Cloud taxation issues and impacts
Technology companies are at the forefront of multinationals operating in a developing new global tax environment. Their ever-evolving and increasingly borderless cloud-based business models have set off a scramble among companies and governments around the world to grasp cloud taxation issues and impacts.
As a linchpin of the global digital economy, cloud computing is now pervading business across all industries. But it is the technology companies that have not only created this transformational technology but also, in turn, pioneered its use to transform their own businesses. As both cloud service providers (CSPs) and cloud users, technology companies are already achieving unprecedented global operational efficiencies and tapping new revenue streams worldwide.
“This is a pivotal moment in global technology taxation, amid intense policy analysis of business model innovation in the cloud. Companies need to consider how new, digital-era tax policy will change their risk profiles, operational efficiency and profitability.”
International Tax Partner and EY Global Technology Tax Services Leader
Partner, Ernst & Young LLP
Technology companies need to bring tax planning to the table early on and ask the right questions to avoid high-impact surprises — for themselves as CSPs, for their business customers and for the cloud customers.
Determining where and whether a CSP has a taxable presence is a necessary step in designing new business models or subscribing to a CSP offering.
Analyzing the underlying substance of the CSP’s product offerings and customer contracts will assist in appropriate revenue characterization and avoid unmet tax obligations.
Companies should work to improve relationships with tax authorities and seek advance certainty on business plans in the form of advance clearances or other rulings.
CSPs should approach CSP design and tax compliance as a potential competitive advantage. One way to achieve this is through assurances on design models that help cloud users maintain all the tax regulations in the jurisdiction in which they operate.