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How Is Your Cloud Taxable: New Tax Planning Considerations for International Profit Growth
The business model is changing rapidly in many industries, especially in the technology sector. Before, customer revenue and operational efficiencies were driven by the sale of on-site hardware and software and by personnel whose job it was to integrate the two with a customer's business model. Now, businesses are increasingly relying on remotely maintained hardware and software, accessed through the internet or intranets in a virtual setting that has been collectively dubbed "The Cloud." Instead of buying or leasing software and investing in the hardware on which the programs would run, businesses are increasingly adopting software as a service (SAAS) models with new tax rules. Taxand US explores this shift in business model, and how a move to virtual software and hardware functions will affect multinationals everywhere.
In the SAAS model, capital investment in hardware is reduced because the performance demands on the user's machine are much reduced, as is the need to constantly update software versions on that hardware. This affects virtually every business. A large corporation that sought in the past to manage data and reporting across global geographies no longer needs to maintain its own server farms and enterprise software packages, instead giving its employees access to such functionality from anywhere secure web access is available.
If your company is moving into "The Cloud" to capture revenue and lower costs, traditional accepted methods for lowering the tax cost of non-US regional operations may not apply to this new world. New considerations for locating infrastructure, interacting with customers, valuing IP, sharing risk and expenses between the US and foreign operations, and financing expansion may be needed. Thus, thinking ahead and proper structuring may get your company a more tax-efficient answer.
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