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Records in the cloud

Author: Hannah Howard and Tristram Fink

What was previously a theoretical concern for taxpayers holding records with cloud-computing companies has now been resolved, enabling taxpayers to continue their ‘walk in the cloud’ without fear of falling due to an Inland Revenue backlash.

Following on from the article in our December 2012 Tax Alert, the Inland Revenue has recently published a list of New Zealand companies which have been granted approval to hold their customers’ electronic financial records offshore.

As readers will be aware, taxpayers are required to hold their financial records in New Zealand in order to comply with their record keeping obligations.  It was and continues to be possible to be granted an exemption, however this can only be done on an individual basis.  When the Inland Revenue flagged some three years ago that storing ones records in a cloud that used offshore data centres was unlikely to meet statutory requirements, it became evident that a legislative tweak was necessary. 

The reason we mention that the concern was only theoretical to taxpayers is that the staggering uptake of cloud-computing accounting services made it very difficult for the Inland Revenue to act on its contention.  The major cloud-computing companies considered the situation to be a prime example of technology moving at a pace unmatched by our legislative system and took steps to liaise with the Inland Revenue to resolve the issue.

Following on from the legislative change that took effect from 2 November 2012, the Inland Revenue has now listed which New Zealand companies have been granted this blanket exemption. At present only three companies have been granted authorisation – these are Xero Limited, CargoWise NZ Limited and MYOB NZ.  It is anticipated that this list will be added to over time, where companies are able to prove that information and records stored offshore will remain accessible to the Commissioner and will not impede compliance activities.

Taxpayers should note that where authorisation is given to a third party, this does not replace the taxpayer’s responsibility in meeting record keeping obligations.  The authorisation enables a taxpayer to store records offshore without being in breach of their obligations however it is the taxpayer who is responsible for ensuring records kept are sufficient to satisfy requirements.  That is, they must be adequate to enable the Commissioner to readily ascertain the amounts of tax payable.

Please contact your usual Deloitte adviser if you require any further information.

 

Tax Alert November 2013 contents:

 

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