Europe: Data centers, property interests and

There is at all times a second the place digital financial system and the brick-and-mortar world meet one another. The presence of knowledge facilities, bodily networks reminiscent of cables and technical relays (e.g., native servers and  satellites), for the aim of supporting digital and distant companies, has particularly given rise to troublesome questions relating to the character and taxation of such infrastructure, and the tax obligations for taxpayers holding such infrastructure. This is as true for VAT (and GST) as for different taxes, notably in Europe the place the digitalization of the financial system and the significance of guaranteeing latency in numerous markets triggers an growing presence of those infrastructures.

While cables, knowledge facilities, and different belongings used within the digital financial system are typically thought of actual property or property in numerous member states, the supply of providers related with or utilizing these bodily infrastructures just isn’t essentially thought of as “providers regarding immovable property” as this idea is outlined for VAT functions. Many EU member states haven’t but finalized their place on this subject, although a current choice of the CJEU with respect to retail knowledge facilities has offered – for the primary time – EU degree steerage as to the proper VAT therapy. The absence of harmonization means that there’s additionally the potential for inconsistency relating to figuring out whether or not these bodily infrastructures represent a hard and fast institution for VAT functions. Again, it is a query that has been lately thought of by the CJEU.

1. The VAT therapy of knowledge middle providers

There isn’t any clear regulation on the VAT therapy relevant to providers equipped via knowledge facilities, and member states have usually taken differing approaches to such therapy. The two key questions are whether or not such providers contain the grant of a proper over immovable property and, if that’s the case, whether or not the service ought to subsequently be thought of a service regarding immovable property or as a bundle of providers taxable beneath the overall rule. The reply to those questions has an impression not solely on the place of provide (and so the means by which the client can search restoration of VAT) but in addition the VAT legal responsibility of the availability itself, i.e., many member states would deal with a provide of immovable property as exempt from VAT.

In this context, the CJEU choice in A Oy[2], printed on 2 July 2020, appears to be the one dependable jurisprudence regarding knowledge facilities. A Oy addressed the query whether or not colocation (retail) knowledge middle providers (i.e., the making accessible of a cupboard and/or server in a knowledge middle), must be characterised as a provide of providers regarding immovable property or as a “basic rule” service.

The CJEU judgment confirms two essential concerns:

  • First, server cupboards are usually not an built-in a part of the constructing wherein they’re arrange, so the supply of such area doesn’t represent a provide of immovable property.
  • Second, retail knowledge middle providers don’t represent providers related to an immovable property throughout the that means of Council Implementing Regulation (EU) No 1042/2013 of seven October 2013 (IR 1042/2013) for the reason that lessees wouldn’t have an unique proper for the a part of the constructing wherein the server cupboards are situated.

​Rather, retail knowledge middle providers comprise a bundle of components, together with energy, safety, connectivity, and many others., that are taxable pursuant to the overall rule and which aren’t exempt from VAT.

2. Relevance of actual property interests to VAT fastened institution

In contemplating whether or not a taxpayer has a VAT fastened institution (VAT FE), the CJEU case[3] of Welmory sp. z o.o, handed on 16 October 2014, is probably going the very best driver for analyzing if the native bodily presence of technical assets reminiscent of laptop servers, software program, servicing and the system for concluding contracts with customers and receiving revenue from them is adequate to be thought to be a VAT FE.

It is price noting {that a} current CJEU choice[4] held {that a} property firm established in Jersey and letting a property in Austria, with out the usage of its personal human assets for this exercise, doesn’t have a VAT FE in Austria. This is as a result of, in keeping with Welmory, a VAT fastened institution requires the presence of each human and technical assets, and so an actual property curiosity can’t be adequate – by itself – to create a hard and fast institution for an entity established in one other member state.

3. Overview per nation


In case n° 19VE00526, the Court of Appeal of Versailles (“Court“) thought of[5] that capabilities consisting of internet hosting and managing a knowledge middle as a single service, which doesn’t relate to immovable property. These capabilities included, amongst others, the efficiency of set up service, the internet hosting of the client’s IT tools, in addition to the supply of workplace area, and the supply of providers associated to the internet hosting; in return for the fee of set up charges, month-to-month charges for the supply of the client space, energy provide, connection providers plus one-off expenses when wanted.

To assess its place, the Court identified the truth that the allocation of a safe and non-private area to put in tools and the service supplier as outlined by the contract didn’t confer any rights over the area to the client. In this regard, the Court famous that the service supplier was granted the best to maneuver the tools to a different knowledge middle if wanted, whereas the client rights had been restricted to entry granted solely to pre-authorized individuals[6]. The Court additionally thought of that the interconnection service, which requires the bodily connection of the purchasers’ servers to the service supplier community by cables, doesn’t give the complete service a predominant actual property character.

If this case clarifies the character of service for VAT functions and the place the place it must be topic to VAT (in accordance with Art. 44 of the VAT Directive, it’s the place the place the B2B purchaser is established), no basic place will be recognized regarding VAT FE points. This is probably going because of the truth that every case is fact-specific, and a factual evaluation might result in various outcomes. Nevertheless, some indications transpire from the general context.

In this regard, if neither the mere possession of an actual property property, nor having the possession or the usage of native IT tools constitutes the presence of a VAT FE per se, outsourcing providers to a different authorized entity can not be thought of an absolute firewall to mitigate VAT FE danger. It seems that the decisive issue is what the operator is doing with the respective servers within the native knowledge middle quite than the mere presence of such servers.

In addition, lately, the French Supreme Court adopted an in depth method of everlasting institution with regard to VAT and CIT[7][8].


Cables and knowledge facilities could be thought of actual property belongings solely in circumstances the place they’re fastened to a correct actual property. If they aren’t fastened or they could possibly be “simply” faraway from the respective actual property, they shouldn’t be thought of actual property belongings.

Following that method, providers offered in respect of these belongings will probably be beneath the scope of the overall B2B place of provide guidelines, besides in sure circumstances the place they need to be thought of as actual property belongings.

The Spanish Tax Authorities (STA) typically maintained {that a} international firm, being the tenant of a Spanish actual property asset, generates a VAT FE in Spain. For occasion, this criterion is utilized by the STA when coping with logistic agreements – which don’t represent a VAT FE – vs the rental of warehouse premises, – which constitutes a VAT FE. Renting a warehouse constitutes a VAT FE as a result of the tenant has actual property at disposal. On the opposite, having a logistic settlement doesn’t generate a VAT FE though the content material of each agreements could possibly be related.

During the final years, the dialogue relating to VAT FE has centered on the “intervention” of the VAT FE within the actions carried out (not if the true property asset rented itself generates a VAT FE). Whether the rented actual property constitutes a VAT FE, when the tenant has no different assets accessible to carry out an financial exercise from the respective actual property, is questionable, particularly in mild of current case regulation launched by the CJEU. Currently, this dialogue remains to be ongoing and appears to be not aligned as but with the judgments rendered by the CJEU.

There aren’t any pointers associated to the situation of VAT FE for knowledge facilities or bodily networks, reminiscent of cables and technical relays (e.g., native servers, antenna satellites). However, a tax ruling was launched on 17 January 2018 analyzing the situation of a neighborhood server as a everlasting institution (PE) from a world tax perspective. The aforementioned tax ruling states that if the server is on the tenants’ disposal as a result of it has been rented, it constitutes a PE; however, it doesn’t represent a PE if the settlement consists of a celebration rendering providers by utilizing a server.

Based on the above, it could possibly be argued that if what it’s contracted just isn’t the rental of the native server however the logistic providers of a 3rd occasion to function the native server, it doesn’t represent a VAT FE.

The STA had not issued any pointers relating to the situation of VAT FE of knowledge facilities, bodily networks reminiscent of cables and technical relays (e.g., native servers, antenna satellites) from a VAT perspective.

However, following the CJEU standards acknowledged in A Oy, if the internet hosting providers in a knowledge middle consist of constructing rack cupboards accessible to the respective shoppers and supplying them with ancillary items and providers, reminiscent of electrical energy and numerous providers aimed toward guaranteeing the usage of these servers; such internet hosting providers don’t qualify as actual property leasing service. Therefore, these providers shouldn’t be thought of a rental of actual property from a Spanish perspective and therefore, must be out of the dialogue of its situation as a VAT FE.


Co-location suppliers in Sweden are typically not exempt from VAT. A knowledge middle could possibly be thought of actual property property in Sweden. However, co-location providers ought to nonetheless be topic to VAT.

Overruling earlier precedent, the Supreme Administrative Court (SAC) determined, in a ruling dated February 2021, that the availability of connectivity, capability and area in a knowledge middle shouldn’t be exempt from VAT legal responsibility as letting of immovable property. The unique proper to get rid of a sure area within the knowledge middle must be thought of of secondary significance to prospects, who request entry to connectivity primarily, and subsequently, the complete provide must be topic to VAT.The ruling mainly aligned Swedish regulation with the reasoning of A Oy. Prior to the ruling from the SAC, co-location providers had been typically exempt from VAT.

There aren’t any particular pointers or case regulation in regard to the popularity of a VAT FE for a knowledge middle. It is predicted {that a} basic VAT FE evaluation could be made based mostly on the next three cumulative standards (to be met):

i) institution operated by personnel

ii) entry to technical assets

iii) a adequate permanency to allow sale of or acquisition and use of products or providers The Swedish Tax Agency would mainly make an evaluation relying on the circumstances within the particular case.


It is unclear whether or not a knowledge middle or a cable could be thought of actual property in relation to outgoing provides in Germany. For occasion, if a cable is leased to attach knowledge facilities with each other, then this lease arguably considerations the potential of transferring knowledge however it’s also a bodily construction. With respect to the information middle, there’s a danger of qualifying as a real-estate-related service when a devoted server rack inside this knowledge middle is offered to a buyer, when the client has entry to this rack. In precept, it’s extra possible than not that such contracts ought to, nonetheless, result in basic B2B providers as a result of the client arguably is within the operation of the server quite than within the operation of the particular constructing.

There isn’t any native case regulation and there aren’t any pointers on these particular points. Hence, the German tax authorities will presumably apply A Oy as a result of it’s in keeping with their basic VAT pointers on the lease of devoted actual property. Currently, there aren’t any VAT pointers from the German authorities, particularly on whether or not datacenters must be thought of a VAT FE. However, native case regulation has established that within the particular case of a wind turbine, a VAT FE will be assumed even when there’s solely technical infrastructure however no personnel. Data facilities arguably wouldn’t have the identical form of permanence as a wind turbine, since they require a better degree of human intervention in comparison with a wind turbine, which solely must be erected and then generates turnover on a standalone foundation. However, it’s unclear at current whether or not this case regulation may lengthen to other forms of institutions that predominantly require tools to render a service.


As in Germany, in Luxembourg, it can’t be confirmed that the VAT authorities contemplate a knowledge middle or a cable an immovable property throughout the that means of IR 1042/2013. On prime of that, the Luxembourg VAT Law doesn’t present a definition of immovable property.

The VAT authorities haven’t issued pointers on these particular points, so it is rather possible that they’d resolve the particular VAT therapy on a case-by-case foundation, making use of the abovementioned implementing regulation, the associated explanatory notes printed by the European Commission and A Oy.


There isn’t any home definition of immovable property for VAT functions[9]. In this respect, knowledge warehouses/cables as such are thought of actual property for VAT functions.

Services which have sufficiently direct reference to a knowledge middle will probably be thought of “related with immovable property” for VAT functions (e.g., development works, fit-out works, meeting, and many others.). The different subject is whether or not providers equipped with the usage of this infrastructure (e.g., servers), i.e., co-location providers must be thought of “related with immovable property.” In this respect, this subject was, up to now, topic to contradicting case regulation in Poland. The newest case regulation means that co-location providers in respect to servers shouldn’t be thought of related with immovable property. However, every little thing might rely on the precise construction and actual scope of a offered service – for instance, whether or not the service recipient is given an unique proper to make use of a selected, outlined a part of a knowledge warehouse.

In regard to a VAT FE, an aggressive method of the Polish tax authorities (and some administrative courts) observe has been noticed. In this respect, after the Welmory case – which appears to be misinterpreted by the Polish tax authorities and Polish administrative courts –, the observe of the Polish tax authorities and Polish administrative courts has change into far more aggressive in conditions the place a international entity doesn’t have its personal technical and human assets in Poland, however acquires numerous providers from entities established in Poland, which allows this international entity to hold out enterprise transactions. The present tax authorities’ method might – in simplified phrases – be summarized as follows: “Anytime a taxpayer established exterior Poland (however performing provides of products/ providers the place the place of provide is Poland) acquires from a Polish-based entity providers which allows or a minimum of considerably helps its taxable exercise in Poland, this entity must be considered as having a VAT FE in Poland.”

For instance, the Polish tax authorities contemplate that an organization with its principal institution exterior Poland (even with out having an unique entry to any a part of a warehouse in Poland) has a VAT FE in Poland. For occasion, a international firm that’s the proprietor of uncooked supplies and purchases in Poland manufacturing providers on these uncooked supplies (so-called “toll manufacturing providers”) has a VAT FE in Poland. Similarly, a international firm energetic within the e-commerce enterprise promoting items in Poland through its on-line retailer and buying complicated logistic providers in Poland (e.g., storing items, making ready items for cargo, dealing with items returns) might need a VAT FE in Poland.

Therefore, if a taxpayer with its principal institution exterior Poland gives, e.g., digital providers to its (enterprise or non-business) prospects and this taxpayer acquires co-location providers in Poland, and these providers allow or help its taxable exercise, the Polish tax authorities might doubtlessly take the method that this entity must be thought of to have a VAT FE in Poland (even when the providers acquired by this taxpayer are equipped by an unrelated, unbiased service supplier).

United Kingdom

In precept, cables are usually not thought to be actual property belongings (for instance, cables which might be merely plugged in must be moveable belongings), except they’re completely fastened onto the bottom or partitions and eradicating them would injury the construction, which requires a case-by-case evaluation. The key, although, is to contemplate the contractual association in place however typically, retail knowledge middle providers are usually not thought of land for place of provide functions and they’re typically thought of taxable providers. Typically, knowledge middle providers that embrace a selected area along with connectivity ought to in precept not qualify as land-related as they transcend a naked lease. That stated, if third events are concerned in offering development or upkeep of the information middle, a case-by-case evaluation will probably be required to evaluate the place.

Moreover, an actual property property alone – i.e., with none human assets – is mostly not thought of a VAT FE. As regards servers particularly, HMRC have expressly upheld that the presence of laptop servers alone within the UK doesn’t represent a VAT FE.

3. Conclusion

The lack of steerage issued by the native VAT authorities has given rise to uncertainty and inconsistent therapy for taxpayers relating to figuring out the VAT therapy relevant to providers associated to cables and knowledge facilities and the potential existence of a VAT FE on account of actual property interests. The current selections of the CJEU on this space present welcome steerage and ought to result in a better diploma of harmonization, as these selections are mirrored within the observe of the native tax authorities. Taxpayers ought to, nonetheless, proceed to obviously doc contractual preparations in order that it’s clear what’s being equipped, with applicable contractual protections included to protect in opposition to potential challenges in native jurisdictions.




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