Based on the definition of SaaS (software as a service), the use of software is carried out within the framework of services. However, in practice, paid access to cloud services is formalized by three different agreements:
contract for information services,
software license agreement, and
PAK lease agreement.
Below you can familiarize yourself with the legal risks of applying these agreements in the relations under consideration.
From the point of view of legislation, a cloud service is an information system that includes a set of technical means, information in databases, and information technologies (including software) that ensure its processing.
The main problem of applying a lease (hire) agreement to such services is the requirement of the legislation to lease only individually defined things.
The hardware in a cloud service cannot be individualized, the software is also not a thing, unlike its carrier.
Therefore, the PAK lease agreement within the framework of SaaS is void as contrary to the direct indication of the law on the subject of the lease agreement.
Due to the nullity of the lease agreement, the parties to such an agreement cannot refer to its terms in the event of civil and tax disputes.
Any ways of using the Software are associated with the provision of its copies in the actual possession of the end user. The functional use of the software does not refer to the method of use. For inquisitive minds, we have placed a detailed justification of these theses in a separate section.
SaaS provides access to various services of the information system, including software, hardware and information in databases. That is, the software is used in conjunction and inextricably linked with other elements of the information system.
At the same time, the software instances are not downloaded by the user, are not loaded into the memory of their devices and are not modified, i.e. does not enter into his actual possession and use. All actions with such software products are performed on the side of the service owner.
Therefore, a SaaS license is against the law (void) in the same way as a lease (rental) agreement.
This raises a similar risk of not being able to invoke license terms in civil and tax disputes. In addition, the owner of the service, applying the general taxation system, is deprived of the possibility of applying the VAT exemption for the software license agreement.
As you know, implementation under a software license agreement is not subject to VAT. Sales under other agreements are subject to VAT. Therefore, the re-qualification of a SaaS license into a service contract will entail an additional charge of 18% VAT, a fine of 20% and late payment penalties.
Services in the Cloud
Services are consumed in the course of their provision and do not lead to the creation of a thing. Therefore, the subject of the contract for the provision of services is the activity that can be carried out using the information system.
The activities of collecting, summarizing, systematizing information arrays and providing the results of processing this information are directly related by tax legislation to information processing services.
Therefore, the contract for information services within SaaS does not contradict the law. In this regard, it does not bear civil and tax risks.
Here are a few opinions from experienced SaaS business owners!
Yaroslav Osetrov CEO of cloud automation platform for medical clinics
Alexey, the value of my product is to give clinics a simple and convenient automation tool in the cloud. We understand that it is forbidden to store a patient’s medical data in the cloud and will think about it. As an option, we will implement the storage of the patient’s personal data on the side of the clinic and it will be a kind of hybrid cloud – that is, we are ready to adapt our solutions to lawmaking and do not do this right away due to the opacity of the norms and the lack of intelligible comments from the new Russian law for us .
I am building a service on Azure and I don’t need to create my own cloud, i.e. Option A from your classification is comfortable and I will ask my colleagues questions related to the legal aspects of working with the platform.
Askar Rakhimberdiev CEO MyWarehouse
The main legal issue that arises in SaaS sales is the choice of the type of contract between the provider and the user. There are two relatively equivalent options – a license agreement and a service agreement. Let’s look at both contracts from the point of view of the provider and the user.
A license agreement is a common way of transferring rights to use software. For the provider, it is convenient, first of all, because it is not subject to VAT. At the same time, the user’s rights are limited quite strongly, and the responsibility of the provider is minimal. You cannot include the terms of the SLA in the license agreement – for this you need to conclude a separate agreement for the provision of technical support. Most providers do not do this, which means that from a legal point of view, the quality of service (availability, performance) is not regulated in any way. One more point: you cannot return the purchased license. If you bought an annual subscription to the service under a license agreement and after six months wanted to return unspent funds, the provider is not obliged to do this.
A service agreement is a traditional form of agreement that usually provides hosting, telecom services, and the like. In general, this gives more rights to the user and imposes more stringent requirements on the provider. SLA conditions fit well into it. If, under a license agreement, the licensor is only obliged to transfer the license and is not responsible for anything further, then when providing the service, the provider must ensure the quality of the service. Further, the customer of services has the right to demand an unused advance payment under the contract. Thus, no matter what is written in the service agreement, the user always has the right to return the unspent part of the advance.
There are two other important legal issues that cause a lot of discussion. Does the SaaS provider need a license to provide telematic communication services and how to ensure compliance with the law on personal data.
In general, I would say that the legal aspects of the provision of cloud services are still poorly developed. I hope that the recently formed expert council under the Ministry of Communications will help get things off the ground.
It should be borne in mind that your relationship with the client/user is not limited to transferring the right or providing a service to him: you will also have to receive money from him and, accordingly, arrange it in some way. Our service is designed for a scalable market, and the average check is unlikely to be more than $30. Therefore, while thinking through our relationships with potential clients, it was critical for us not to “burrow” into accounting problems, printing out, signing and sending out bundles of acts every month.
In option B, you provide a service, respectively, you will have to “report” the act to the client. And also send him the original by mail, get his signature, get a second copy …
We have chosen for Witget the option of an offer to conclude a license agreement to a greater extent precisely in order to save ourselves and our customers from the monthly burden.