A Swedish court has ruled colocation providers in the country are not exempt from VAT liability.
In a ruling from 4 February 2021, the Swedish Supreme Administrative Court decided, that the supply of connectivity, capacity, and space in a data center should not be exempt from VAT liability as letting of immovable property.
Some EU countries provide tax exemption for immovable property – generally defined as property that cannot be moved from one place to another – and some countries have allowed colocation providers to qualify under that bracket. This ruling, along with others in the EU, are removing such exemptions.
Sweden aligns with the rest of the EU on colo VAT liability
Interxion Sverige AB applied for an advance ruling from the Swedish Board for Advance Tax Rulings to find out if the supply should be treated as the VAT exempt letting of immovable property. The Swedish Tax Agency initially claimed that the company’s entire supply should be VAT exempt, however the Court stated that Interxion supplies services that should be considered access to connectivity, and the exclusive right to dispose of a certain space in the data center should be considered to be of secondary importance, and so the entire supply should be subject to VAT liability.
Two previous rulings from 2008 and 2016 saw the court consider the supply of colocation services as letting of immovable property, standing it apart from most of the European Union’s other member-countries. However, this latest decision aligns Sweden with a recent European Court of Justice case involving an unnamed Finnish colo provider.
Last year the CJEU ruled colocation services do not constitute the leasing of immovable property nor any other immovable property service and so are subject to VAT. The CJEU stated that the leasing of data center hardware alongside ancillary services such as power and cooling do not count as immovable property and therefore don't qualify for VAT exemption.
Linnea Back and Linn Nordqvist of Baker McKenzie’s Tax Practice said that while the Swedish ruling was not surprising it still can be viewed as good news as it gives “additional clarity to data center providers in Sweden and provides more opportunities to recover VAT on investments.”