While corporate America wonders about the security of the cloud, the business collective may have another cloud-related concern to deal with in the near future: taxation. To the point, while technology companies that offer cloud services are showing themselves to be particularly adept at managing their tax burden–as dealing in the digital world offers said companies a unique opportunity to seek out tax havens as their base of operations– the same cannot be said of many companies that utilize those cloud services.
As it stands, however, cloud computing currently finds itself in a nebulous taxation purgatory, a temporary waiting place out of reach of an antiquated taxation system that’s currently ill-equipped to properly determine who to tax for cloud transactions that may be occurring on third party servers on the other side of the world.
But by its very nature purgatory is a temporary state, and according to a recent survey conducted by international auditing firm KPMG (PDF), almost half of all those using the cloud have not thought about the impending tax implications, meaning that when this taxation limbo comes to a crashing halt, many of us simply won’t be ready.
According to the study, 45% of the surveyed American businesses that utilized cloud services had no notion of the looming taxation issues, nor had any knowledge if anyone in their respective corporations were aware of such things. Simply put, for many, the cloud looks all new and shiny, the latest technological tool to help manage the information burden, but there are dark sides to this cloud, particularly related to security and taxation.
So as the cloud inexorably rolls in, the bottom line is that the service’s ambiguous tax state won’t last forever, meaning that all users of the cloud, particularly those of course who will be using cloud services for business purposes, “need to plan their operations and activities carefully to manage their exposure while gaining the desired benefits from this new technology.”
According to the study, companies transitioning to a cloud-based business model will need to take several issues into consideration, most importantly the tax laws of one’s local country, the source of the cloud income or payments, and the location of the servers (as this may present other challenges should those servers be in a country with a different taxation model).
Such foresight is important, the KPMG study explains, because “organizations that proactively manage and plan for the tax issues associated with operating in the cloud may unlock significant value for their organization.”
“Significant tax issues for both providers and users of cloud do exist and are multiplied when the transactions cross multiple borders,” says Steven Fortier, principal-in-charge of KPMG’s US Tax Cloud Initiative. “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.”
In the end, the inexorable advance of the cloud offers a veritable new horizon of business opportunities, but with such opportunities comes serious issues and if history has taught us anything its that companies need to be prepared to manage things like security and taxation before they find themselves exposed, vulnerable, and possibly out of business.