Businesses May Need to Pay Tax on Cloud Transactions – KPMG
Cloud computing is fast becoming an attractive and ubiquitous option for managing the IT needs of both businesses and consumers.
Indeed, results from a recent KPMG survey show that 81 percent of businesses are either planning their initial cloud computing forays, are in early or advanced stages of experimentation or have full implementations.
Yet the very nature of the cloud is at odds with traditional tax concepts. Most tax authorities have yet to develop detailed rules and guidance related to cloud-based operating models. Thus, to help organizations currently using or planning to use the cloud, KPMG International launched a new online resource that looks at how tax authorities are approaching the challenge of taxing the cloud in 18 key countries. This resource can be found at: www.kpmg.com/taxingthecloud.
“According to our research approximately 45 percent of the respondents are neither evaluating the tax implications of cloud nor do they know if these factors are being evaluated within their organization,” says Steven Fortier, Principal-in-Charge of KPMG’s US Tax Cloud Initiative.
“Given the lack of clarity over cloud tax treatment, users and providers of cloud computing services need to plan their operations and activities carefully to manage their exposure while gaining the desired benefits from this new technology.”
Through this new resource KPMG member firms look at how tax authorities across the world are approaching the challenge of analyzing cloud computing from a tax perspective, by examining the local country provisions in place, the likely interpretations under such provisions and potential taxes associated with cloud transactions.
As set out in these country specific resources, a company moving to a cloud-based business model (whether on the user or provider side) will now need to reevaluate its local country tax posture to consider the character and source of the cloud income and/or payments and such cloud operations result in new or additional income, withholding or indirect taxes.
Further, companies will also need to be mindful of the location of the servers providing the cloud access in light of possible permanent establishment challenges made the jurisdiction in which the server is located.
“We will continue to add countries to the resource as jurisdictions provide more clarity on the local treatment of cloud transactions,” comments Fortier.
“Significant tax issues for both providers and users of cloud do exist and are multiplied when the transactions cross multiple borders. Companies should expect additional scrutiny as Tax authorities become increasingly aware of the tax implications associated with the switch from traditional IT service provision and software licensing to a cloud-based IT model.”