed customers regarding service terms. According to the authority, the platform clearly indicated that transactions were conducted on behalf of a third partyânamely, Xyralityâas evidenced primarily by post-purchase order confirmations that unambiguously identified Xyrality as seller and specified German VAT. Under this view, the platform confined itself to providing technical infrastructure and collecting payment, without itself becoming a transaction party. The matter proceeded first to the Hamburg Finance Court, which ruled in Xyrality’s favor, and subsequently to the Bundesfinanzhof (Federal Fiscal Court), which stayed proceedings and referred preliminary questions to the CJEU.
Fundamental Questions Posed to the Court
The German court presented three critical questions concerning VAT provisions whose resolution carried implications not merely for the Xyrality case, but for the entire electronic services sector engaged in cross-border transactions within the European Union. The first question addressed whether Article 28 of the VAT Directive applies where a developer provided electronic services to EU consumers prior to January 1, 2015, through an app store, with order confirmations sent only after purchase identifying the developer as service provider and specifying German VAT. The uncertainty concerned whether subsequent disclosure of the actual supplier’s identity precludes application of the legal fiction established by Article 28, pursuant to which the platform is deemed to have itself received services from the developer and subsequently supplied them to end users.
The January 1, 2015, date carries particular significance, as Article 9a of Implementing Regulation No. 282/2011 entered into force on that date, clarifying Article 28’s application to digital platforms. According to this provision, where electronically supplied services are provided through a telecommunications network, interface, or portal such as an app store, a taxable person participating in such supply is presumed to act in his own name but on behalf of the service provider, unless that taxable person explicitly indicates the provider as the supplier and this is reflected in contractual arrangements between the parties. However, the Xyrality case concerned the period preceding this provision’s entry into force, raising questions regarding whether its principles apply to historical transactions.
The second question addressed determination of the place of supply for the fictitious service from Xyrality to the Irish platform, assuming Article 28 applies. Should this place be determined according to Article 44 of the VAT Directive, which provides that the place of supply of services to a taxable person acting as such is where that taxable person maintains its business establishment, or pursuant to Article 45, which provides that the place of supply of services to a non-taxable person is where the service provider maintains its business establishment? This question carried fundamental importance, as its resolution determined which Member State should tax the transactions. If Article 44 applied, taxation would occur in Ireland as the location of the platform’s establishment as a taxable person. Conversely, if Article 45 applied, taxation would remain in Germany as the location of Xyrality’s establishment as service provider.
The third question concerned Xyrality’s potential tax liability under Article 203 of the VAT Directive, which provides that any person who enters VAT on an invoice is liable to pay that tax. If one concludes that Xyrality did not provide services within German territory because Article 28 applies and the place of supply lies in Ireland, questions arise regarding the consequences of German VAT appearing in order confirmations sent to end users. Does Xyrality nevertheless remain liable to pay German VAT merely because it was stated in documents directed to consumers? Article 203 aims to prevent situations where someone states VAT on an invoice without legal basis, potentially leading to unjustified input tax deductions by purchasers and diminution of tax revenues. However, in transactions with final consumers who lack input tax deduction rights, the situation differs, raising questions regarding this provision’s actual scope of application.
The Court’s Groundbreaking Determinations
The Court of Justice answered the first question in a manner confirming the validity of approaches adopted by major digital platforms operating in the European market. The CJEU held that Article 28 of the VAT Directive applies even where order confirmations identify the developer as supplier and specify VAT. The Court emphasized in its reasoning that application of this provision cannot be excluded merely because end customers learn the actual supplier’s identity only after completing the purchase process. This determination rests upon a fundamental VAT principle: decisive significance attaches to genuine economic and legal powers held by the platform in providing services, not the moment when the end customer learned the principal’s identity or the content of documents transmitted after transaction completion.
The Court explained Article 28’s operative mechanism, which creates a legal fiction of two identical services provided consecutively. According to this fiction, an economic operator who intermediates in service provision and who constitutes an agent is deemed first to have received such services from the operator on whose account it acts (the principal), before itself subsequently providing those services to the customer. The Court indicated that powers held by the platform in providing services carry decisive significance. Where the platform controls the purchase process by presenting itself as the transaction counterparty to the user, authorizes payments by processing them through its proprietary system, establishes general service terms through terms of use that users must accept, and bears liability to users for refunds and complaints, it should be treated as an intermediary within Article 28’s meaning regardless of whether and when customers receive information regarding the actual content or service provider.
In its judgment, the CJEU also addressed Article 9a of Implementing Regulation No. 282/2011, which entered into force only on January 1, 2015âthat is, after the period examined in Xyrality covering 2012-2014. The Court held that this provision specifies and clarifies concepts contained in the VAT Directive and should be considered when interpreting rules applicable even before its formal entry into force. However, Article 9a cannot be regarded as supplementing or amending Article 28 of the VAT Directiveâit remains a clarifying rather than substantively altering provision. This determination confirms continuity in interpreting VAT provisions concerning digital platforms both before and after 2015, though it does not automatically establish the possibility of amending returns for historical periods, which depends upon specific factual circumstances of each case and domestic limitation periods.
In answering the second question, the CJEU resolved consistent with VAT system logic that the place of supply of the fictitious service from the developer to the platform must be determined according to Article 44 of the VAT Directive. This means that the place of supply of services to a taxable person acting as such is where that taxable person maintains its business establishment. In practical terms, this means the fictitious service provided by Xyrality to the Irish platform is taxed in Ireland as the location of the platform’s establishment as a taxable person, not in Germany where the developer maintains its establishment. The Court explained that Article 28 creates a fiction of two separate transactions that must be treated independently for purposes of determining the place of taxation. The first transactionâthe service from principal to agentâfalls under provisions governing business-to-business services; the secondâthe service from agent to end customerâfalls under provisions governing consumer services. No legal basis exists for determining the place of supply of the first service differently than provided by general rules contained in Chapter Three of Title Five of the VAT Directive.
Finally, in answering the third question, the Court concluded that Xyrality is not liable to pay German VAT under Article 203 of the VAT Directive despite German VAT appearing in order confirmations sent to consumers. The CJEU explained this provision’s functional character, emphasizing that Article 203 aims to eliminate the risk of tax revenue loss that the deduction right provided in the Directive might entail. This provision applies only where two conditions are cumulatively satisfied: VAT was incorrectly stated on an invoice, and risk of tax revenue loss exists due to the invoice recipient’s potential exercise of deduction rights. In the Xyrality case, neither condition was satisfied because services were provided to final consumers who lack VAT deduction rights; consequently, no risk of tax revenue diminution associated with deduction rights exists. This determination protects enterprises against double taxation or tax liabilities in situations where erroneous VAT statement generates no risk of diminished budgetary revenues.
Implications for Polish Tax Law and Enterprises
The Polish legislature implemented Article 28 of the VAT Directive in Article 8(2a) of the Polish VAT Act, which provides that where a taxable person acting in his own name but on behalf of a third party participates in service provision, that taxable person is deemed to have himself received and provided those services. This provision carries identical normative content as Article 28 of the VAT Directive and creates the same legal fiction of two consecutive service supplies. For Polish mobile application developers and other entities providing electronic services in cross-border transactions, the CJEU’s Xyrality judgment signifies that the mere fact of receiving confirmations containing VAT information and identifying the developer as service provider does not preclude application of service intermediation provisions. Critical examination must address genuine powers held by the distribution platform in the service provision process, particularly verification whether the platform controls the purchase process, authorizes payments, establishes general terms, and bears liability to usersânot formal contractual provisions or content of documents sent to end users.
According to Article 28b of the Polish VAT Act, which implements Article 44 of the VAT Directive, the place of supply of services to a taxable person is where the taxable person who is the service recipient maintains its business establishment. In the Xyrality context, this means that if a Polish development firm distributes applications in cross-border transactions through an international distribution platform established in another Member State, and if that platform possesses genuine economic and legal powers in the service provision process, the fictitious service provided by the Polish firm to the platform will be taxed at the platform’s location as a taxable person, not in Poland. The practical consequence is that the Polish firm need not account for VAT on transactions with end users across various EU countries, radically simplifying tax compliance and reducing administrative costs associated with managing cross-border transactions.
The judgment also carries significance for interpreting Article 108(4) of the Polish VAT Act, which provides that any person who issues an invoice stating that a taxable transaction has been performed or payment received also constitutes a taxable person. According to the CJEU judgment, this provision does not apply in transactions with final consumers, as no risk of abusing VAT deduction rights exists. Consumers are not taxable persons and cannot deduct VAT; therefore, no threat to state budgetary revenues exists that Article 203 of the VAT Directive was designed to eliminate. This means that a Polish developer who was erroneously identified as supplier in order confirmations and whose name appeared alongside Polish VAT cannot on this basis be charged with tax liability if genuine powers in the service provision process belonged to the platform acting as intermediary.
For international distribution platforms operating in the Polish market in cross-border transactions, the judgment confirms that they may function as intermediaries within the meaning of Article 28 of the VAT Directive and corresponding Article 8(2a) of the Polish VAT Act, even where end customers learn the actual service provider’s identity only after completing the transaction. Platforms should nevertheless ensure that actual powers align with declared tax status and implement procedures for verifying suppliers’ and users’ tax status. In practical terms, this means that international marketplaces providing electronic services, educational platforms managing cross-border transactions, and other portals intermediating in providing digital services between suppliers and recipients across different Member States may apply the business model of platform-as-intermediary, assuming responsibility for accounting for VAT on transactions with end users. While this increases their liability, it simultaneously provides greater process control and enables offering improved terms to content and service providers.
It bears emphasis that the judgment concerns a specific business model for an app store where the platform possesses broad powers regarding purchase process control, payment authorization, and transaction terms establishment. Not all forms of platform cooperation automatically qualify for Article 28 application under the VAT Directiveâeach case requires individualized assessment of the platform’s genuine economic and legal powers. The judgment focuses on cross-border transactions concerning digital content, applications, and software distributed through internet platforms of a character similar to the app store examined by the Court.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication âAI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creatorâ and co-author of the award-winning book âBezpieczeĹstwo wspĂłĹczesnej firmyâ (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of âInternational Tax Planning Law Firm of the Year in Poland.â He specializes in strategic legal consulting, tax planning, and crisis management for business.
