KPMG’s 2013 TEI PD Day
Workshop 10: Taxation
Aspects of Cloud Computing
Date: April 11, 2013
Learning Objectives
At the end of this session, you will have a better
understanding of:
What cloud computing is about
The income tax and indirect tax implications of using a
cloud computing service model
© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Canada.
A Definition
• Cloud Computing is:
IT delivery approach that binds together: Technology
Infrastructure, Applications and Internet connectivity
as a defined, managed service that can be sourced in a
flexible way
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
An Illustration
5
Word
Computer
Windows
Software
Platform
Infrastructure
What is “As a Service”?
Components “rented” over the Internet
“On-demand” – available as needed
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Infrastructure as a Service
7
IaaS
Platform as a Service
IaaS
PaaS
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Software as a Service
9
IaaS
PaaS
SaaS
Business Processes as a Service
IaaS
PaaS
SaaS
BPaaS
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Examples
11
PaaS
SaaS
BPaaS
IaaS
…and a growing list of providers for each service delivery
model
Agility / Time-to-Market
Cost
Transparency
Increased mobility of applications
Forced compliance and governance
Cloud Computing Value Proposition to the
Business
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Cloud computing also shifts capital IT
costs to operational costs
13
Cloud provisioning reduces the capital
intensive nature of IT deployments…
1
2
3
4
5
Traditional Model
SaaS Model
*Illustrative
Years
Cost
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Cloud Computing Value Proposition to IT
15
Agility / Time-to-Market
Reduced support footprint
Service development flexibility
Faster deployment of resources
“
Green
” (Improved efficiency of capacity)
Cloud Impact on Business – Virtualization
of Organizations
Opportunities to Leverage
Commoditized Enterprise
Applications and
Economies of Scale
Virtualized
Technology
Virtualized
Processes
Virtualized
Organization
Reduced
Cost
Faster
Results
Greater
Flexibility
Virtualized Business Models
Increased
Agility
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Potential Benefits
17
Just in Time Infrastructure
Resource Realization
Agility, Flexibility and Timeliness
No Systems Lifecycle
Development
Technology Access
Use services and technology
differently
Income Tax Issues
Advertise
Process (payments)
Fulfillment (shipping)
Canadian
Customer
AWS
(Server Farm
in Virginia)
Arm’s Length
Corporation
(“ALC”)
EDI
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Tax Implications
19
Commodity Tax – Multiple Jurisdiction?
e-Fragment Constituting a Business?
Location of that Business?
Characterization of Payments?
Withholding?
Indirect Tax
GST/HST
• Characterization
• Place of Supply
Provincial Treatment
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Indirect Tax Issues
21
Property
Services
GST/HST Place of Supply – Inside or
Outside Canada
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
GST/HST Place of Supply – Which Province?
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
GST/HST - Imports
QST - Quebec
/
GST
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
PST - Saskatchewan
27
Most cloud supplies likely subject to SPST as “computer services”
Recipients operating both in and out of SK subject to SPST to the extent
computer service related to SK
A computer service relates to SK where the service:
• Relates to a physical location, transaction, activity or contemplated
transaction or activity in Saskatchewan; and
• Is provided to a person who resides, ordinarily resides or carries on
business in Saskatchewan at the time the service is provided”
PST - Manitoba
Software taxed as TPP
Much narrower scope – software defined as:
• “packaged or prewritten software programs or
modifications to such programs, or the right to use such
programs or modifications, whether the software is
delivered by disk or tape or by electronic or other
means”
MB does not apply MRST where software resides on server
located outside MB
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
PST – British Columbia
29
BC PST came into effect April 1, 2013
Software taxed under separate charging provision – defined as:
• “[A] software program that is delivered or accessed by any means”
• “[T]he right, whether exercised or not, to use a software program
that is delivered or accessed by any means”
Persons carrying on business in BC acquiring software for use on or
with electronic devices ordinarily situated in BC subject to BC PST on
ratio of estimated usage in BC
PST – British Columbia – Cont’d
Expanded definition of telecommunication services now includes:
•
“The right, whether exercised or not, to download, view or access,
by means of a telecommunication effected through an electronic
device that is ordinarily situated in British Columbia, signs, signals,
writing, images, sound or intelligence of any nature other than
software”
Query whether digital storage (IaaS) could be caught under the right to
“view or access” provision
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Indirect Tax - Conclusions
31
From an indirect tax perspective the Canadian situation is
better than most
Income Tax Issues
Carrying on Business
Withholding – Cloud Provider
Withholding – Customer
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Carrying on Business
33
Meaning of “Business”
Location of Contracts
Profit Emanation
Agents
Extended Meaning
Income Tax Issues
Advertise
Process (payments)
Fulfillment (shipping)
Canadian
Customer
AWS
(Server Farm
in Virginia)
Arm’s Length
Corporation
(“ALC”)
EDI
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Withholding – Cloud Provider
35
(If ALC is Canadian, does it charge AWS withholding?)
Consider treaty exemptions/reductions
“Right to use” AWS software governed by treaty – else 212(1)(d)(i)?
Profit based payments –212(1)(d)(ii)
(If AWS, a US company, operates in Canada)
Regulation 105 may require 15% withholding by ALC
Withholding - Customer
If customer purchases:
Goods
• None (not passive income)
Services
• Fed Reg. 105 / Quebec Reg .1015R18
• 212(1)(d)(ii)
• 212(1)(d)(iii)
Intangibles
• Films
• Software/games – No
• Book – No
But who collects/remits/pays?
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
