Will Tax Issues Stall Iceland's Data Center Push?

Legislators in Iceland have balked at eliminating the value-added tax (VAT) on server equipment, a common incentive in many U.S. states and many European locations. This could loom as a deal-breaker for some major prospects.

Marketing of Iceland as a data center detination from Verne Global, which is planning a major facility on a former NATO base.

The government of Iceland has been actively promoting the island nation as a destination for data center development, citing its abundant supply of geothermal energy. The effort has yielded several significant projects: a container facility operated by Thor Data Center which will house servers for Opera, and a major data center by Verne Global in a former NATO Command Centre in Keflavik.

But legislators in Iceland have balked at eliminating the value-added tax (VAT) on server equipment, a common incentive in many U.S. states and many European locations. This apparently could be a deal-breaker for some major prospects that are looking at the Verne Global project. 

The Iceland Review reports that IBM is reconsidering plans to take space at the Keflavik  project, citing the extra expense of paying taxes on servers housed in Iceland. Verne Global would not comment on the status of particular tenants or prospects, but acknowledged that the tax on servers is a key issue for data centers in Iceland.

Industry Group Formed
"We can tell you that potential clients have been working with us and the Icelandic government regarding the VAT issue," said Verne's Lisa Rhodes. "Verne has also been partnering with the other members of the newly formed Federation of Icelandic Data Centers (ICEDC) to communicate to the Ministry of Finance our group¹s recommended reform to the VAT code. We are unanimous that change is required to make Iceland competitive in the global data center market."

The debate over taxes hasn't altered Verne's plans. "Verne remains committed to building our wholesale data center campus in Keflavik," said Rhodes.

Will Legislators Act?
The issue appears to have the attention of legislators hoping to see Iceland blossom as a data center destination. The Iceland Review story quotes two politicians - MP Ragnheidur Elín Árnadóttir of the Independence Party and MP Skúli Helgason of the the Social Democratic Alliance - calling for action to prevent the loss of data center business.

The Icelandic data center projects have overcome several potential stumbling blocks, including the economic downturn and concerns about connectivity (details here) and even volcanoes. With the finish line in sight, will the risk of losing tenants spur legislators to act?

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