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IRD issues Revenue Alert over cloud computing

15 Dec 2010

Yesterday the IRD issued a Revenue Alert over the use of cloud computing, saying that only business records stored in data centres physically located in New Zealand comply with the record keeping obligations of the Inland Revenue Acts.

The Revenue Alert explained, "Inland Revenue is aware that ‘cloud computing’ is becoming a popular way for businesses to set up their IT infrastructures. We are concerned that the use of cloud computing may mean businesses are not meeting their record keeping obligations under the Inland Revenue Acts.”

Section 22 of the Tax Administration Act 1994 says that any business in New Zealand has to keep sufficient records in New Zealand (and in English) to enable the commissioner to readily ascertain information about their tax affairs.

For a minute there Twitter lit up like a Christmas tree, with many users asking what this meant for cloud companies such as Xero.

Rod Drury, CEO of Xero, was super-quick to respond to the Revenue Alert, posting a blog that put out any flames.

"A few tweets just came in noting that the IRD has issued an alert concerning location of data for cloud computing,” Drury said. "There is no issue for Xero customers as we have been working with the IRD for some time on a blanket dispensation and assisting IRD on policies around the cloud.”

Drury wrote that New Zealand legislation hasn’t kept up with developments in technology compared to other countries.

"We are working towards certification of our current customers and in the longer term expect to see the legislation amended to better reflect contemporary technology. We’d expect this to end up in a similar position to Australia where there is no onshore storage requirement, only that your records are available if requested. There are a number of fall back positions if the industry doesn’t get there,” he said.

Drury said Xero has been proactively working on this issue for some time for the benefit of other software developers.

"We have a great relationship with the IRD and working with them on a range of initiatives as they understand the benefits of cloud technology to reduce compliance costs and improve small business productivity.

"This is a great discussion we’ve been looking forward to having,” Drury concluded.

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