IRD explains offshore cloud alert

'Very sharp end of the industry' cause for concern

The software developers’ liaison unit (SDLU) at Inland Revenue has been in discussion with developers providing or supporting cloud services, in regards to the “revenue alert” IRD issued in December on the need for local companies to keep business records onshore.

The unit’s team manager, Karen Hooper, in an email to developers, emphasises “there is provision for the Commissioner [of Inland Revenue] to agree to taxpayers keeping their business records outside of New Zealand.

“Inland Revenue will work with software developers to restate the principles which will be applied to allow taxpayers the ability to store records outside New Zealand,” she writes. “In this context it may be possible to exempt specific products from the usual requirements, where for instance Inland Revenue can be satisfied that any records stored in a cloud computing package can be retrieved should that be required.”

The IRD unit has in the past worked positively and productively with the software industry, through two-monthly meetings, the next in February, says Xero founder Rod Drury. “This is an unusual hiccup”.

Group tax counsel Graham Tubb, who issued the alert, said last month he had not been in touch with anyone in the industry before he put the bulletin out. “IT is not my department,” he said. “My group is legal and technical services, which supports compliance work.”

But as to the possibility of a disconnect between the legal side of IRD and its technology specialists, Tubb says the SDLU was “very much part of the discussions prior to the release of the alert”.

He too, however, indicates that a resolution can probably be found. “We do have a general power to approve people storing their data offshore,” he says.

“The significance we attach to having servers here is that in those hopefully rare occasions when we need to go in and have a look ourselves, we need to have something physical to interrogate.”

The IRD is concerned in this instance with “the very sharp end” of the business community, Tubb says. “Those taxpayers who suppress income or don’t tell us the full story about their tax affairs.

“If you’re a fully compliant taxpayer, there’s usually no difficulty in getting permission to keep your records in Sydney or Singapore”, particularly if your company is headquartered there, he says. The key point is that records should be accessible to the department when requested. Usually the IRD makes a request for records in writing and they are quickly returned, making their location moot.

“At this point,” says Tubb, “it is important for the government to make sure its revenues aren’t prejudiced by too much loosening of the record-keeping requirements of taxpayers. However, the establishment of clearer rules around obtaining consent to store records in the cloud will simplify your filing with IRD,” he says.

“I think we probably have sufficient flexibility in the legislation,” Tubb says. “It may be just a matter of being a little bit clearer about what needs to happen, as cloud computing becomes more firmly established.” Tubb expects to be involved in that process.

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