Many companies ignore the tax consequences of moving to the cloud, opening up tax risks, lost efficiency savings, and decreased return on investment for cloud projects, warns tax consultancy KPMG.
Corporate tax professionals surveyed by KPMG said that the biggest tax issues related to doing business in the cloud are correctly identifying and calculating tax obligations, filing necessary returns, staying current on regulations across various jurisdictions and installing appropriate tax-risk management procedures.
More than half of the 200 senior U.S. corporate tax professionals polled by KPMG said they are often left out of top-level discussions of cloud initiatives.
Only seven percent of respondents said they were involved in regular conversations with top management to provide perspective on tax in the cloud initiatives, while 41 percent said they were included in occasional meetings, and 52 percent said they were generally not included in any meetings.
The survey found that 69 percent of respondents said they do not update their CFO or board on tax issues related to the cloud.
"If the tax department isn't involved early on, an organization can end up creating substantial risk and missing out on important tax planning or incentive opportunities….Failure to consider the tax implications can dramatically alter the potential return on investment for a particular cloud initiative," said Steven Fortier, KPMG's cloud enablement program tax leader.
About half of respondents (47 percent) said their company is currently involved as a cloud user while 21 percent said their organization is involved as a cloud service provider.
In addition, 46 percent of respondents said the top cloud issue a tax director should address is understanding the implications for U.S. and foreign tax-compliance purposes. Almost half of respondents said their top area of focus was server location and permanent establishment issues with respect to the international implications of cloud, followed by transfer pricing.
"The fact that there currently appears to be limited connectivity and virtually no joint strategic planning between tax and other corporate functions highlights a critical gap – one that can create an opportunity for organizations that think differently and develop IT service delivery approaches that are much more tax efficient," said Rick Wright, KPMG's global cloud enablement leader.
