Information Technology Reference
In-Depth Information
the country of establishment of the end user (the same as for the privacy contract
between end user and service provider), shall basically state the modalities applied
to the data processing.
Finally, another important aspect to analyse regards the location of the Grid/
Cloud components, i.e. of the servers, nodes, clusters, etc that form part of the Grid
or Cloud infrastructure. If such components are located in the EU, no legal problems
are likely to arise. If this is not the case, the privacy contract between the end user
and the service provider shall indicate in which countries the Grid/Cloud compo-
nents are located and shall specify that the data will be transferred outside the EU.
7.4 Taxation: Grid/Cloud Computing and the Concept of Permanent
Establishment
Taxation is one of the most relevant issues to take into account when a technology
provider wants to commercialise Grid/Cloud-based solutions, as it may be a major
barrier to financial success of Grid or Cloud businesses. Taxation has to be analysed
from many perspectives, and in this paper we will focus on direct taxation (i.e. taxes
on income). With this regard, the main issue to assess is the relation between Grid
and Cloud computing and permanent establishment.
According to the principles commonly accepted at international level, and set
forth primarily by the Organisation for Economic Cooperation and Development
(OECD) a business presence (e.g. a branch or a factory: technically speaking, a
permanent establishment) of a company in another State justifies the taxation, by
the authorities of the State, of the profits generated by that permanent establish-
ment itself.
29
This principle is likely to affect Grid and Cloud providers if they have
servers, nodes, clusters etc (i.e. Grid/Cloud components) in several countries. In
other words, in case of a transnational Grid and Cloud, the portions of profit gener-
ated by its components can be taxed respectively in all the countries where these
components are located. This in principle means high compliance costs for tech-
nology providers, risks of litigation with the tax authorities concerned and, ulti-
mately, a great uncertainty when calculating the portions of profit generated by each
Grid/Cloud component (Parrilli 2008).
These considerations are valid, of course, if those tax authorities believe that
Grid/Cloud components are permanent establishments of the technology provider.
The general principle, stated by the OECD and followed by many national fiscal
administrations, is that servers (and therefore Grid/Cloud components) are perma-
nent establishments of the technology provider if they are fixed, they carry out
totally or partially the business of the company and such activities are not of prepar-
atory or auxiliary nature.
30
It must be assessed on a case-by-case basis if these condi-
tions are met, but in principle we can say that Grid/Cloud components are deemed
to be permanent establishments of the technology provider and, as a consequence,
29
See OECD, Model Convention with Respect to Taxes on Income and on Capital [as they
read on 28 January 2003].
30
See OECD, Commentary to the Model Tax Convention on Income and on Capital.
