The Impact of the Global Tax Overhaul on Your Data Centre

PTS Senior Consultant, Stephen Bowes-Phipps, has his say on what the impact could be on where facilities are built and operated on for the October 21 issue of Inside_Networks.

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Introduction


Recently announced plans to overhaul the global tax system to ensure big companies ‘pay a fair share’ wherever they operate is likely to have implications for the data centre sector.

Finance ministers from 130 countries have agreed to the Organisation for Economic Cooperation’s (OECD) proposal that aims to ensure multinationals pay their fair share of tax. The principle of the agreement is that they must pay a minimum of 15% in each country they operate in.

It also includes plans to prevent the shifting of profits into tax havens, with the OECD claiming that more than $100bn (£73bn) was expecting to be raised by curbing profit shifting. Although it’s online behemoths such as Amazon that are the primary targets of this move, the data centre sector is also likely to feel some impact. It’s no secret that some operators have chosen to locate their facilities where cooperation tax is low and with this set to end, will they need to reassess their strategies?

We look at PTS’s view, written for the October 21 issue of Inside_Networks Network Infrastructure E-Magazine.

The Impact of the Global Tax Overhaul on Your Data Centre


This global accord is mainly aimed at the global internet giants – Apple, Amazon, Facebook and the like – which successfully manage to avoid paying significant taxes despite turning huge profits for their global operations. The question is, what does a level playing field of taxation mean for future decisions around investment growth in digital infrastructures?

In many respects, that ship has already sailed concerning where the hyperscalers are investing in concentrated areas and/or regions. Time and time again reports on the outlook of the data centre market show that the Frankfurt, London, Amsterdam and Paris (FLAP) markets still command the majority of investment and demand.

Dublin has joined them recently and there is significant growth in second-tier markets such as Madrid, Milan, Warsaw, Sweden etc. for reasons such as land cost, sustainability benefits and market demands. The international circuits that serve the top tier markets so well were initially laid due to the pull of large financial centres. Data centre demand and supply is concentrated around this international telecoms infrastructure and building a data centre without it is highly speculative at best.

I think it unlikely this new accord will have any impact over and above providing more income for countries that find themselves the beneficiaries of large concentrations of facilities. Mergers and acquisitions are still buoyant, in the popular markets revenues are still high and climbing, the coronavirus pandemic has pushed ever more work into the digital sphere and cloud take-up continues to rise all the time.

The biggest danger for data centre investors is that the market is in a bubble, is likely to plateau at some point and may even dip once capacity is reached. Taxation regimes can ‘nudge’ operators to more desirable outcomes for society but, if they get it wrong, it can also encourage poor outcomes with negative societal effects. With this base tax, we can only speculate at the effect on tax avoidance but I’m willing to guess it is unlikely to bring in any more total revenues and nation states will always incentivise investment using whatever levers they have.

Taxation regimes can ‘nudge’ operators to more desirable outcomes for society but, if they get it wrong, it can also encourage poor outcomes with negative societal effects.

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