Data centre taxation to become more reasonable

Finland’s government will implement its pledged reform to electricity taxation as of the beginning of next year. The rate for industrial electricity will be reduced to the EU minimum, and energy tax refunds will be abolished. The model offers greater transparency than the current situation, and it will improve Finland’s competitiveness. Sweden has been charging the minimum rate of electricity tax for several years.

According to the Ministry of Finance, the change will also include a reform of the electricity tax for data centres. In the future, small data centres consuming less than five megawatts of energy will be taxed according to the lower industrial electricity tax band (electricity tax band II). At present, only large data centres have fallen into this band, but this artificial size restriction will be lifted in the future. However, in order to qualify for the lower tax band, small data centres must demonstrate that they recover their waste heat for use by a district heating network.

Climate-positive outcomes with taxation

The recovery and reuse of waste heat should always be a criterion for qualifying for the lower tax band, irrespective of who uses the heat created by data centres or how the heat is used. Every form of reuse is a valuable climate action, and no new, artificial demands should be imposed.

The electricity tax reform is intended to support the electrification of industry. It is also important for electronic services to be used more extensively in order to combat climate change. Finland has high-quality data communications networks by international comparison, and they form a key part of the digital infrastructure alongside data centres. The next generation of mobile technology will use less energy than previous iterations, but electricity consumption is expected to rise as increasing volumes of data are transferred. The most significant aspect for the environment is how much carbon dioxide is emitted when electricity is generated.

Services should also be in the lower tax band

The digital infrastructure and its services should all be placed in the lower tax band. This would support digital services in society and promote solutions that also help to combat climate change.

Once the sensible and advisable step is taken to reduce the rate of tax on industrial electricity, the fact that service sectors will remain in the higher tax band – paying a rate that is about 45 times higher than industry – will become challenging. However, the service sectors, which include the digital sector, are playing a crucial role in boosting employment. Digital solutions are constantly decreasing their own carbon footprints, as well as the carbon footprints of other sectors. Slashing the electricity tax on these would also have a positive impact on growth and the environment.

The implementation of equal taxation for data centres requires an EU notification. Past experience informs us that this process will be slow and laborious. The notification should be expedited, and progress should be closely monitored.

Elina Ussa, Managing Director, FiCom