Finland: VAT treatment of “co-location services” (CJEU judgment)

Finland: VAT treatment of “co-location services”

The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning whether “co-location services” with respect to customers’ servers must be regarded as the leasing of immovable property or as another immovable property service for value added tax (VAT) purposes.


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The CJEU concluded that the co-location services did not constitute the leasing of immovable property or any other immovable property service.

The case is: A Oy (no. C-215/19 (2 July 2020))

KPMG observation

The difference in VAT treatment between immovable property‑related services and general services is a fundamental one in practice and can be of commercial importance for data centers and their customers. In many EU Member States, the VAT treatment of co-location services is not uniform and the CJEU’s judgment thus provides practical guidance.


The taxpayer performed “co-location services” that consisted of providing server cabinets, power supply, and other operating services such as cooling, fire detection and access control. The taxpayer’s customers could place their servers in server cabinets, but did not receive their own key. The server cabinets were bolted to the floor, but could be easily moved without destroying or changing the building or the construction. Customers could access their servers upon the presentation of an identity document.

The request for a preliminary ruling from the Finnish court was whether the taxpayer’s co-location services must be regarded as the leasing of immovable property or as another immovable property service.

CJEU judgment

The CJEU’s basic assumption was that the co-location services formed a single supply, with the principal service being the making available of server cabinets. The CJEU noted that:

  • An area or space that can be used by lessees as if they were the owner was not made available in a passive manner.
  • The server cabinets are not an integrated part of the building in which they are set up, nor were they permanently installed in the building.

According to the CJEU, there was no leasing of immovable property, and neither were there other types of immovable property services, because the purchasers of the co-location services did not possess an exclusive user right for the part of the building in which the server cabinets were located.

KPMG observation

In practice, the VAT treatment of co-location services is not uniform and usually differs between EU Member States. This may lead to tax disputes with the tax authorities and commercial discussions between data centers and their customers. Especially with regard to cross-border services, the question is whether local VAT must be charged or whether the VAT can be reverse-charged to business-to-business (B2B) customers in another country. In some instances, it may not be desirable to charge local VAT, because B2B customers must pre-finance this VAT and may have to undergo a lengthy VAT refund process with the tax authorities in the country of the service provider.

The CJEU judgment thus is viewed as a welcome practical clarification of when co-location services are general B2B services that are subject to VAT in the country of the customer under the reverse-charge mechanism.

Taxpayers need to determine what is the current VAT treatment of data center services or co‑location services that are performed or purchased and then assess whether the facts and circumstances and the VAT treatment are in accordance with the CJEU judgment.

Read a July 2020 report prepared by the KPMG member firm in the Netherlands

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