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Monday, 29 September 2014

The Netherlands is turning into the data centre capital of the world. Is it due to our fantastic locations, perfect infrastructure and moderate climate? Or do the advantages for these companies start with the letters T.A.X.?

Microsoft, Google and other American giants from the ICT-industry are currently deploying for billions of dollars in data centre capacity on our Dutch shores. 

In my humble opinion, we should forget the fantastic locations, the perfect digital and transport infrastructure and even the moderate climate in The Netherlands: the biggest advantage for these companies to build their infrastructure overhere probably starts with the letters T... A... X...

Good news! Good news!

In the evolvement of The Netherlands from a country specialized in physical transport and distribution into a digital transport and distribution frontrunner, we have reached a few new milestones in less than one year.

Last year, the Dutch community already heard the fantastic news that Microsoft would develop a €2 billion data centre in Middenmeer: a rural town lying in the ‘cabbage, flowerbulbs and potato-belt’ in Noord-Holland, The Netherlands.

Between the greenhouse complexes in the ‘Kop van Noord-Holland’, a gargantuous data centre for Microsoft will start to emerge at the beginning of next year. A computer shed full of servers, instead of greenhouses full of tomatoes and other vegetables. Nobody should be surprised, when this would not be the last of its kind in this region.

Top-secret negotations took place upon ‘Project Blue’, as it is called. Various regions were in the race to haul in the computer giant. And not in vain. 

Reputedly, Microsoft will invest €2 billion in the project, which will supply work for a number of years for construction workers and installation companies. After being taken into operation, the centre will supply at least 150 to 200 steady jobs.

And last week, the news was spread that Microsoft’s "archenemy" Google will soon be deploying a €600 million data centre, located at the Eemshaven in Groningen (the Dutch province).

Google is going to deploy an enormous data centre in the Eemshaven in Groningen. The American internet giant will invest approximately €1 billion in the data centre, according to insiders. The Ministry of Economic Affairs mentions an amount of €600 million.

The centre will offer 150 structural jobs, and on top of that, also substantial amounts of indirect jobs. The construction phase itself will offer about 1000 jobs, according to Economic Affairs.

Reputedly, the company has been looking for a suitable place for its data centre since 2012. Google is already present in Eemshaven with a smaller data centre, which has a capacity of 20 Megawatts. The new facility will consume a six-fold of this energy usage: 120 Megawatts.

These data centres offer work for a host of specialized construction and electronic infrastructure companies. After being taken into operation, centres of such magnitude need about 150 - 200 people in fixed personnel for service, maintenance and surveillance and probably a variable number of indirect jobs, through subcontractors.

This is of course very good news for both regions. Especially Groningen is a lagging province, when it comes to employment and chances, as it is relatively far away from both the Dutch Randstad and the German Ruhr-area. 

This means that high-tech and high-profile jobs are quite hard to find in this region. In other words: the new data centre is more than welcome.

Also cities like Amsterdam and Almere – where I live  are increasingly becoming host cities for large data centres, on behalf of various domestic and foreign ICT companies. And it definitely makes sense for the large companies to establish their data centres in The Netherlands.

First, the country has generally a very moderate climate, with often relatively cool summers and soft winters. This makes the energy consumption of cooling installations much more predictable than in many other countries, with larger temperature fluctuations. The Dutch climate will not often present you with surprises, in the long run.

Besides that, the country offers a fantastic digital infrastructure, with:
  • A few globally important internet backbones being positioned in Amsterdam;
  • 11 important data cables on Dutch shores, which connect The Netherlands with a.o. the United States;
  • Broadband internet with mindboggling speeds, being available almost everywhere in the country. 

On top of that, there is a well-educated, multilingual population, favourable energy prices and a very good transport infrastructure, by road, as well as by air. 

The dense population of the country and short travelling distances top it off.

And wait…, hang on…, there is something more. 

There are also the very favourable corporate tax regulations for large companies, the ample availability of subsidies for employment and education and the (secret) tax rulings, which can be made with the local and central governments in The Netherlands. When jobs and (more important) prestige are at stake, the sky-is-the-limit in The Netherlands, with respect to the possibilities for favourable tax rulings.

The following snippets come from the Netherlands Foreign Investment Agency, a subsidiary of the Dutch Ministry of Economic Affairs, in an article from 2012.

The Netherlands is very popular among foreign suppliers of data center services. A good example is Terremark, an American company that chose Amsterdam over London, Frankfurt, and Paris for the construction of its first ‘Network Access Point’ in Europe.  Softlayer too recently opened its first European data center in Amsterdam. In addition, the British company TelecityGroup already has five operational data centers in Amsterdam. What exactly is making the Netherlands so attractive as a ‘data center country’?

The appeal of the Netherlands for foreign investors is certainly also playing a role in this matter. According to the NFIA, the appeal to foreign investors can be explained by the good telecommunications infrastructure, the reliable energy supply, the strategic location, and the innovative character of the Netherlands as a ‘data center country’, among other factors (see also the section ’10 factors for success’).

The Netherlands is one of the most connected countries in the world. Of the fifteen submarine cables, eleven are directly connected to the Netherlands. As a result, our country has an excellent broadband connection to the rest of the world. In addition, the largest internet junction in the world is located in the Netherlands. The Amsterdam Internet Exchange (AMS-IX) offers a fast, cheap, and redundant connection via the more than seventy carriers present at the AMS-IX sites to approximately 475 internet-related companies.

Additionally, the Netherlands is also appealing as far as the costs of constructing and maintaining data centers are concerned. The  Financial Times' ‘fDi Benchmark’ data for 2012 reveal that the costs of staff support are more favorable in Amsterdam than in Brussels, Frankfurt, and Paris. London is approximately at the same level. In Dublin, you generally pay somewhat less for positions such as an industrial engineer or a systems analyst. The real estate prices in the Netherlands have been declining steadily in recent years.

In addition, the Netherlands scores high as far as level of training and language skills are concerned. However, the favorable economic climate might be the most important reason why foreign parties opt for the Netherlands.

The Netherlands has one of the lowest corporate tax rates in Europe, and as a consequence, a very competitive tax climate. In addition, innovative entrepreneurs can qualify for additional tax cuts. Data centers using energy-saving or sustainable techniques can, for example,  claim the Energy Investment Allowance (Energie Investeringsaftrek, EIA).  Furthermore, the laws in the Netherlands are often experienced as less stringent than in other European countries. “Most importantly, the Netherlands has a relatively favorable economic climate,” added Eric Lisica of Terremark.

At the moment, 33 percent of the European data centers are located in Amsterdam. The presence of large data centers, such as those of Google in Eemshaven, Groningen, and Terremark’s NAP at Schiphol, will only further strengthen the appeal of the Netherlands to foreign suppliers of data center services, and create a snowball effect.

This whole article was a 3 page advertorial for the perfect conditions in The Netherlands for the establishment of tech-companies and especially data centres. But it is the red and bold text, which counts: come to us and we will give you all tax breaks and every special, secret(!) tax rulings that you want.

To emphasize that the Dutch goverment practices what it preaches, there is the confirmation that Google did receive a tax-break in Groningen (start looking from 12:00 minutes and further of this Dutch-spoken video), according to Professor Maarten Duijvendak of Economic History and the managing director of the Dutch Development Corporation (i.e. NOM), Siem Jansen:

Maarten Duijvendak (professor Economic History): There must have been some wheeling and dealing in the preliminary phase, when the terms of this contract were set. This mixture of advantages that Groningen offers to Google can also be found elsewhere in Europe: it's nothing special.

Siem Jansen of the NOM: No subsidies. We don't hand out subsidies on these kinds of large investments. What does happen, however, is that plans can be made with the Dutch government, regarding tax rulings on behalf of such companies. Also known as tax benefits. These companies do pay taxes, but not more taxes than in comparison with other places in Europe.

I bet that these companies pay much less taxes in The Netherlands, than in other European countries. Professor Duijvendak is undoubtedly right in this situation. To hand out some circumstancial evidence, there is the following article in the Dutch online magazine Webwereld:

It is a public secret that Apple, Google and Amazon benefit from two popular tax-constructions in Europe, in which a central role is played by Ireland and The Netherlands

The so-called “Double Irish" and the Amsterdam-based variant “Double Irish with a Dutch Sandwich" keeps the foreign profits of American tech companies out of the grabbing hands of the US taxes department. These companies make use of the ‘special arrangements’ in The Netherlands  and Ireland. Often, these taxes are evaded even further, by transfering the money to letterbox-companies in the Caribbeans or Bermuda.

Some companies receive billions of dollars in tax-breaks for a.o. the construction of a new plant. Penssylvania even created a totally new tax reduction plan for Shell, in order to haul in a production platform. Shell is pondering about this plan. Amazon uses its power to create jobs to repeatedly put pressure on local governments, in order to postpone tax payments. This yielded at least $348 million for the company.

Microsoft saved $312 million, with a.o. a program in the state Washington, which absolves the VAT (i.e. value added tax), which is calculated on sales. There were also favourable tax programs, in order to create employment, but Microsoft mainly establishes datacentres, which do not bring many new jobs.

There is the chance of a snowball in hell that these companies did not profit of the favourable taxes and the possibility for even more favourable tax rulings in The Netherlands. Not profiting is simply not in their nature.

So Google probably received a substantial tax-break in Groningen and you can safely bet all your money on it, that the same happened with Microsoft, when they signed their contract with Middenmeer and the province of Noord-Holland.

So forget the infrastructure… it are probably the Dutch tax-breaks, which signed the final deal. To say it in a proverbial way: “When all the guys are hunting for the same lady, then she never ever has to pay for her drinks”.

Of course, these companies have the right to profit from the ‘financial pork’, that they get handed out by the Dutch central and local government. And it almost seems a leading article in the “American Corporate Constitution” that corporate taxes ought to be paid as little as possible, by these companies.

Still, the same familiar questions always remain in such situations:
  • How many real, steady jobs for Dutch people are created, as a consequence of the tax breaks that such large companies get handed out?!
  • What will be the costs and benefits per job for such jobs, when the tax breaks are counted as government expenses?!
  • When this money would have been invested in research and development at small and large innovative companies, would these companies not have yielded much more employment than these data centres do?! 
You and I could do the math, when we only would know how high these tax-breaks to the likes of Google, Amazon and Microsoft have been!

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