Australia

Details

  • Service: Tax, Corporate Tax, Global Transfer Pricing Services, Topics, Innovation & Technology Trends, Cloud Computing
  • Industry: Media, Technology, Telecommunications
  • Type: Business and industry issue, Regulatory update
  • Date: 22/08/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Paul Sorrell

Paul Sorrell
Partner, Tax

+61 2 9335 8613

psorrell@kpmg.com.au

Today's tax forecast: clouds forming 

By Paul Sorrell, National Tax Leader for Technology Media and Telecommunications sectors

An analogy may be made between our childhood memories of sky clouds constantly changing shapes and the fluidity of the current business phenomenon of cloud computing – they are both varied and continuously evolving. This presents challenges for both cloud service providers and users of cloud technology alike when considering the tax issues.

Many of the rules and concepts that now govern cloud computing transactions were originally designed to deal with 'old economy' transactions (e.g. sale of shrink-wrapped software), rather than today’s highly-automated 'digital economy'. In addition, determining the consequences of a cloud computing transaction requires careful examination of detailed facts and generally no one-size-fits-all tax conclusions can be made. The cloud can cause a disaggregation of the end to end business process, and as such, each element of the transactions needs to be analysed and understood from both a commercial and tax perspective. 

What is clear for users that are considering to adopt cloud computing is that diligence and planning are vital when considering the tax issues, as the treatment within the cloud can differ considerably from the traditional business model. Users will need to analyse and understand both Australian and foreign tax issues that can arise where all or part of the business is relocated to the cloud involving offshore elements. Such issues include royalty withholding tax, permanent establishment, goods and services tax (GST) and transfer pricing.

For example:

  • Cloud computing may change the way a user accesses software or infrastructure, which may in turn alter the characterisation of payments made (e.g. royalty subject to withholding tax or mere service fee).
  • Cloud computing allows for fast deployment on a large scale with the benefits of global collaboration or the ability to centralise functions or capabilities. As such, it is important to consider what, how and where the cloud will be used in a global context to manage any transfer pricing or even permanent establishment risks. 


If you would like to discuss any cloud computing tax issues specific to your business, please contact me or your KPMG tax specialist.

 

Share this

Share this

Tax

Our Tax Team assists with corporate tax, transfer pricing, indirect tax, international executive services, R&D incentives, superannuation and more.

Corporate Tax

At KPMG we combine an in-depth knowledge of corporate taxation issues with our understanding of how tax fits into the broader picture.

Business impacts of cloud

Business impacts of cloud
Cloud is creating new business opportunities for companies that are willing to harness its power.