Cloud computing has become a big deal over recent years as the demand for the service has grown. Indeed, as of 2018 this was a sector that grossed $272 billion. The future looks equally rosy with an expected annual revenue of over $600 billion by 2023. Many US businesses are now migrating to the Cloud to store their data and to improve workflow, and consumers are using Cloud-based services in ever increasing ways. As the technology behind online platforms and services develops further, it will lead to more people using it, and Cloud tech will become even more central to our daily lives.
Common online activities, like shopping via the internet, generate huge sums and this has led the US Government to instigate a review into tax laws around this key area. Naturally this has led to a few raised eyebrows within the Cloud computing sector as companies wait to see exactly how it may affect them. Higher tax bills are never welcome in business and this makes it an interesting time for Cloud tech firms.
Why is this US Government doing this?
In short, it is all about money. Or the money which the US Government fears it is missing out on from Cloud tech transactions. The current IRS regulations around tax payments do not really cover Cloud based transactions with it being such a new industry in relative terms. This means that they fear tax money which should be coming into the Federal coffers is simply being missed.
Under the proposed new rules, tech companies could pay wildly different rates on any Cloud computing transactions they make. It could be from zero to 30% in effect. Naturally, this would be a strain on any business that suddenly had to pay the 30% rate on each transaction. The tax rate charged basically lies in how a company is classified by the government in terms of the Cloud transactions they make or services they offer. Although the exact details of this new Cloud computing transaction strategy have yet to be finalized, it is of huge importance to the big tech companies.
How are the big tech companies reacting to this proposed change?
Although this may have a significant impact on the tax a US tech companies will pay, for now it seems the waters are untroubled. Infor is one of the big players in this market and they seem unruffled by these proposed new IRS regulations. This may be in part to the stunning progress they have made in recent years under the leadership of Charles Phillips.
They will also be protected from any undue consequences by news of a $1.5 billion investment from Koch that is expected to lead to a big IPO from Infor some time soon. This should signal another round of growth for the tech innovator, and it will be able to handle any extra tax demands from the US Government. Since 2010, they have been on a steady progression to a more Cloud-based offering to customers and this latest investment should help with that.
Of course, the main way in which any tech company hit by these new rules could react is to simply generate more revenue to offset the extra tax it may have to pay. This should help protect it from any impact a larger tax bill may bring. It would also be well worth finding out what it would take to fall into the lower tax brackets and to consider re-structuring, if possible, to make that happen.
It all comes down to classification
The real nub of this issue for many is how Cloud computing transactions will be classified under the proposed new laws. After all, how the IRS classifies one company next to another could see massive differences in the amount of tax paid. That means that all eyes in the business world will be trained on the finalized plans to see how their company will fare and exactly how the US Government will begin to classify organizations under a brand-new Cloud strategy.
Will the proposed new rules affect Cloud computing as a whole?
The major question that the new IRS plans pose is exactly how they could affect Cloud computing as a sector. With projected revenues expected to rise further in the future across the world, it seems this will not be anything to worry about. Even if some companies do fall foul of the higher rates of tax in the US, it should not have an undue affect on how the whole sector both in the US and worldwide fares.
