IRD cloud alert 'no issue; we're talking,' says Xero

Xero chief Rod Drury is calming the waters with customers concerned over an “alert” issued by Inland Revenue on December 9 about the legal risks of cloud computing.

The Tax Administration Act imposes a legal requirement on local businesses or anyone who makes tax assessable income in this country “to keep sufficient records in New Zealand, in the English language, to enable the Commissioner [of Inland Revenue] to readily ascertain information about their tax affairs,” says the alert. There are similar requirements for GST records and donations, so IRD can readily keep track of where funds come from and how they are being spent.

This creates a potential problem for the growing number of businesses who keep records in the cloud and for businesses such as accounting specialist Xero, who offer software as a service using cloud processors located overseas. Xero uses US cloud provider Rackspace.

“It is the Commissioner's view that only business records stored in datacentres physically located in New Zealand will comply with the record keeping obligations in the Inland Revenue Acts,” says the alert. “Taxpayers using a cloud computing service will need to be satisfied that all their business records will be stored in datacentres located in New Zealand.

“Failure to keep the books and documents in New Zealand as required by the Inland Revenue Acts is an absolute offence under section 143 of the Tax Administration Act. A person convicted of this offence is liable to a fine.”

Using cloud computing to back up business records will not breach record keeping obligations, provided the primary business records are stored in New Zealand, the alert says.

Drury tell customers via his blog that there is “no issue”. “We have been working with the IRD for some time on a blanket dispensation [for customers] and assisting IRD on policies around the cloud,” he writes. Xero is working not only for its own benefit, but to clarify matters for the broader software industry and its customers, he says. Customers have responded positively on the blog. “Knew you guys would be on to it,” says one; and another “great to have you and the team working so proactively”.

“Pity we don’t have a definitive answer yet,” a third commentator says, “but hopefully it will come.”

Read more on Computerworld.co.nz.

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