Now, Microsoft gets a tax notice

I-T department questions the profits attributed by US-based parent to its R&D centres in India

After IBM India and Nokia, it’s now the turn of Microsoft to receive a demand notice from the income tax (I-T) department on valuation of transactions with its parent company. The company has challenged the notice.

“Microsoft complies with the tax laws in each jurisdiction in which we operate. We are seeking relief against the transfer pricing adjustments through the appropriate appellate forums,” a Microsoft spokesperson told Business Standard.

The company, however, refused to provide any further information, saying the matter was subjudice.

While an I-T department spokesperson declined to comment, the Director-General of International Taxation could not be reached for her reaction since she was travelling abroad.

However, another I-T department official said all transfer pricing notices were issued by January 30, including the one to Microsoft, and no fresh demand has been raised after that.

The I-T department has reportedly sought details from Microsoft of its income from Indian operations for four years beginning 2005-06. It has reportedly questioned the profits attributed by the US-based parent Microsoft Corporation to its research and development centres in India.

“We are hopeful that the Rangachary committee recommendations on R&D Centres and Safe Harbours will help facilitate resolutions to TP (transfer pricing) litigations in the IT industry,” Microsoft said.

The Rangachary committee was set up by the government last year to address issues such as approach to taxation of development centres, tax treatment of ‘onsite services’ of domestic software firms and those related to finalising safe harbour provisions.

A transfer pricing case is one where the assessing officers disputes the price paid by the Indian unit to its parent company, which means lower foreign inflows into the country and subsequently lesser tax.

Earlier, the I-T department had issued a tax notice of Rs 1,090 crore against IBM India for the assessment year 2008-09 on tax liability, after finding that the company had not maintained separate books of account for the income it earned from its units located in special economic zones and Software Technology Parks of India zones.

The company first challenged that before the Income Tax Appellate Tribunal and then before the Supreme Court. The SC in a recent ruling restrained the I-T department from doing any further recovery of tax from the company, and referred the matter back to the Tribunal. In March, Nokia was served an I-T notice, demanding Rs 2,000 crore for alleged evasion of taxes in its business transactions in the country.

Shell, Cadbury, Vodafone Capgemini and Hewlett-Packard are some of the companies, which have received tax notices from various departments in the recent past.