Microsoft Told to Pay Tax on License Fee

MissingRainbow writes "To avoid paying taxes in India, Microsoft wanted a court to believe that it is selling its product and that there are no royalty payments involved. Their own EULA worked against them in this particular case however as it states, "the product is licensed, not sold". The court ruled against them."

pwndbyowneula tag.

[Whiney Mac Fanboy]

I suggest two new tags - 'pwndbyowneula' or 'canthaveitbothways' (although the old faithful 'haha' adequately expresses the extent of my sympathy for MS).

Oh, and for those wondering, RS 700 crore == 175 Million USD. (a crore is 10 million).

Re:Obligatory

[Whiney Mac Fanboy]

This must mean that 2008 will be the year of Linux on the desktop!

Totally offtopic, please mod me down, but 2008 is the year of Linux on the desktop already!

Asus can't make enough eeePCs to meet demand, other retailers are coming out with cheap linux desktop products, Linux is finally being offered as an alternative by system builders.

Re:dear god!

[Chabil Ha']

I like being able to reply to comments inline, but I browse the site with an iphone and the uberbig boxes don't make for a very great browsing experience.

Re:pwndbyowneula tag.

[russlar]

The Safari for Windows EULA has language prohibiting Safari form being installed on anything but a mac. It was posted on slashdot a few days ago. that's the joke I was referencing.

Re:Got Karma?

[Alsee]

According to the article "With the addition of interest payable for all these years, the total tax liability could be about Rs 700 crore". So there doesn't appear to be a "penalty" outside of interest.

However according to my calculations they appear to be charging an annual interest of about 12%. I'm no financial guru, but 12 points seems to me to include rather non-trivial "penalty points" above basic fair market interest rates. I think it is effectively working out in the ballpark of $180 million USD worth of penalty.

-

Re:Got Karma?

[mgblst]

12% = 1200 points. You must get pretty surprised when they announce on the news that Interest Rates are going up 75 points?

Re:HP and WalMart

[ayjay29]

>>XP dies in June

You think so?

I heard Microsoft were negotiating a deal to use this tune [youtube.com] as a promotion and re-launch of the XP operating system. This was meant to be scheduled for the first of this month, but i have not heard the full details yet.

Learn more about basis points

[tepples]

For the record, the full name for these "points" is "basis points". See Investopedia: basis point [investopedia.com] and Wikipedia: basis point [wikipedia.org].

Re:Tax makes EULA valid?

[tinkerghost]

The only thing that slightly worries me about this: if the EULA is what is causing MS to pay the tax, then in paying the tax, MS can clearly say that the EULA is valid (in India at least) as the government has demanded legal taxes based on it.

Not really. What it says is that MS doesn't believe what it's trying to tell the Indian court. Whether the EULA is legitimate or not, MS operates as if it is - as such, they are stating the software is licensed not sold.

Courts - in the US & most western countries - tend to rule on very narrow topics. In this case the EULA is an official public document published by MS stating it's stance on the type of sale being conducted. Given that it is a direct contradiction to what the MS legal team was telling the court, the court ruled that the truth was what MS was telling the entire rest of the world & not what they were telling the court. This doesn't mean that the court ruled that the EULA was a valid license, just that the MS was licensing not selling Windows. The validity of the EULA is an entirely separate question - a matter of contract law not tax law.

I've dealt with this ...

[kwandar]

The treaty is based on the model treaty of the Organization for Economic Development ("OECD"). Article 7 of OECD treaties says there is no withholding tax on sales, while Article 12 says that there may be up to a 15% withholding tax on royalties.

As much as I might like to say "ha ha, its MS", there is a real question here. Does the customer buy the package software, or the license to use the software?

This issue won't work in India's favour. They may collect more tax but Indian business will be hurt as we would charge extra if there is withholding tax. Also, Indian companies can expect the same treatment when selling their software to other countries, as well.

Treaties are a two way street.

Re:No Tax on Income or Sales?

[Anonymous Coward]

It's a bit confusing, but there _are_ sales tax and company income tax in India. What I can deduct here is that MS of course have paid its income tax (depending on the incentives of govt of India to promote IT, e.g. if they operated out of Special Economic Zone etc), but not sales tax on certain 'sales', and now India has nailed them into paying royalty tax which they never paid.

But also remember that India Company tax laws are in a big mess with a lot of loopholes - giant companies like Reliance Petroleum and Reliance industries were zero tax companies at least for a long period of time (don't know about now).

I expect MS to find its way out pretty easily.

Does it have to be this way?

[amohat]

Do we have to expect and then forgive this kind of obvious shysty behavior by our corporate citizens?

Companies are petrified of "leaving money on the table", another way of saying that if they don't try to glean the profits By Any Means Necessary then another company will, and they will fail. Or be quickly punished by Wall Street.

And we are all okay with this business model based on desperation, clawing and scamming and cheating...or at least pushing the edge of decency to absurd limits.

So here we have a company, a country, a civilization that values and rewards cheating the system as far as it can get away with...which is only known in hindsight, as the raw and unapologetic greed that is required to succeed in this world inevitably leads to certain kinds of blindness.

You know the type: not really seeing the poverty of your fellow humans, the destruction of the environment, the wars and civil strife...we sort of acknowledge that it's there but we refuse to honestly admit the causes and will not genuinely cooperate with the solutions.

Because doing that might result in us "leaving money on the table"...for someone else! God forbid someone else rush in and fuck over the people in search of profits instead of us!

Suffice to say, this is a perfect example of a company knowingly gaming the system, because everyone expects (nay---demands!) them to in order to survive.

Great world, you assholes! Competition is good, sure. But is it so good that we forsake our humanity?

(nope, I'm not mad at MS...why should they pay a tax that they might not have to pay? But how do you know if you have to pay it? Well...just try to not pay it as hard as you can. You will soon have your answer!)