The Swedish Tax Agency has published a guide line as to the entity to be seen to comprise the consumer of electricity used in a data center. The Tax Agency’s approach will impact the determination of the entity allowed to deduct, or receive refunds, for energy tax on electricity. The Tax Agency is of the opinion that only the entity having the right of disposal over the equipment in the data center in which the electricity is consumed should be seen to, in practice, consume the electricity in question (ultimate consumer). This implies that it is the ultimate consumer, and not the company operating the data center, who will need to apply for deduction/refund with the Tax Agency.
The Tax Agency is of the opinion that the decisive factor in terms of the right of deduction/right of refund is the entity who, actually, consumes the electricity, and the Tax Agency states that it is only the entity disposing of the equipment in the data center in which the electricity is used who should be seen to comprise, in practice, the consumer of the electricity (ultimate consumer). The manner in which the entity in question is provided with the electricity does not impact the assessment. This view is considered to be consistent with the manner in which tax relief is intended to apply whereby, according to the major rule, the ultimate consumer is the beneficiary based on its application for a tax deduction or for a refund. This is due to the fact that the Tax Agency believes that it is only the entity consuming the electricity which can be seen to comprise the beneficiary in terms of this tax reduction. The entity providing the electricity or subscribing to the electricity, and the type of operations undertaken by the company disposing of the equipment, are all factors which do not impact the right to deduct or receive refund of this energy tax, according to the Tax Agency.
When a number of companies dispose of the equipment in the data center, the Tax Agency deems that the company actually using and disposing of the equipment in its operations, regardless of whether such equipment is owned or rented by the company in question, should be seen to comprise the entity consuming the electricity in using the equipment.
As an example, the Tax Agency refers to a bank owning a server and who rents the location of the data center for its data storage. The bank is, in this case, to be seen to comprise the consumer of the electricity in the server. The same would apply even if the bank had rented the server in the data center, or from another entity. However, if the data center has been asked to store the data on its own server or in a rented server, then, the data center would, instead, have been the entity seen to consume the electricity in the server. It is only when the data center is seen to be the entity consuming the electricity in the server that such consumption is to be included in determining whether the threshold amount applying to voluntary tax liability has been exceeded.
The lower tax cost can be achieved either through deduction in the entity liable for energy tax on electric power or on the basis of an application for a refund being presented to the Swedish Tax Agency.
The Tax Agency’s position in this matter is of major importance in the context of the handling of energy tax by, amongst others, those entities working from co-locations. For example, the Tax Agency’s approach will have an impact as to the company to be seen to incur the right of deduction, alternative apply for refund. Currently, our opinion is that the majority of players in the industry apply a business model which would result in all of their clients needing to request refund/deduction. Many of these clients are not located in Sweden and the new treatment would probably result in significantly increased administration and costs.