IRD Concerned with Rise of Cloud Computing

December 14, 2010 New Zealand Taxation

Some More Sun DisksThe Inland Revenue Department has issued a notice, warning taxpayers and business owners that the use of cloud computing for record keeping could potentially be against national tax regulations.

On December 13th the Inland Revenue Department (IRD) issued a Revenue Alert concerning taxpayer’s record keeping obligations in regards to the spreading use of cloud computing services. A warning was given that the technological intricacies of cloud computing might result in taxpayers inadvertently breaching regulations.

Cloud computing is an internet-based technology service whereby the user is able to access storage space, software, networking elements, and processing power over the internet. Subsequently, any data stored on a cloud server is not located on the users’ computers, but at the physical location of the service provider. Graham Tubb, Group Tax Counsel for the IRD, stated that with the use of cloud computing “…the end users won’t know where their business records are stored.”

The Revenue Alert explained that cloud computing is a technological service that is growing in popularity among New Zealand businesses. This growing trend has brought concern from the IRD, as national legislation clearly mandates that taxpayers are required to keep sufficient records of business activities and transactions within New Zealand. Graham Tubb added that “…records kept in an electronic form must also be capable of being retrieved and produced upon request, either in legible hard copies or in an electronic form.” This requirement has incited additional worry among tax auditors, as any technological errors might hinder attempts to retrieve company data.

Graham Tubb warned any businesses that are considering switching to cloud computing services to ensure that their provider can guarantee that the servers and subsequent data storage is kept in New Zealand.

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