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Microsoft Comes Under Indian Tax Microscope

by Lorys Charalambous, Tax-News.com, Cyprus

26 September 2008


Microsoft's Indian operation has been landed with a hefty bill for back taxes and penalties after supposedly misinterpreting the tax rules surrounding the provision of marketing services.

The tax department has issued Microsoft with a bill for back taxes of USD28mn and a fine, also for USD28mn.

The company is accused by tax inspectors of falsely claiming that marketing services were being provided to the company's Singapore unit when they were actually being sold to Microsoft's Indian arm.

Under rules laid down in 2005 concerning the export of services, marketing services provided to another company in India cannot be classified as exports, as Microsoft had attempted to claim, according to tax officials. Therefore the services Microsoft provided in this instance were taxable within the scope of the business auxiliary services rules.


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