Arcotia Hatsidimitris - International Tax Dialogue

ANNEX E – 105
Annex E: Cloud computing
The term “cloud” has been around for a while as a simple metaphor to represent a complex
information technology infrastructure. Originally used to represent the telephone network, the cloud
symbol is now commonly used to represent the Internet. “Cloud computing” is a generic term for the
delivery of information technology services over the Internet. Probably the most basic form of cloud
computing service is the provision of data storage. The user files information over the Internet and it
is stored by the third party service provider. The user no longer has to worry about backing up their
data as that is part of the service and the data are generally accessible to the user wherever they are
able to access the Internet. On the other hand the user generally has no interest in, and frequently no
control over, where the service provider chooses to locate the servers on which their data are stored.
That does not mean that this cannot be specified in any agreement with a service provider if a
particular user is concerned about the location of their data.
Cloud computing services can extend well beyond the provision of data storage facilities over the
Internet. There are three broad categories of cloud service provision. Infrastructure as a Service
covers the provision of services such as data storage or access to server capacity that can substitute for
the purchase of hardware. Platform as a Service takes the level of service further, replicating the
functionality of an operating system so that the user is effectively provided with a virtual computing
facility that is hugely scalable, something that is very useful for software developers. And the
provision of Software as a Service gives the user the opportunity to access the functionality of various
software applications via the Internet, without having to have copies of the applications on their own
computer. E-mail applications such as hotmail and gmail are some of the most commonly used
examples. But the applications available under this model are much more extensive than just e-mail,
encompassing the usual suites of office applications (such as word processors and spreadsheets). They
also include applications that in the past have been associated with the large corporate user, such as
customer relationship management systems and enterprise resource planning tools. Acquiring these
systems from a cloud service provider offers many advantages to the user, including no need to make
significant capital outlay, the ability to scale up or down as the business requires and no need to worry
about the maintenance of either the software or hardware. It also makes it possible for new businesses
to acquire capabilities that would traditionally only be available to established enterprises with
significant financial clout. Within the SME segment, businesses can now procure their record keeping
and other business administration services from cloud service providers.
Cloud computing services are generally provided by third parties to users. However, the basic
approach can be used within large international organisations to achieve economies of scale. For
example, a large multinational enterprise might traditionally have procured hardware and software at a
national or regional level, incurring capital and maintenance costs in several jurisdictions. Creating an
internal “cloud” by means of an intranet enables the enterprise to manage its data storage and software
applications once and in a single place, and so reduce the overall cost.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012