Documentation stored in cloud computing as evidence in Ecuador

Cloud computing is a service of storage of information, database, networking software analytics, among others, provided through the internet or on the cloud. Generally, these types of services are paid for under a ‘utility model’ scheme, on a monthly basis by users, or based on the space used.

The services provided through cloud computing, in our opinion, are part of the concept of ‘Disruptive Technology’, developed by Harvard Business School professor, Clayton M Christensen, since it has revolutionised storage and information processing systems, by making them more accessible to all. Currently, most of the world population uses, even without knowing, cloud computing services for emails, data storage, watching movies online, mobile applications, among others. In fact, cloud services are now within reach of small companies that under prior standards, would have found it difficult to have access to servers, software services tailored to their needs, which entailed having IT support personnel, or even a data centre; all resources with highly elevated costs. Now, even the smallest companies can have access to storage, software applications, and information services integrated with the user terminals without high costs, by avoiding the acquisition of hardware and software necessary for its operation (servers, racks, cooling systems, etc). Above all, the use of cloud computing has boosted businesses by increasing productivity, better performance of the platforms and greater reliability on the systems, avoiding loss of information.

In Ecuador, it is becoming more frequent the use of the cloud to store information, precisely in an effort to avoid the use of physical space of the companies. All of this, considering that there is the obligation to keep information in order to comply with the different authorities, and, furthermore, that information many times is necessary as evidence in judicial proceedings. Nonetheless, the use of cloud computing systems for storage of information of the companies raises the following questions:

  1. Is information stored on the cloud valid as evidence in trial?
  2. Does documentation stored on the cloud serve as evidence for the purpose of complying with tax obligations?

Below is an analysis of each of the questions raised:

1) Is information stored on the cloud valid as evidence in trial?

The Organic General Procedural Code (COGEP) has brought about several changes to judicial proceedings in Ecuador, one of them being the recognition of digital documents as a means of proof.

The COGEP recognises as digital evidence the following:

  1. Documents electronically produced with their corresponding annexes, shall be considered original for all legal purposes.
  2. Digital or scanned reproductions of public or private documents added to the electronic record shall have the same evidential weight as the original. However, the law establishes that original scanned documents must be kept by its owner and submitted at the hearing or when requested by the court.
  3. All digital content in accordance with the regulations of the COGEP.

Digital documents are considered documentary evidence, and therefore, it is essential that the document is not defective, diminished, or altered.

As such, it cannot be overemphasised that information stored on the cloud does constitute evidence in trial, as long as it is established that it has not been altered. To this end, the Notary Law and the Regulation of the Integral Notary System of the Judiciary provides, not very clearly, the figure of notarial materialisation, through which the Notary attests the information contained in the cloud, so that it may serve as evidence in trial. It is important to note that this procedure while widely used in Ecuador, is not expressly laid down in the Notary Law, but rather only briefly mentioned in it and in the referred Regulation. For this reason, a Judge could question its use at the moment of the assessment of the evidence. However, as of today it is the only legal mechanism available in Ecuador to incorporate documents stored on the cloud as evidence in judicial proceedings.

2) Does documentation stored on the cloud serve as evidence for the purpose of complying with tax obligations?

In relation to the tax field, the development of this issue is highly limited, since in principle there are regulations that expressly mandate keeping physical records of certain documents of a fiscal nature.

The Internal Revenue Service, tax authority in Ecuador, in the exercise of its assessments, resolutive and sanctioning powers, has the authority to request taxpayers to exhibit documents related to the events that generate or create tax obligations, in accordance with Article 96 section 3 of the Tax Code, which establishes the obligation of taxpayers to exhibit the documentation requested by the tax authority.

Likewise, the Regulation of Sale, Withholding and Complementary Receipts in Article 41 expressly mandates that taxpayers have the obligation to keep sale, withholding, and complimentary receipts for a term of at least seven years, documents that are indispensable to demonstrate the event that generates tax obligations. Also, this is the same term as the statute of limitation of the collection action.

Digital documents are considered documentary evidence, and therefore, it is essential that the document is not defective, diminished, or altered.

Nevertheless, the legislation does allow the electronic issuing of sale, withholding and complementary receipts, in accordance with the provisions of the Electronic Commerce Law. For the electronic documents to be valid, each document must have an authorisation issued by the Internal Revenue Service. Once this condition is met, electronic documents have the same evidential weight as physical documents. The systems that produce electronic invoices operate on cloud computing, storing the information generated on the cloud.

While it is true that initially the use of electronic means was envisioned as an alternative that could be used or not at the discretion of the taxpayer, currently, the policy of the tax authority is directed at getting all taxpayers to implement the computer systems necessary for the electronic issuing of sale, withholding, and complimentary receipts. So much so, that through a resolution it established the terms in which the different taxpayers must compulsorily use electronic mechanisms to issue the aforementioned documents.

Thus, while there is an express provision that obliges taxpayers to keep physical documents, the necessary regulations have been put in place in order to take the leap to the compulsory use of electronic means, which brings about that in the future all of the referred documents will be issued electronically on cloud computing systems; facilitating the means of storage of information for taxpayers.

To sum up, it can be asserted that in Ecuador changes are taking place in the legislation that allow the use of information stored on the cloud to comply with tax obligations and as means of proof in judicial proceedings. It is our opinion, that while those are important changes that are adjusting to the daily needs of companies, as a country we still have to implement several changes in order to adjust the legislation to the reality of the technological advances that are increasingly used by all.