The Dutch parlement passed the Additional Fiscal Purchasing Power Measures 2022 Act on June 28, 2022. This law regulates the reduction of the VAT rate on energy from the general rate (21%) to the reduced rate (9%) as of July 1, 2022, and the reduction of the fuel excise tax by 21% retroactively as of April 1, 2022. The purpose of these temporary purchasing power measures is to cushion the effects of current price increases on consumers due to the energy crisis.
We contacted the Internal Revenue Service for clarification. The IRS indicates that data centers are not covered by operation of this law because energy is purchased to make a composite, commercial product.
Position of the tax authorities
The IRS indicates given that colocation should be seen as a composite service which means that the continuation of the lower rate is not allowed.
In their words: The tax authorities consider that colocation data centers provide one composite service, where the provision of colocation services is the main service. The provision of electricity in this case is an additional performance, necessary to enable the main performance. Moreover, taking the colocation services without taking the electricity will not make sense, and taking electricity without the colocation services will not be an end in itself from the point of view of the modal consumer. Therefore, in their view, splitting the performance is artificial.
The supply of the electricity and provision of the power rights follows the VAT treatment of the colocation services and is therefore taxed at the general rate.
Legal framework
Reduced rate energy
Pursuant to article 9 paragraph 2 sub a, jo. table 1 part 5c of the Dutch OB Act, electricity supplied through the electricity network is taxed at the reduced rate of 9%.
Compound performance
It follows from the explanatory notes to Table I of the OB Act that for the application of the reduced VAT rate of Table I, it must first be determined for transactions consisting of multiple supplies and/or services (composite supplies) whether there is one supply or one service or whether there are multiple separate supplies and/or services.l In principle, each performance (supply or service) must be regarded as separate and independent. There are two exceptions to this principle. There is a single performance if (1) a performance is incidental to a main performance or (2) if performances form one indivisible economic performance.2
Ancillary performances are performances that do not constitute an end in themselves for the average consumer, but are a means to optimize the use of the main performance or to make it as attractive as possible.
An indivisible economic performance is said to exist when performances are so closely connected that, from the point of view of the average consumer, they form objectively one indivisible economic performance, the division of which would be artificial. An indication for this is that the performances separately do not have the required practical benefit for the customer.