The New Zealand Inland Revenue Department (IRD) has made it mandatory for businesses operating in the country, which uses Cloud Computing services hosted overseas, to ensure that business records are available locally.

New Zealand Tax Law requires that any person or business with assessable income from the country has to keep sufficient records in-country, and in English, to enable the IRD Commissioner to ascertain information about tax affairs.

In a Revenue Alert issued today, the IRD said it was concerned that the use of cloud computing may mean businesses are not meeting their record keeping obligations under New Zealand law.

According to an IRD spokesperson, this means that business records stored in overseas data centres would not be sufficient.

The spokesperson said business records have to be accessible physically in New Zealand and that there has to be adequate back-up procedures in place.

“It would be ridiculous if we had to send a person overseas to inspect business records,” the IRD spokesperson said.

The requirement to store business records locally could have wide-ranging impact on Software as a Service (SaaS) providers such as high-profile Kiwi accounting company Xero.

According to the CEO of Xero, Rod Drury, the company was “in discussion with the IRD on this matter as our legislation hasn’t kept up with developments in technology compared to other countries like Australia.”

Drury says that “we are working towards certification of our current customers and in the longer term expect to see the legislation amended to better reflect contemporary technology.”

Xero has “a great relationship with the IRD,” Drury said. The company was working with the IRD on a range of initiatives, he said, to ensure that the tax authority understood the benefits of cloud technology to reduce compliance costs and improve small business productivity.