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Cloud computing tax risks

Cloud computing is predicted to become increasingly popular with businesses looking for a complete outsourcing solution to their IT needs. It allows access to computer infrastructure, software and storage (amongst other things) over the internet.

New Zealand’s Inland Revenue Department has concerns about the “storage” part of cloud services. They’ve just issued a Revenue Alert warning businesses using cloud storage services to be careful. The Department has concerns because NZ businesses are required to keep all tax records in New Zealand, unless they get specific approval not to.

According to the Department’s Alert businesses using cloud storage services should ensure their tax records are stored on data centres physically located in New Zealand or they must seek approval to hold records offshore. They point out, failure to do so is an offence which could result in a conviction and fine.

Sometimes our tax legislation struggles to keep up to date with technological advances. The Department is to be commended for alerting people to the issues with cloud computing and I’m sure officials are also looking at whether our legislation and international tax agreements need to be modernised to reflect these sorts of business practices.


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On line shopping to get more expensive?

At the moment you can buy most goods from overseas on-line and won’t have any NZ GST charged if they cost less than $400. [Note: for some items, like clothing, GST applies at less than $400.]

NZ retailers are disadvantaged by this because it encourages on-line shopping from overseas retailers.

There is a push at the moment for the Government to review the threshold and perhaps require credit card companies to collect GST on goods bought directly from overseas.

The Government hasn’t reached a decision but what’s been missing from the debate so far is the distinction between “goods” and “services”.

Physical goods like CD’s, DVD’s or hard copy books have to be imported and could be caught by this. But there’s no suggestion it will extend to digital items like e-books or music and movies which are delivered electronically.

There’s a wider issue here and looking simply at imported “goods” won’t be a complete solution.

Also, asking credit card companies to collect the GST on behalf of the Government when someone buys something from overseas online is unlikely to be a complete solution. There are other ways to pay for items bought over the internet and consumers will respond by using those alternatives, like internet banking or by purchasing “e-dollars” or vouchers).

This is a complex issue and with the likely increases in e-commerce it’s an issue GST/VAT systems around the world need to grapple with.