Server hosting and VAT

[Rev Adrian Kennard]

This really seems very simple, and I can't believe that we are the first
to do this, but HMCE seem confused, and I am interested what people here
think.

We offer server hosting - simple concept - customer provides (or buys
from us) a server - a computer - which we fix in a rack in a data centre
connected to power and the internet, and includes security, air con,
power fail over, remote power control switch, etc.. Fairly typical
server hosting. We offer this in the UK (London).

We have just started offering it in Amsterdam, for UK customers. So, we
as a UK VAT registered company are charging another UK VAT registered
company for a service. The service involves their server physically
locted in a rack in Amsterdam and connected to the internet and power in
Amsterdam. The idea is that it is a different data centre from London,
and physically different location, so customers will often have a server
in London and Amsterdam so as to provide resilience (it being unlikely
both places would break at the same time whatever the cause).

So, what is the point of supply and how is VAT charged?

The UK VAT office did think it may be an "electronically supplied
service" because they saw the word "internet", but the service is not
supplied electronically - it involves power leads and rack screws!!! We
are also not "providing a web site" - the server may run a web site or
may not, up to our customer, but we are not providing that - we are
providing space, power, internet, security, etc..

The UK VAT office have now decided it is like storage and so Dutch VAT
would potentially apply not UK VAT. Does this sound right?

If we have a liability to charge Dutch VAT, we presumably have to
register with the Dutch VAT office. If so, then as our customers are UK
VAT registered companies, if we have their VAT number, presumably we can
invoice zero Dutch VAT on a Dutch VAT number (as normal exports between
VAT registered companies in the EU). Hence we'd be filing zero Dutch VAT
returns all the time (crazy!).

Ideas?

 

[Peter Saxton]

This really seems very simple, and I can't believe that we are the first
to do this, but HMCE seem confused, and I am interested what people here
think.

We offer server hosting - simple concept - customer provides (or buys
from us) a server - a computer - which we fix in a rack in a data centre
connected to power and the internet, and includes security, air con,
power fail over, remote power control switch, etc.. Fairly typical
server hosting. We offer this in the UK (London).

We have just started offering it in Amsterdam, for UK customers. So, we
as a UK VAT registered company are charging another UK VAT registered
company for a service. The service involves their server physically
locted in a rack in Amsterdam and connected to the internet and power in
Amsterdam. The idea is that it is a different data centre from London,
and physically different location, so customers will often have a server
in London and Amsterdam so as to provide resilience (it being unlikely
both places would break at the same time whatever the cause).

So, what is the point of supply and how is VAT charged?

The UK VAT office did think it may be an "electronically supplied
service" because they saw the word "internet", but the service is not
supplied electronically - it involves power leads and rack screws!!! We
are also not "providing a web site" - the server may run a web site or
may not, up to our customer, but we are not providing that - we are
providing space, power, internet, security, etc..

The UK VAT office have now decided it is like storage and so Dutch VAT
would potentially apply not UK VAT. Does this sound right?

If we have a liability to charge Dutch VAT, we presumably have to
register with the Dutch VAT office. If so, then as our customers are UK
VAT registered companies, if we have their VAT number, presumably we can
invoice zero Dutch VAT on a Dutch VAT number (as normal exports between
VAT registered companies in the EU). Hence we'd be filing zero Dutch VAT
returns all the time (crazy!).

Ideas?

Charge VAT where the customer resides.

http://www.hmce.gov.uk/channelsPort...ntent&id=HMCE_CL_000907&propertyType=document

 

[JB]

This really seems very simple, and I can't believe that we are the first
to do this, but HMCE seem confused, and I am interested what people here
think.

We offer server hosting - simple concept - customer provides (or buys
from us) a server - a computer - which we fix in a rack in a data centre
connected to power and the internet, and includes security, air con,
power fail over, remote power control switch, etc.. Fairly typical
server hosting. We offer this in the UK (London).

We have just started offering it in Amsterdam, for UK customers. So, we
as a UK VAT registered company are charging another UK VAT registered
company for a service. The service involves their server physically
locted in a rack in Amsterdam and connected to the internet and power in
Amsterdam. The idea is that it is a different data centre from London,
and physically different location, so customers will often have a server
in London and Amsterdam so as to provide resilience (it being unlikely
both places would break at the same time whatever the cause).

So, what is the point of supply and how is VAT charged?

The UK VAT office did think it may be an "electronically supplied
service" because they saw the word "internet", but the service is not
supplied electronically - it involves power leads and rack screws!!! We
are also not "providing a web site" - the server may run a web site or
may not, up to our customer, but we are not providing that - we are
providing space, power, internet, security, etc..

The UK VAT office have now decided it is like storage and so Dutch VAT
would potentially apply not UK VAT. Does this sound right?

If we have a liability to charge Dutch VAT, we presumably have to
register with the Dutch VAT office. If so, then as our customers are UK
VAT registered companies, if we have their VAT number, presumably we can
invoice zero Dutch VAT on a Dutch VAT number (as normal exports between
VAT registered companies in the EU). Hence we'd be filing zero Dutch VAT
returns all the time (crazy!).

Ideas?

Given that the supply doesn't seem to fall into the category of any of
the special rules for place of supply, the place of supply would fall
back to being where the supplier belonged,

It would then need to be decided if the place where the servers were
located could be considered a fixed establishment. If so, then you
would need to consider whether they were the establishment most
directly connected with making or receiving supplies. If it was this
was the case, the supply is in Amsterdam, if not the UK.

As you say, if the supplies were being made from Amsterdam, the supply
would be zero rated if the UK customer was VAT registered. The UK
customer would need to do the reverse charge to account for the VAT.

The Dutch VAT returns wouldn't be nil as you would surely be
recovering VAT on costs in Amsterdam. If you were not registered with
the Dutch VAT office, you would need to submit 8th Directive claims to
get the Dutch VAT back.

JB



..

 

[Jonathan Bryce]

Charge VAT where the customer resides.
http://www.hmce.gov.uk/channelsPort...ntent&id=HMCE_CL_000907&propertyType=document

He's arguing that it isn't an electronically supplied service. He is
providing some space in a room in Amsterdam where they can plug in their
computer and have access to electricity and the internet.

 

[Rev Adrian Kennard]

Peter Saxton wrote:



http://www.hmce.gov.uk/channelsPort...ntent&id=HMCE_CL_000907&propertyType=document


He's arguing that it isn't an electronically supplied service. He is
providing some space in a room in Amsterdam where they can plug in their
computer and have access to electricity and the internet.

I would have said that the "service", which is the holding of a physical
server in an equipment rack and connection to power and internet, is not
"electronically delivered".

Depends what the "service" is though. I suppose you could argue that the
main service provided is an internet connection to the equipment in the
rack, and that, as a service, is electronically delivered to a server in
Amsterdam! But we also supply power, and air conditioning, and security.

As such I suspect it is not an electronically provided service.

 

[Rev Adrian Kennard]

Given that the supply doesn't seem to fall into the category of any of
the special rules for place of supply, the place of supply would fall
back to being where the supplier belonged,

Interesting. I am not sure how "belong" is applied here. We have no
Dutch presence other than we rent a rack in a data centre in Amsterdam.
It is not exactly an "establishment" as I would have understood it, but
that does not mean the VAT office would agree.

It would then need to be decided if the place where the servers were
located could be considered a fixed establishment. If so, then you
would need to consider whether they were the establishment most
directly connected with making or receiving supplies. If it was this
was the case, the supply is in Amsterdam, if not the UK.

As you say, if the supplies were being made from Amsterdam, the supply
would be zero rated if the UK customer was VAT registered. The UK
customer would need to do the reverse charge to account for the VAT.

The Dutch VAT returns wouldn't be nil as you would surely be
recovering VAT on costs in Amsterdam. If you were not registered with
the Dutch VAT office, you would need to submit 8th Directive claims to
get the Dutch VAT back.

To be honest, I would rather just charge my UK customers as usual, but I
don't want to be clobbered with a complete mess with Dutch VAT one day
in a few years time, so want to ensure it is right now when we start!

As for claiming back Dutch VAT, the services we pay for in Amsterdam
are, as far as I know (awaits first invoice) charged with no VAT, but I
am not sure. If we were being charged Dutch VAT, then there would
perhaps be sense in registering for Dutch VAT anyway.

I am trying to get an answer from the Dutch VAT office on this.

Out of interest, are the rules of VAT consistent throughout Europe?

E.g. if the UK VAT office decide it is outside the scope of UK VAT (as
they seem to have), and the Dutch VAT office decide it is outside the
scope of Dutch VAT, would that mean that there is simply no VAT to
charge? Do such things happen. What, if worse, the UK office decided UK
VAT applied *and* the Dutch VAT office decided Dutch VAT applied, could
one have some sort of supply that would need to have VAT charged twice.
That is slightly an accademic question.

 

[Martin]

This really seems very simple, and I can't believe that we are the first
to do this, but HMCE seem confused, and I am interested what people here
think.

We offer server hosting - simple concept - customer provides (or buys
from us) a server - a computer - which we fix in a rack in a data centre
connected to power and the internet, and includes security, air con,
power fail over, remote power control switch, etc.. Fairly typical
server hosting. We offer this in the UK (London).

We have just started offering it in Amsterdam, for UK customers. So, we
as a UK VAT registered company are charging another UK VAT registered
company for a service. The service involves their server physically
locted in a rack in Amsterdam and connected to the internet and power in
Amsterdam. The idea is that it is a different data centre from London,
and physically different location, so customers will often have a server
in London and Amsterdam so as to provide resilience (it being unlikely
both places would break at the same time whatever the cause).

So, what is the point of supply and how is VAT charged?

The UK VAT office did think it may be an "electronically supplied
service" because they saw the word "internet", but the service is not
supplied electronically - it involves power leads and rack screws!!! We
are also not "providing a web site" - the server may run a web site or
may not, up to our customer, but we are not providing that - we are
providing space, power, internet, security, etc..

The UK VAT office have now decided it is like storage and so Dutch VAT
would potentially apply not UK VAT. Does this sound right?

If we have a liability to charge Dutch VAT, we presumably have to
register with the Dutch VAT office. If so, then as our customers are UK
VAT registered companies, if we have their VAT number, presumably we can
invoice zero Dutch VAT on a Dutch VAT number (as normal exports between
VAT registered companies in the EU). Hence we'd be filing zero Dutch VAT
returns all the time (crazy!).

Ideas?

Aren't you at risk of over-complicating things by considering "what you do
to provide the service", rather than simply "what is the service delivered
to your customer"?

Presumably your customers don't go to Amsterdam, don't know what the kit
looks like, and don't know whether the electricity powering the thing is
piped from yet another EU country. What they're buying is a hosting
service, which happens to be backed up by extra kit, which happens to sit in
another country. If, for whatever reason, you moved the server to another
country, the client wouldn't / needn't be aware of it and wouldn't care
less. The service, IMHO, is delivered electronically, so I deduce Peter
Saxton's comment and link are applicable.

 

[Jonathan Bryce]

Aren't you at risk of over-complicating things by considering "what you do
to provide the service", rather than simply "what is the service delivered
to your customer"?

Presumably your customers don't go to Amsterdam, don't know what the kit
looks like, and don't know whether the electricity powering the thing is
piped from yet another EU country. What they're buying is a hosting
service, which happens to be backed up by extra kit, which happens to sit
in
another country. If, for whatever reason, you moved the server to another
country, the client wouldn't / needn't be aware of it and wouldn't care
less. The service, IMHO, is delivered electronically, so I deduce Peter
Saxton's comment and link are applicable.

Depends. If it is a co-location service where the customer supplies their
own computer, they will go to Amsterdam to plug it in, or get someone to do
that for them.

 

[Martin]

Depends. If it is a co-location service where the customer supplies their
own computer, they will go to Amsterdam to plug it in, or get someone to
do
that for them.

Fair point - though I can't immediately think why a customer would need to
visit the premises.

(Qu to RAK) Will there ever be a customer who is _only_ hosted in Amsterdam?
If not, how could billing be sensibly split between the two countries. With
load balancing etc, surely this is impossible to measure?

 

[John Bishop]

I would have said that the "service", which is the holding of a physical
server in an equipment rack and connection to power and internet, is not
"electronically delivered".

Depends what the "service" is though. I suppose you could argue that the
main service provided is an internet connection to the equipment in the
rack, and that, as a service, is electronically delivered to a server in
Amsterdam! But we also supply power, and air conditioning, and security.

As such I suspect it is not an electronically provided service.


--
_ Rev. Adrian Kennard, Andrews & Arnold Ltd / AAISP
(_) _| _ . _ _ Broadband, fixed IPs, no min term http://adsl.ms/
( )(_|( |(_|| ) Asterisk VoIP based PABXs, SNOM190 http://aa.gg/
~~~~~~~~~~~~~~~~ Bond two ADSL lines? http://www.FireBrick.info/

It is very difficult to persuade a VAT man that he is wrong, I've tried it
myself a few times over the years!!

My guess is that you supply a service. You do not supply the rack or
electricity, you supply a package and should therefore invoice from the UK
with UK vat. The cost to you of the Dutch end is part of your costs, in much
the same way that a car is built of parts from many countries, but the
dealer invoices UK vat to you on the whole car.

John