Cloud computing is generally defined as using a shared pool of computing resources accessible via the internet. Those resources can be rapidly acquired as needed, with minimal management effort or service provider interaction.
However, operators who provide cloud services face a number of complex accounting challenges. In particular, bundling cloud services with non-cloud services will likely complicate revenue recognition patterns. Adding cloud services to the equation means operators may face problems in pricing mechanisms and revenue allocation amongst the various elements. There are also re-seller arrangements to consider (in which it is sometimes difficult to determine the principal and agent) thereby making things even more complex. Some arrangements could result in embedded leases, where an operator is providing exclusive use of an asset.
PwC has considered some of the key accounting issues in relation to cloud services offered by operators in a newly issued report: Making sense of a complex world: Cloud computing – the impact on revenue recognition
Understanding what drives the amount of corporate income tax paid by companies has become increasingly important in recent years as governments adapt their policies to encourage growth, while recognising the need to raise revenues to fund social investment programmes and to repair public finances in the wake of the global economic downturn. It is important to recognise and understand the impact of tax policies on the revenues received by governments, revenues that governments rely on to enable them to discharge their obligations to provide funding for infrastructure, education and public health. This includes the need to ensure that the tax system provides an economic environment which fosters economic growth, helping to increase the size of the economy from which revenues can be drawn.
For companies, this has become important as they come under increased scrutiny over how much tax they pay and whether they are paying the ‘right amount of tax’. For companies the amount of tax that they pay represents a key element of the contribution that they make to the economies in which they operate. Taxes are a cost that has to be managed like any other cost, and the level of taxes paid is one of a number of factors that are taken into account when making decisions on where, when and how much to invest.
Over the last seven years PwC has worked with the World Bank on the “Paying Taxes” study which measures and compares how easy it is to pay taxes in 183 economies around the world using a case study company with a standard fact pattern. The study looks at all of the taxes that a company might pay including corporate income tax. It showns a consistent downward trend in the statutory rates of corporate income tax which have been applied over the last seven years, as governments have looked to ensure their tax systems remain competitive in a globalising economy. Another consistent feature of the results of the study is that the amount of corporate income tax actually paid can often be different and on occasions very different from the amount derived by simply multiplying the accounting profit by the headline rate of corporate income tax.
The results are quite striking
They show how the downward trend in statutory rates has resulted in those now applied falling within a fairly narrow range. More than half of the economies around the world have a statutory corporate income tax rate between 15% and 30%. And as regards the rate of tax actually paid by the company, the study identifies 40% of economies which make adjustments which increase the amount of tax paid while 60% reduce it. PwC’s analysis identifies the key reasons for these differences and provides some interesting insights on a regional basis and for a selection of individual economies.
It will be interesting to see how corporate income tax regimes around the world continue to develop, and whether the need for governments to demonstrate that their systems are competitive takes priority over the need to generate much needed funds.
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