Electronically Supplied Services (ESS)

The legal test in Article 7

Article 7(1) has four parts, and a service has to meet all of them. It is delivered over the internet or an electronic network. Its nature makes its supply essentially automated. It involves minimal human intervention. And it is impossible to supply without information technology.

The test looks at how the service is delivered, not at how it is sold or paid for. Article 58 of the Directive says so directly: “Where the supplier of a service and the customer communicate via electronic mail, that shall not of itself mean that the service supplied is an electronically supplied service.” A consultant who takes a card payment through Stripe Checkout and sends the advice by email is still supplying advice.

Minimal human intervention is not zero. HMRC’s guidance covers both a sale that is entirely automatic, where the customer clicks Buy Now and the content downloads or arrives by automated email, and one that is “essentially automatic, and the small amount of manual process involved does not change the nature of the supply from an e-service.” The question is whether a person is part of what the customer is buying, not whether a person ever touches the order.

Article 7(1) says ESS “shall include” the services it describes, and Article 58(1)(c) refers to ESS “in particular those referred to in Annex II.” Both lists are illustrations of the test, not a closed list. A new kind of product that meets the four conditions is ESS whether or not it is named.

What Article 7 and Annex I put in, and what they leave out

Article 7(2) names five groups that are covered “in particular”: digitised products generally, including software and its upgrades; services providing or supporting a business or personal presence on a network, such as a website; services automatically generated from a computer in response to specific data input by the recipient; fees for the right to list goods or services on an online market where bidding is automated and sales are notified by automatically generated email; and internet service packages where the telecommunications part is ancillary.

Article 7(2)(f) adds everything in Annex I, which expands the five headings of Annex II to the Directive. Annex II lists website supply, web-hosting and distance maintenance of programmes and equipment; supply of software and updating thereof; supply of images, text and information and making available of databases; supply of music, films and games, including games of chance and gambling games, and of broadcasts and events; and supply of distance teaching. Annex I then gives the detail, for example online data warehousing where specific data is stored and retrieved electronically, accessing or downloading software including accountancy and anti-virus programs, the digitised content of books, subscriptions to online newspapers, the provision of advertising space including banner ads on a website, use of search engines, video on demand, and automated distance teaching.

Article 7(3), as amended from 2015, says the definition does not cover: broadcasting services; telecommunications services; goods where the order and processing is done electronically; CD-ROMs, floppy disks, CDs, audio and video cassettes, DVDs and games on a CD-ROM; printed matter such as books, newsletters, newspapers or journals; services of professionals such as lawyers and financial consultants who advise clients by email; teaching services where the course content is delivered by a teacher over the internet; offline physical repair of computer equipment; offline data warehousing; advertising in newspapers, on posters and on television; telephone helpdesk services; postal correspondence courses; conventional auctioneers’ services reliant on direct human intervention; tickets to cultural, artistic, sporting, scientific, educational, entertainment or similar events booked online; and accommodation, car hire, restaurant and passenger transport booked online.

Broadcasting and telecommunications are excluded from ESS but sit beside it in Article 58, so consumer sales of them are also taxed where the customer lives. They are separate categories, not ESS.

ESS or not: examples with the legal basis

SaaS subscription or downloadable software: ESS. Article 7(2)(a) covers “the supply of digitised products generally, including software and changes to or upgrades of software,” and Annex I point (2)(a) lists accessing or downloading software plus updates.

Web hosting, cloud storage or on-demand disk space: ESS. Annex I point (1) lists website and webpage hosting, online data warehousing where specific data is stored and retrieved electronically, and online supply of on-demand disc space.

E-books, online newspaper subscriptions, stock photos and screensavers: ESS. Annex I point (3) lists the digitised content of books and other electronic publications, subscriptions to online newspapers and journals, and photographic or pictorial images. HMRC’s examples list stock photographs available for automatic download as covered.

Streaming music or video on demand, and downloadable games: ESS. Annex I point (4) covers music and films, games downloaded to computers and phones, and TV or video on demand from a catalogue selected by the provider.

A tool that generates a report from data the customer enters: ESS. Article 7(2)(c) covers services automatically generated from a computer in response to specific data input by the recipient, and Annex I point (3)(g) gives continually updated stock market data as an example.

Advertising space on a website: ESS. Annex I point (3)(h) lists the provision of advertising space including banner ads on a website or web page. Advertising in newspapers, on posters and on television is excluded by Article 7(3)(m).

A recorded online course of videos and downloadable PDFs: ESS. Annex I point (5)(a) covers automated distance teaching that requires limited or no human intervention, including virtual classrooms. HMRC’s examples list this course as covered.

A PDF sent automatically by the seller’s system after payment: ESS in HMRC’s examples. The same PDF emailed by hand is not. HMRC lists a link to online content or a download sent by manual email as covered.

Legal, tax or financial advice delivered by email: not ESS. Article 7(3)(i) excludes services of professionals who advise clients by email.

A live webinar or live online class: not ESS. Article 7(3)(j) excludes teaching where the course content is delivered by a teacher over the internet, and HMRC lists a live webinar as not covered.

A recorded course plus support from a live tutor: not ESS in HMRC’s examples. Annex I point (5)(a) carves out cases where the internet is used “as a tool simply for communication between the teacher and student.”

Individually commissioned content sent digitally, such as a custom report or commissioned photographs: not ESS in HMRC’s examples.

Physical goods ordered online, and physical books, CDs, DVDs or games on disc: not ESS. Article 7(3)(c) to (h) exclude them.

Event tickets, hotel rooms or car hire booked online: not ESS. Article 7(3)(t) and (u) exclude them. Telephone helpdesk support is excluded by Article 7(3)(n).

The grey cases: webinars, bundles and marketplaces

Live online events moved in 2025. Directive (EU) 2022/542 added a second subparagraph to Article 54(1) of the VAT Directive: where cultural, artistic, sporting, scientific, educational, entertainment or similar services “relate to activities which are streamed or otherwise made virtually available, the place of supply shall, however, be the place where the non-taxable person is established, has his permanent address or usually resides.” Member states apply it from 1 January 2025. A live webinar sold to an EU consumer is still not ESS, but if it counts as one of those activities it is now taxed where the consumer lives, like ESS. HMRC’s education table, which describes the UK rules, still puts distance learning by webinar or remote tutor at the supplier’s place of establishment.

Bundles follow the normal single or multiple supply rules. HMRC gives a technical journal with supplementary online content, a DVD with online streaming and a music CD with a digital download as examples of bundled supplies that have to be analysed as a package. A software subscription that includes human support raises the same question: is the support a minor part of a mainly automated service, or a second supply in its own right?

Marketplaces and app stores change who the supplier is. Article 9a of Regulation 282/2011 presumes that a business taking part in the supply of ESS through a telecommunications network, an interface or a portal such as a marketplace for applications acts in its own name, unless the real provider is explicitly indicated as the supplier in the contracts and on the invoice and receipt. A platform that authorises the charge, delivers the service or sets the general terms and conditions cannot name someone else as the supplier. Article 9a(3) excludes a business that only processes payments. HMRC’s guidance says the same: if your only role is processing payments, you are not regarded as a digital platform. Taking card payments through Stripe does not make Stripe the supplier of what you sell.

Why the label matters: place of supply, OSS and rates

Place of supply. For a consumer, ESS is taxed where the customer is established, has a permanent address or usually resides (Article 58). The only exception is in Article 59c: a supplier established in a single EU member state whose sales of telecommunications, broadcasting and electronically supplied services and distance sales of goods to consumers in other member states stay at or below EUR 10,000 in both the current and the previous calendar year can charge its own country’s VAT. A seller outside the EU has no threshold and no exception. Most other services sold to consumers fall under the general rule in Article 45 and are taxed where the supplier has established its business. The entry on place of supply covers the business-to-business side and the evidence rules for proving where a consumer is.

Registration and returns. A seller outside the EU can account for all of its EU consumer sales of services through the non-Union scheme. Article 359 makes the scheme available to “any taxable person not established within the Community supplying services to a non-taxable person” in a member state, for all those services. Article 364 requires one return per calendar quarter, due by the end of the following month, even when nothing was sold. Article 365 requires the return to show, for each member state of consumption, the total value of supplies excluding VAT and the VAT per rate.

Rates. Article 98(3) says the reduced rates and exemptions in that article “shall not apply to electronically supplied services, except to those listed in Annex III, points (6), (7), (8) and (13).” Point (6) covers books, newspapers and periodicals supplied electronically. That is what allows a member state to apply a reduced rate to e-books and online newspapers, while software, which is not on the list, cannot have one.

The UK runs its own regime. HMRC says supplies of digital services to UK consumers are liable to UK VAT, and a seller based outside the UK that makes them has to register for UK VAT. Stripe’s UK guide describes the threshold for a seller based outside the UK as one transaction.

How Stripe’s product tax codes map to ESS

Stripe’s product tax code list has a Category type column with four values: Physical goods, Services, Digital products and Events. At the time of writing, 105 codes carry the type Digital products. Stripe’s EU guide applies a different place of supply rule to each group. For digital goods or electronically supplied services, its summary reads: “Generally taxable in the customer’s country.” Services that can be delivered remotely are taxable in the seller’s country when sold to individuals in other EU countries. Services related to admission to events are taxable where the event is located. Other services, which is what txcd_20030000 General - Services gets, are taxable in the seller’s country when sold to individuals.

The catch-all ESS code is txcd_10000000, General - Electronically Supplied Services. Stripe’s description starts: “A digital service provided mainly through the internet with minimal human involvement, relying on information technology.” It suggests a more specific category, especially for US sales, adding that on the general code “taxes will be similar to those for a generic digital item like downloaded music.”

The specific Digital products codes line up with Annex II roughly like this. Website supply and hosting (point 1): txcd_10701100 Website Hosting, txcd_10101000 Infrastructure as a service (IaaS) - business use, and txcd_37071001 Software Maintenance Agreement - Optional, Prewritten, Electronic Delivery, Updates Only. Software (point 2): txcd_10103001 Software as a service (SaaS) - business use, txcd_10103000 for personal use, and txcd_10202003 Downloadable Software - business use. Images, text, information and databases (point 3): txcd_10302000 Digital Books - downloaded - non subscription - with permanent rights, txcd_10501000 Digital Photographs/Images, txcd_10701300 Website Data Processing, txcd_10701400 Website Information Services - Business Use and txcd_10701000 Website Advertising. Music, films and games (point 4): txcd_10401100 Digital Audio Works - downloaded - non subscription - with permanent rights, txcd_10402200 Digital Audio Visual Works - streamed - subscription - with conditional rights and txcd_10201000 Video Games - downloaded - non subscription - with permanent rights. Distance teaching (point 5): txcd_20060058 Training Services - Self-study Web-based and the On demand Online Courses codes txcd_20060158, txcd_20060258 and txcd_20060358.

Stripe notes that the business use and personal use split on codes like SaaS matters only if you have US sales. For EU and UK VAT, Stripe decides whether a sale is to a business mainly from the VAT number the customer provides, not from the code.

The trap: Stripe follows the code, not the legal test

Stripe Tax does not read your product description or watch how you deliver. Its docs say it uses product tax codes “to associate products with their applicable tax rates” and other taxability rules, and that a product without a code falls back to the preset product tax code in your tax settings. Whatever rules come with the code are the rules applied, on every sale of that product, until someone changes it.

That fails in both directions. A recorded course left on the Services code txcd_20030000, or on a preset that points to it, follows Stripe’s origin rule for EU consumers, which points to the country the seller is based in. For a seller outside the EU, that means no EU VAT on sales that Article 58 taxes where the customer lives. In the other direction, the Digital products category type is wider than the legal definition. It includes txcd_11010001 Prepaid Mobile Data Service, which is telecommunications and excluded from ESS by Article 7(3)(b). It includes txcd_20120001 SaaS Implementation and Setup Services, which Stripe describes as delivered through “human professional intervention, automated software-driven setup scripts, or a combination of both.” It includes virtual admission codes such as txcd_50013002 Admission to Professional Events (Virtual), which sit closer to Article 54 than to Article 7. And txcd_37071002, a maintenance agreement for updates plus support services such as consultation or phone support, describes a bundle that has to be analysed under the single or multiple supply rules.

Human-delivered work has its own codes on the Services side, such as txcd_20060045 Training Services - Live Virtual, txcd_10701200 Website Design and txcd_20060048 Consulting Services. Putting a live cohort or a done-for-you service on an ESS code because it is sold online is the most common version of this mistake.

To check a catalog, list every Product with its tax_code and the preset code, run each through the four-part test in Article 7(1), and compare the result with the category type of the code. Then pull the itemized export for a period and read the tax_code and country_code columns together. Stripe describes country_code as the line item’s origin country for origin-based collection or its destination country for destination-based collection, so an EU consumer sale of a digital product showing your own country is the sign of a code problem. Fixing the code changes future calculations only. Which side of the line a borderline product falls on is a tax decision for your adviser.

Recording ESS sales in QuickBooks

The VAT on ESS sold to consumers belongs to the tax authority of each customer’s country, so the books need to keep it apart by regime. A common setup is one liability account for each return you file: one for the OSS non-Union return, one for UK VAT, and one for each country where you hold a direct registration. Mixing them in a single VAT payable account makes it hard to tie each return to the account that should hold its balance.

The OSS return needs a figure per member state of consumption, so the per-country detail usually comes from Stripe rather than from QuickBooks. Stripe says that for an OSS registration you can download an itemized export of all your EU transactions to help prepare the return, and that it includes domestic transactions you don’t report on an OSS return, which you need to filter out. Article 366 requires the return in euro (a member state of identification outside the euro area may require its own currency), converted at the exchange rate on the last day of the quarter, so expect a small difference between the euro return and the QuickBooks liability in your home currency.

Records have their own rule. Article 369 requires a non-Union scheme user to keep records detailed enough for each member state of consumption to verify the return, available electronically on request, for ten years from the end of the year of the transaction. HMRC says a seller of cross-border digital services must get and keep 2 pieces of information as evidence of where a consumer normally lives, and Stripe says it stores the location evidence used in each transaction on the Customer object, even though for cross-border digital sales within the EU it calculates from a single address.

On the revenue side, separate QuickBooks products or income accounts for ESS and for human-delivered services make the split visible at year end. That split is what your adviser will ask for if a product’s classification is ever questioned.