Tax departments are being excluded from discussions about whether it’s a good idea for their companies to move into cloud computing, despite security concerns.
Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.
That raises the possibility of tax risks, lost cost-saving opportunities and decreased return-on-investment for cloud projects. While the use of cloud environments continues to be increasingly embraced by companies, 52 percent of a group of senior U.S. corporate tax professionals surveyed by KPMG saif they are generally not included in discussions with top management of other groups in their organizations to provide the tax perspective on cloud initiatives.
A significant majority of more than 200 respondents from a cross-section of U.S. companies also said they have not been involved in updating their CFO or board on the tax issues related to the cloud nor could they say definitely when their own department is likely to use cloud to its fullest extent, the survey revealed.
“Clearly, many senior tax professionals are not being kept up to speed on their company’s plans for the use of cloud technology,” said Steven Fortier, KPMG’s cloud enablement program tax leader, in a statement. “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.”
Only 7 percent of the survey respondents said they were involved in regular discussions with top management of other key groups 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.
In addition, 69 percent of the survey respondents said they do not update their CFO or board on tax issues related to the cloud, while 31 percent said they did so.
“Keeping the tax function in the loop on information technology decisions is particularly important since different parts of an organization may move into the cloud at various phases,” said Fortier. “Every time there’s a technology implementation, whether it’s cloud or not, tax risks and opportunities are likely to be created. Failure to consider the tax implications can dramatically alter the potential return on investment for a particular cloud initiative.”
When asked about the tax challenges facing their companies as they begin using cloud technology, 40 percent of tax executives said identifying how the use of cloud expands or contracts a taxable presence in the United States and foreign jurisdictions is their biggest challenge; while 27 percent cited overall compliance issues, such as withholding taxes and state and federal taxes; and another 27 percent pointed to information technology-related issues, such as server location and service-level commitments from third-party providers.
Respondents described the biggest tax issues related to doing business in the cloud as correctly identifying and calculating tax obligations and filing necessary returns (44 percent), staying current on regulations across various jurisdictions (24 percent), and installing appropriate tax-risk management procedures (23 percent).
Approximately half of the 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.
Forty-six percent of the survey respondents said the top cloud issue a tax director should focus on is understanding the implications for U.S. and foreign tax-compliance purposes.
To the extent that their company operates internationally, nearly half the respondents (49 percent) 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 (29 percent).
One survey response that drew particular attention from KPMG concerned the use of cloud services and its impact on companies’ federal tax R&D credits.
“Nearly half of respondents don’t believe the use of cloud will affect their credit status when it comes to R&D, but we have a different view,” said Fortier. “As companies move to the cloud and other delivery platforms for parts of their R&D function, they may begin to see shifts in their eligibility for these credits if some work moves offshore.”
In commenting on the survey results and the future for cloud technology in general, Rick Wright, KPMG’s global cloud enablement leader, said, “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.”
KPMG’s “Tax in the Cloud” survey was conducted in May 2012. A total of 206 senior tax professionals involved with international, federal, and state and local taxation, in a broad range of industries, participated in the Web-based survey.