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Cloud computing and record-keeping obligations

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Technical tax area: Revenue alerts

Revenue Alert RA 10/02

Explanation: Status of release

A Revenue Alert is issued by the Commissioner of Inland Revenue, and provides information about significant and/or emerging tax planning issues that are of concern to Inland Revenue. At the time an alert is issued risk assessments will already be underway to determine the level of risk and to consider appropriate responses.

A Revenue Alert will identify:

• the issue (which may be a scheme, arrangement, or particular transaction) which the Commissioner believes may be contrary to the law or is inconsistent with policy;

• the common features of the issue;

• our current view; and

• our current approach.

An alert should not be interpreted as being Inland Revenue's final position. Rather, an alert outlines the Commissioner's current view on how the law should be applied. For any alert we issue it is likely that some investigatory work has already been carried out.

If people have entered into an arrangement similar to the one described or are thinking about it, they should talk to their tax advisor and/or to Inland Revenue for advice about tax implications.

Issue: Using cloud computing services to store business records in electronic form

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.


Cloud computing is an internet-based computing service where users are provided with access to servers, software, applications, storage and networking, or any other aspects of computing, all of which are delivered over the internet.

Cloud computing services are provided by software providers operating data centres that can be located anywhere in the world. The data centres are where the services are usually delivered from and businesses that use cloud computing services will have their data stored in these centres.
Generally, end users of cloud computing services do not need to know the underlying technology that supports these services and it is usually unknown to them which data centre their business records are stored in.

Current view

Section 22 of the Tax Administration Act 1994 ("TAA") requires a person who carries on any business or any other activity for the purpose of deriving assessable income in New Zealand, to keep sufficient records in New Zealand, in the English language, to enable the Commissioner to readily ascertain information about their tax affairs. The same requirements for GST records are contained in section 75 of the Goods and Services Tax Act 1985. Similarly, section 32 of the TAA requires that all gift-exempt bodies must keep in New Zealand sufficient records to enable the Commissioner to determine both the sources of donations made to them and the application of their funds.

It is the Commissioner's view that only business records stored in data centres physically located in New Zealand will comply with the record keeping obligations in the Inland Revenue Acts. Taxpayers are responsible for ensuring they comply with their record keeping obligations. Therefore, taxpayers using a cloud computing service will need to be satisfied that all their business records will be stored in data centres located in New Zealand.

The failure to keep the books and documents in New Zealand as required by the Inland Revenue Acts is an absolute offence under section 143 of the TAA. A person convicted of this offence is liable to a fine.

Despite this, using cloud computing to backup business records will not breach record keeping obligations, provided the primary business records are stored in New Zealand.

Current status

As well as the obligation to keep sufficient records in New Zealand, Standard Practice Statement ("SPS") GNL-430 Retention of business records by electronic means published by Inland Revenue in 2003 provides guidelines on the retention of business records in electronic form.

Users of cloud computing services should be aware of their obligations to keep sufficient records in New Zealand and follow the guidelines in SPS GNL-430 when retaining business records in electronic form.

SPS GNL-430 requires that, regardless of how business records are kept, business records must be kept in a manner that allows the Commissioner to readily ascertain information about the taxpayer's tax affairs and there must be sufficient detail to ensure a complete audit trial that allows tracing the retained records to and from accounting records and to tax returns.

Further, records kept in electronic form must be capable of being retrieved and produced to Inland Revenue upon request, either in legible hard copies or in electronic form. Taxpayers must be able to demonstrate that their electronic records are secure from both unauthorised access and data alterations. This will usually involve developing and documenting a security programme that provides backup and recovery of records and minimises the risk of unauthorised alteration to the data.

Going forward

If taxpayers are using or thinking of using cloud computing services as part of or as their entire IT infrastructure, they must ensure this use meets their record keeping obligations.

This may involve obtaining an assurance from their service provider that their data will only be stored in data centres in New Zealand and that there will be back up and recovery procedures sufficient to guarantee the availability of the records. Without this assurance, taxpayers risk not meeting their record keeping obligations under the Inland Revenue Acts.

The Commissioner has the discretion to authorise a taxpayer to keep their records outside New Zealand. This is subject to the records being readily available in New Zealand on request, in English, and at no cost to Inland Revenue in obtaining the information. Each application will be considered on individual merits, having regard to the taxpayer's compliance history and whether storing business records offshore is likely to impede Inland Revenue compliance activities.

References to consider

The following related references will help customers:
Standard practice statement: GNL-430 Retention of business records by electronic means
Date issued: 9 December 2010
Authorised by: Graham Tubb
Group Tax Counsel
Contact (via email):


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