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Microsoft Wins US Appeal On Huge Tax Deductions

by Mike Godfrey, Tax-News.com, Washington

05 December 2002


An US federal appeals court ruled on Tuesday that Microsoft Corp. was justified in claiming some $32 million in tax deductions on software shipped to overseas subsidiaries and hardware manufacturers.

A previous ruling by the US Tax Court in September 2000 stated that the master copies of Windows and other software sent overseas for installation did not fall into the 'export products' category of goods which are usually exempted from taxes imposed on the cross-border sales of intangible intellectual property.

The law was changed in 1997 to explicitly state that software is 'export property', and thus allow the tax deduction, but Microsoft's $32 million claim dates back to 1990 and 1991.

Speaking to the Associated Press following the verdict of the three judge panel at the 9th US Circuit Court of Appeals on Tuesday, President of the Software Finance and Tax Executives Council, Mark Nebergall announced that: 'This is a victory for the industry.'

According to the AP, this ruling may have implications for at least four other cases, brought by Oracle, Adobe, Autodesk and Electronic Arts.


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