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28 April 20229 minute read

Growing data center market in the Netherlands: What are some tax considerations?

Sebastiaan Wijsman, Robin Theuns and Sharada Dhalganjansing discuss the Dutch tax specifics of data centers.


With the help of data centers, many individuals have been able to work from home since the start of the COVID-19 pandemic. The market for data centers in the Netherlands is experiencing rapid growth. The Dutch Data Center Association expects an increase in 211,000 m2 of data floor in the coming years.1 In light of this fast development, clarity on the tax treatment and aspects of data centers and colocation services is becoming more relevant.

In this article, we will discuss some Dutch tax aspects of data centers and colocation, more specifically with respect to the Dutch Corporate Income Tax (CIT), the Value Added Tax (VAT), and the Real Estate Transfer Tax (RETT).2 This will include topics such as whether data centers should be treated as a permanent establishment, whether entities that hold data centers qualify as so-called “real estate entities,” and whether colocation services fall under VAT-taxable lease.

Corporate Income Tax (CIT)

A key question from a Dutch CIT perspective is often whether (assets held or leased in) a data center may constitute a taxable presence in the form of a Dutch permanent establishment (PE).

Definition of a PE in Dutch corporate income tax law

The Dutch legislator has chosen to primarily tie the definition of an inbound PE to either:

  • an applicable tax treaty between the jurisdictions involved; or (in the absence of a tax treaty);
  • the definition that coincides with the definition in the OECD’s model tax treaty.

Generally, there are two basic types of permanent establishments which can be identified:

  • a physical PE;
  • a dependent agency PE.

(Assets held or leased in) data centers may often fall within the definition of a physical PE, which is generally defined as: “A fixed place of business through which the business of the enterprise is wholly or partially carried on.”

This definition can be broken up into several separate elements:

  • A physical place: ie a facility such as premises or, in certain instances, machinery and equipment.
  • Availability and use of such physical place: the taxpayer should have a certain degree of effective power over that physical place that allows it to make use of it.
  • The physical place should be “fixed”: ie established at a distinct identifiable place, with a certain degree of permanence. This means that:
    • from a geographical perspective, the place of business should be limited to a specific address, location, or a coherent area; and
    • from a temporal point the use should not be incidental.
  • Conducting of actual business activities: ie core business activities should be conducted from that physical place.

Key exception

A key question is usually whether the activities conducted from the physical place where an entity has a presence are “preparatory or auxiliary in nature” – in which case there should be no PE.

Data centers

The question regularly arises whether the use of computer equipment located at a data center in the Netherlands could fall within the scope of the aforementioned PE definition.

Common questions are:

  • Is the relevant equipment sufficiently fixed? Our server(s) can be moved if so desired without damage.

    One could indeed argue that servers can indeed often be moved. From OECD commentary it can be deduced that what is relevant is not the possibility of the server being moved, but whether it is in fact moved. Therefore, if servers in a data center are located at a certain place for a sufficient period of time, they may qualify as “fixed places.”
  • Does it matter whether the enterprise has personnel on site?

    No, not necessarily. If no physical personnel are required to carry on the business activities of the enterprise, there may be a PE present, even without a single individual visiting that site.
  • Isn’t a server in a data center usually of auxiliary nature?

    This will primarily depend on the functions performed by the enterprise when using the relevant equipment. OECD commentary mentions certain examples that generally (but not always) qualify as preparatory or auxiliary:

    • providing a communications link between suppliers and customers
    • advertising
    • relaying information through a mirror server for security and efficiency purposes
    • gathering data
    • supplying information.
    Note that if these functions in themselves are an essential part of the business activity (eg of an internet service provider), the preparatory or auxiliary exception does not apply.
Value Added Tax (VAT)

Key questions from a Dutch VAT perspective are if and where colocation services are taxable. Two relevant topics are discussed in this respect:

  • The place of supply of colocation services.
  • Whether the VAT exemption for the lease of real property applies to colocation services.

What is the place of supply of colocation services?

The question is whether colocation services fall under the specific rule of place of supply of “services connected with immovable property” in the country where the data center is located.

According to the Court of Justice of the European Union (CJEU) case (A Oy),3 although part of a data center is used to store the customer’s IT/server equipment, the focus for the customer is the guarantee that their business-critical IT equipment properly functions under all circumstances. Moreover, the customers did not have the exclusive access to “their” servers in the data centers. According to the CJEU, the colocation services did not fall under the particular rule of place of supply of “services connected with immovable property,” but under the general rule. The colocation services are generally taxed in the country where the customer of services has established their business or has a fixed establishment.

Do colocation services qualify as VAT-exempt lease?

The lease of real estate is exempt from VAT – but in the A Oy case the CJEU clarified that colocation services in a data center provided by A Oy do not qualify as the lease of real estate for VAT purposes.

Real Estate Transfer Tax (RETT)
The acquisition of legal or economic ownership of an immovable property located in the Netherlands – like a data center – is in principle subject to RETT with a rate of 8%, paid by the purchaser. In the case that a data center is owned by a legal entity, the question rises whether the entity qualifies as a so-called “real estate entity.”

Legal framework

A “real estate entity” is an entity with capital divided into shares whose assets:

  • at the moment of purchase or in the 12 months preceding the purchase, consist or consisted of at least 50% real estate and, at the same time, consist or consisted of at least 30% Dutch real estate (the Asset Test); and
  • at least 70% of the real estate is being used for acquiring, selling and exploiting (such as leasing) real estate (the Activity Test).

If a company qualifies as a real estate entity, RETT will in principle be due if the purchaser acquires a qualifying interest (acquires and/or owns at least a one-third or more) in the real estate company.

Does the legal entity that holds a data center qualify as “real estate entity”?

In 2014, the Dutch Supreme Court clarified that a legal entity that exploits a data center and provides colocation services to its customers, generally does not qualify as “real estate entity” for RETT purposes. The acquisition of shares in a legal entity holding a data center is therefore not subject to Dutch RETT. This is because the Activity Test cannot be passed.

Typically, datacenters consist of two parts: the part with IT/server equipment (on behalf of) third parties (users) and the part where the technical areas in which the installations and other technical facilities for the functioning of the IT/server equipment are located. The services of a technical nature such as the continuity of power supply, cooling and data security were predominant over the provision of space in the data centers for the IT/server equipment. The colocation services were not comparable to the lease of real estate. Thus, in any case, there was no exploitation of real estate for RETT purposes, and therefore no qualification as “real estate entity.”

In a more recent case, in 2021, that dealt with a self-storage company, the Supreme Court confirmed the purpose of the Activity test. The court ruled in this specific case of “commodity hotels”: the short-term provision of storage space for commodities of individuals.

Concluding remarks

COVID-19 has accelerated the growth of the data-center market (in the Netherlands). We have identified that from a Dutch tax perspective, data centers may be treated differently compared to regular Dutch real estate.

From a Dutch CIT perspective, whether or not equipment in data centers form(s) a taxable PE is often a very factual analysis that necessitates a thorough fact finding exercise, and a good understanding of the relevant business. From a Dutch VAT perspective, the place of supply rule for “services connected to immovable property” typically does not apply for colocation services and the VAT exemption for the lease of real estate does not apply to colocation services.

In terms of RETT, the acquisition of a data center through a share deal may prevent having 8% RETT due on the acquisition.

We note, however, that the devil is in the detail and it is important to consider all facts and circumstances when determining the Dutch tax aspects of data centers and related collocation services.

2The aspects covered in this article are not intended to be exhaustive.
3CJEU 2 July 2020, C‑215/19.