Microsoft India is not paying taxes as it is already paying taxes in United States, but there is something in the EULA of the products that Microsoft sells which finally got them in trouble.
The Magic words that got Microsoft in trouble are these.
"The Product is licensed, not sold."
Those six words just cost Microsoft's Indian operation $87.5m (350 crore) in tax payments and the same again in interest.
Basing its ruling on the terms of Microsoft's own EULA (end-user license agreement), an Indian court has ordered the company to pay tax on royalty income generated in the country, Tax India Online (TIOL) reports.
For years, Microsoft argued that a wholly owned local subsidiary, GraceMac Ltd, which conferred license rights to Indian end users, derived no income from India. And for years GraceMac declared nil income, even though it has received anything from 35 per cent to 73 per cent of net revenues, through a sister company based in Singapore.
But Microsoft argued that money from India went to the coffers of another overseas subsidiary, Microsoft Regional Sales Corp. US, which sold software to local distributors. MRSC was taxed in the US, and so is free from paying income tax again, courtesy of the Double Tax Avoidance Treaty between the US and India. Continued....