Data centre services not connected to immovable property, says CJEU

A Court of Justice of the EU (CJEU) judgment (2 July 2020) has found that the supply of host services by a Finnish data centre could not be considered for value-added tax (VAT) purposes as leasing of or services connected with immovable property.

Case C-215/19 Veronsaajien concerned a Finnish Oy limited company that offered data centre "hosting services" to domestic operators and in other EU Member States. Customers would pay the anonymous company, which was referred to in the case as "A Oy", to locate their own servers in its computing centre, which included the provision of an equipment cabinet, the supply of electricity and the services necessary to ensure the optimal use of the servers. The unnamed company also guaranteed the general upkeep of the cabinets and the replacement of light bulbs.

The equipment cabinets were bolted to the floor and could be uninstalled in a few minutes without damage to the equipment. The customers had no direct access to the equipment cabinet in which their servers were installed and were only able to obtain access after proving their identity with a security service.

The Supreme Administrative Court of Finland asked the CJEU two preliminary questions on how A Oy's services should be treated for VAT purposes:

• For the purposes of the VAT Directive and its implementing regulation, did the provision of a computing centre server housing service should be regarded as the leasing of immovable property for the purposes of applying the VAT exemption in Article 135(1)(l) of the Directive?
• Conversely, should this housing service in the computing centre, together with the provision of ancillary services, be considered a service linked to immovable property and, if so, should the service be located at the place where the immovable property is itself located?

The CJEU concluded that:

• Housing services in a computing centre did not constitute the leasing of immovable property, within the scope of the exemption provided for in the Directive, because the customers were not guaranteed the right of use these on an exclusive basis. In addition, the equipment cabinets were not immoveable property since they were not an integral part of the building (they were not installed there permanently).
• In response to the Finnish court's second question, the services in question cannot be considered as services connected with immovable property since the customers did not enjoy an exclusive right of use of the part of the building in which the equipment cabinets were installed.

The ruling follows another CJEU case (RR Donnelley Global Turnkey Solutions Poland, C-155/12, EU:C:2013:434) and suggests that the crucial elements needed to connect the supply to immovable property are identifying a defined area within a data centre and assigning control over the area to the customer. Where it is not connected to immovable property, the supply of services should generally be taxable at the place where the recipient has its place of business. Other factors may, however, come into play and affect the ultimate local VAT liability attached to the service – for instance, can the use and enjoyment rule apply and can the server be deemed to amount to a taxable presence for VAT purposes.

Osborne Clarke comment

Following this judgment, we recommend that businesses (whether EU or US based), if they receive these housing services from EU providers, review their operating models as well as the content of the ancillary services they receive in order to verify that the VAT treatment of these services is correct.