CJEU rules on the VAT treatment of data centre services

Deloitte Malta tax alert

13 August 2020

On 2 July 2020, the Court of Justice of the European Union (CJEU) delivered the highly anticipated judgement in case C 215/19 A Oy concerning the VAT treatment of services rendered by data centres (commonly also referred to as colocation services).


A Oy rendered colocation services to information technology operators who, by means of their own servers, provided telecommunication connections to their customers. Such colocation services consisted of providing server cabinets, power supply and other services required for the server to operate smoothly (e.g. HVAC systems).

The server cabinets were bolted to the floor of a building leased by A Oy. A Oy’s customers did not have their own keys to the cabinets, albeit they could upon proper identification receive such access from the third-party security supplier surveilling the data centre.

In essence, the CJEU was requested to rule whether the colocation services should be considered, for VAT purposes, as:

  1. VAT exempt leasing or letting of immovable property; or
  2. Other services connected with immovable property, which are generally subject to VAT in the EU Member State where the immovable property is located.

In its judgement, the CJEU ruled against both of the above possibilities and confirmed that the colocation services in question should be considered as ‘normal’ services for VAT purposes which are subject to the general place of supply of services rules.

In this regard, the CJEU held that the colocation services rendered by A Oy did not appear to be limited to the passive activity of making immovable property available to a customer as if it was the owner thereof, and as such of being able to exclude any other person from the enjoyment of such a right, which typically characterises the letting of immovable property. Furthermore, the customers did not have the right to control or limit the access to the building where the cabinets were stored. There were also no indications that the cabinets qualified as immovable property in their own right, since they were neither an integral part of the property without which the building would be incomplete, nor was it considered plausible that the property would be destroyed or significantly altered if the cabinets were removed.

Practical impact

Further to the judgment of the CJEU, colocation services of the type rendered by A Oy are considered to be subject to VAT in accordance with the general rules regulating the place of supply of services.

Where such services are rendered to taxable persons (B2B), the place of supply thereof will typically be the country where the customer, as the recipient, has established its business. In such cases, the customer would typically be required to self-account for VAT due therein in terms of the so-called reverse charge mechanism. On the other hand, in the event that such services are rendered to non-taxable persons (B2C), any applicable VAT would generally be due in the country where the supplier has established its business.

This notwithstanding, in our view the CJEU did not rule out the possibility that other data centre related services such as the rental of a part of a building within which server cabinets are installed could fall within the scope of the VAT exemption relating to leasing or letting of immovable property, or otherwise qualify as a service connected with immovable property for VAT purposes.

Accordingly, it is recommended that a case-by-case assessment is carried out - based on the specific facts and circumstances surrounding the provision of the colocation services in question (and indeed any other data centre related services) - in order to ascertain the VAT treatment thereof. Should you require assistance in carrying out this assessment with respect to current or future contracts in relation to colocation / other data centre services, or merely wish to discuss the general implications of the CJEU’s judgement, do not hesitate to contact us.

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