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Microsoft asked to pay 175 million in taxes in India

A unit of Microsoft Corp. has been asked by an Indian appellate authority in income tax to pay more than 7 billion rupees - or about USD 175 million on income earned for the assessment period of 1999 to 2005.

A unit of Microsoft Corp. has been asked by an Indian appellate authority in income tax to pay more than 7 billion rupees - or about US $175 million on income earned for the assessment period of 1999 to 2005.

The amount is computed based a tax rate of 15% on royalties earned in the country. If interest is added, the total burden is likely to go even higher.

How did this situation came about? According to The Economic Times:

The essence of the case, which pertained to the period 1999-2004, is Microsoft’s decision not to pay tax in India citing several legalities, including the double taxation avoidance agreement with the US. The company, which sells its software in India through a circuitous route involving several group companies, had maintained that its deal with the customers is a sale and no royalty payment is involved. It is this position that has now been rejected.

The irony is that what nailed the case here is Microsoft's own EULA. Tax authorities cited a clause in the document which stated "the product is licensed, not sold," concluding that since the software is licensed, a royalty is involved.

Obviously, it is not the last word on the case yet. Microsoft believes it should not have to pay the tax, citing several legalities, including a double taxation avoidance agreement with the United States. At the moment, Microsoft can move on to the Income-Tax Appellate Authority (ITAT) and the hig court to appeal its case.

A Microsoft spokesperson said, "Microsoft believes it is in full compliance with the Indian tax laws and the income-tax treaty agreement between India and the US. Microsoft is reviewing the order and we will determine our course of action accordingly."

Still, I find it interesting that Microsoft believes its products to be licensed - as stated in its EULA, and not sold. I have never really considered the implications of "licensing" a software versus "purchasing" one. What do you have to say about this?

About

Paul Mah is a writer and blogger who lives in Singapore, where he has worked for a number of years in various capacities within the IT industry. Paul enjoys tinkering with tech gadgets, smartphones, and networking devices.

20 comments
tinyang73
tinyang73

After MS has been screwing consumers for years with it's post shrink wrapped EULA of "licensed, not sold", it finally gets screwed itself by it's EULA. Payback's a b*tch, isn't it?

j-mart
j-mart

When a company decides on a sales model for their product each option they have to choose from will always have both advantages and disadvantages. After a choice has been made and the advantages of that decision have been accepted the downside does not go away and the company has to allow for this in their costing in their sell price. If they overlook anything they still are required to accept responsibility, mabee rap the odd executive over the knuckles, bite the bullet and just get on with it.

BALTHOR
BALTHOR

I think that Bill's escape clause here is that he lives on his own private island.

The Scummy One
The Scummy One

it can be nuked out of existence easily enough, right? :^0

pravin
pravin

Look who is trying to find loopholes in tax system and trying to avoid taxes... the richest software company in the world. They should pay their share and more so Government of India should come up with proper laws to protect the customer from the flaws and bugs when we go out there and purchase a software

Bizzo
Bizzo

... India and the US have signed a double tax avoidance agreement which means that MS pay the tax in the US doesn't it? An Investment Incentive Agreement (http://www.indianembassy.org/pic/PR_1998/April98/prapr1698.htm) was signed in 1997 to try to boost US investment in India, and now it seems that India are trying to renege on the agreement. Just because MS is the "richest software company inthe world" why should they get screwed by a greedy nation? Maybe US companies (not just MS) should pull out all investment in India if the Indian government are going to do that to them? If the Indian government gets away with this, which company is next? Alternatively, MS should increase the price of their products when shipped or sold in India to take account of the extra 15% they have to pay, on top of the US tax they pay. That's fair isn't it? That way the Indian government get more moeny to "come up with proper laws to protect the customer" and MS gets their money to continue to produce the software.

shashikanth.kumar
shashikanth.kumar

I hope they all pull out soon. Our country is becoming sick with all this dollars pouring in from the US and Europe. And our lifestyle is becoming like a "rat race", performing some stupid routine tasks which you people find boring. Hope they pull out soon. It will be good riddance. We could get back to living a simple and meaningful life. Poor, but happy :-)

rentauri
rentauri

Do remember that it was the IRS that took Al Capone down so if anyone has a shot at MS its a tax agency.

Reb00t
Reb00t

Comparing MS to Al Capone?! Also, if you think "taking down" MS will make the world a better place, you need to check into a mental institute. I love how the anti-MS crew gather at anything that has "Microsoft" in the content.

agrunner
agrunner

No doubt. Next you'll be telling me how much better your $3,000 laptop does than my $1,200 one. Haters.

boxfiddler
boxfiddler

"The irony is that what nailed the case here is Microsoft?s own EULA. Tax authorities cited a clause in the document which stated ?the product is licensed, not sold,? concluding that since the software is licensed, a royalty is involved." :D

The Scummy One
The Scummy One

This is funny. The MS -- you can borrow it but not own it -- bit is finally biting them in the arse :^0 :^0

stapscott
stapscott

Well, what program does NOT have a EULA? that is End User LICENSING agreement... In other words, what are you talking about, author? I don't see why you are surprised by this. Every piece of software you "own" is really a license.

Neil Higgins
Neil Higgins

Of course they should pay tax,in my opinion.If I (wrote) "Neil's OS",under license,then shiped it to India,and a million people bought my product for x amount of rupees,I would expect to pay "my bit" for local,and National coffers.Yes,the EULA might say,"under license",but the boxed product,with disc,would have to be purchased,over-the-counter,at a local store.If it came pre-installed,on a desktop,or laptop,and the Indian government had already paid an agreement tax,to purchase x amount of machines,then the local business,school,college,home-user buys one,or several,then what profit I made,I would expect to pay tax on that.Let's be honest,$175 million is nothing to Redmond,and would be a PR success.

Dr Dij
Dr Dij

Neil's OS!!! Let me know when it is in Beta. Has to be better than M$ windoze Hope it includes GUI (a Guinness object user interface!)

jakesty
jakesty

They're not contesting the sale and tax, the article is saying that there are additional taxes regarding after sales costs/markups/or groups that MS should not be in charge of. I'm tired of everyone trying to take advantage of MS just because they have the money in the bank. Hate them because they're successful...I think the shareholders would disagree with the "payout"

kenneth15
kenneth15

I can't agree with you more. Microsoft is a business, of course they will do certain things to gain more profit but does that mean they are the EVIL company that everyone portrays them to be? I don't understand why does Microsoft have to pay royalties to India when the copyright and patent belows to Microsoft.

paulmah
paulmah

Still, I find it interesting that Microsoft believes its products to be licensed - as stated in its EULA, and not sold. I have never really considered the implications of ?licensing? a software versus ?purchasing? one. What do you have to say about this?

L-Mo
L-Mo

Its interesting how alot of folks have strong opinions about Microsoft. Emotions seem to run strong. As for the money... If $175 is a fair number, according to Indian law, so be it. IMHO, Microsoft should pay its due of taxes; here and in India. As a business it should minimize its tax liability while maintaining ethical business practices. In the end, I am LOL over the the idea that their own EULA loses the case. Excuse the placement... this should have been furhter down in the thread. :) And, as far as Al Capone, it is true that many enterprises (legal or criminal) have fallen because of tax issues. A far stretch to compair the two but still true on that fact.

psandhu
psandhu

Kerry Packer in 1991 at Senate: Select Committee on Certain Aspects of Foreign Ownership Decisions in Relation to Print Media quoted in Sydney Morning Herald 18-19 February 2006 ?I pay what I?m required to pay, not a penny more, not a penny less. If anybody in this country doesn?t minimise their tax, they want their heads read because, as a government, I can tell you you?re not spending it that well that we should be donating extra.? (http://www.kerrypacker.com/kerry-packer-stories-and-directory.html) Now all those who have not minimised their tax, please read the above statement again. I am sure many of us hold opinion against how the governments spend the tax money. Business, Economy, Profits and Taxes all go together. Law of the land is there to streamline difference of opinion. This is a simple case of difference of opinion between any business and taxation department. This is only first round. MS is going to high court and then there is Supreme Court. Let us wait and see what the end result is. I appreciate what Microsoft has done for a business, it's shareholders and doing all this has contributed towards the economy of different nations (not only US of A). I have benefitted (like million others) equally from providing services making in Electrical Engineering (Siemens, Omron, SCADA, etc and Information Technology (Unix, Novell, Microsoft, Linux and others). I am sure if China and India came together where they have the cheapest resources and largest well educated work force, a better product can be produced as it will have benefit of lessons learnt by Microsoft for which it still pays. In the mean time Microsoft has the right to continue to reap benefits as a successful business and minimise tax payment.

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