On 2 July 2020 the European Court of Justice gave its judgment in case C-215/19. This case is to determine whether colocation services (computing centre services with which a trader provides its customers with equipment cabinets in a computing centre for holding customers’ servers together with ancillary services) should be classificied as the leasing or letting of immovable property.
Supply of services — Article 135(1)(l) — Exemption from VAT– Letting of immovable property — Concept of ‘immovable property’ — Exclusion — Supply of services connected with immovable property — IEquipment cabinets — Computing centre services
Our previous post about the questions that were raised to the ECJ can be found HERE. Other posts can be found HERE.
Article in the EU VAT Directive
- Article 47, 135(1)(l) of the EU VAT Directive 2006/112/EU
- Article 13b and 31a of the Implementing Regulation (EU) No 282/2011
Article 47
The place of supply of services connected with immovable property, including the services of experts and estate agents, the provision of accommodation in the hotel sector or in sectors with a similar function, such as holiday camps or sites developed for use as camping sites, the granting of rights to use immovable property and services for the preparation and coordination of construction work, such as the services of architects and of firms providing on-site supervision, shall be the place where the immovable property is located.
Article 135(1)(l)
1. Member States shall exempt the following transactions:
(l) the leasing or letting of immovable property.
Facts
The company under Finnish law A Oy operates networks for wireless communication services and is also engaged in the development of telecommunications networks and network infrastructure. In particular, the company provides so-called ‘colocation services’ for IT operators established in Finland and in other Member States who make telecommunications connections available to their own customers through servers which they own.
The servers are placed in areas equipped with the necessary telecommunications connections and where humidity and temperature are precisely controlled for the use of these servers in a refrigerated environment according to their destination.
The colocation services offered by A Oy include the provision of a server cabinet with a lockable door, power supply and services to ensure the best possible operating environment for the use of the servers, such as temperature and humidity control, cooling, protection against power supply interruptions, smoke detectors for fire detection in the server cabinets and electronic access control. This company also takes care of the general cleaning and replacement of the lamps.
The server cabinets are located in a building rented by A Oy, where they are bolted to the floor. The users then place their equipment in the server cabinets; that equipment is screwed into the server cabinets and can be removed in minutes.
Customers do not receive their own key from the server cabinet in which they have placed their server, but they can receive a key from the 24-hour concierge service upon presentation of an identity document. A Oy is not entitled to access the client’s server cabinets.
A Oy has asked the tax authorities for a prior decision on the VAT regime to be applied to these services.
The Finnish tax authorities held that the colocation services provided by A Oy did not fall under the general place of supply rule, but should be considered as services relating to real estate, where the place of supply is determined by the location of that property. According to the tax authorities, the rental of the technical space that is necessary for the hosting of customers’ servers is, after all, the main achievement of the total service offered by A Oy, whereby the rental of the space in the building is central and essential. This service is therefore to be regarded as the transfer of a right of use on immovable property.
The Helsingin hallinto-oikeus (Administrative Court Helsinki, Finland), before which A Oy brought an action, annulled that decision. That court held that the colocation services provided by A Oy could not be considered to be services relating to immovable property, and thus fell under the general rule for B2B services. In this regard, it found that although the server cabinets are bolted to the floor, they can be moved without destroying or altering the building or construction as referred to in Article 13b (d) of the Implementing Regulation. These server cabinets are therefore not real estate within the meaning of this provision. After all, the customers do not obtain a right of use of a part of the colocation space, which is considered to be real estate, but only have the option of using those server cabinets in the colocation space under optimal conditions. A Oy therefore provides a total service to its customers for the storage of their servers, the main achievement of which is to provide the best possible environment for the operation of those servers.
Questions
Are Articles 13b and 31a of Council Implementing Regulation (EU) No 282/2011 1 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC 2 on the common system of value added tax, as amended by Council Implementing Regulation (EU) No 1042/2013 3 of 7 October 2013 amending Implementing Regulation (EU) No 282/2011 as regards the place of supply of services, to be interpreted as meaning that computing centre services of the type at issue in the main proceedings, with which a trader provides its customers with equipment cabinets in a computing centre for holding customers’ servers together with ancillary services, are to be regarded as the leasing or letting of immovable property?
If the first question is answered in the negative, are Article 47 of VAT Directive 2006/112/EC and Article 31a of the aforementioned Implementing Regulation nevertheless to be interpreted as meaning that a computing centre service of the type at issue in the main proceedings is to be regarded as a service connected with immovable property, the place of supply of which is the location of the property?
AG Opinion
None
Decision
1. Article 135(1)(l) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/8/EC of 12 February 2008, must be interpreted as meaning that computing centre services with which the supplier of those services makes available to its customers equipment cabinets for holding their servers and provides them with ancillary goods and services, such as electricity and various services designed to ensure the use of those servers under optimal conditions, do not constitute the letting of immovable property falling within the exemption from value added tax provided for by that provision, where — which it is for the referring court to verify — first, that supplier does not provide an area or space to its customers passively, guaranteeing them the right to occupy it as if they were the owners thereof and secondly, the equipment cabinets do not form an integral part of the building in which they are installed nor are they installed there permanently;
2. Article 47 of Directive 2006/112, as amended by Directive 2008/8, and Article 31a of Council Implementing Regulation No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112, as amended by Council Implementing Regulation (EU) No 1042/2013 of 7 October 2013, must be interpreted as meaning that computing centre services with which the supplier of those services makes available to its customers equipment cabinets for holding their servers and provides them with ancillary goods and services, such as electricity and various services intended to ensure the use of those servers under optimal conditions, do not constitute services connected with immovable property as referred to in those provisions, where those customers do not enjoy — which it is for the referring court to verify — a right to exclusive use of the part of the building in which the equipment cabinets are installed.
Personal comments/VATupdate
Source: Curia
Similar ECJ cases
How did countries implement the case? Your feedback appreciated! Let us know
Newsletters
- BTW Jurisprudentie (unofficial translation in English) – Original version
- bloombergtax.com (subscription needed)
- Vertes
- Meijburg (in Dutch) – English version
- Deloitte Sweden: the European Court of Justice issued a ruling that appears to go against Swedish practice in the matter of VAT obligations for so-called colocation services
- Jayant Rakhan
- Deloitte
- KPMG
- EY
- kmlz.de – ECJ creates further uncertainty about the definition of “immovable property”
- dlapiper.com
- Accace
- kho.fi
- Xirius – VAT and property rental : when is there an exclusive nature?
- Join the Linkedin Group on ECJ VAT Cases, click HERE
- For an overview of ECJ cases per article of the EU VAT Directive, click HERE
