India has Microsoft's market. Ireland has its profits

Microsoft's first public country-by-country reporting (CbCR) tax report, as mandated by an EU directive in 2021, offers striking insights into international taxation. It shows how the economic geography of a global tech company can differ sharply from of its markets.

The directive requires large MNCs to disclose where they report revenue, profits, employees and taxes. Unlike confidential CbCRs exchanged under OECD BEPS Action 13 framework, these disclosures are public. The numbers are striking.

For July 1, 2024-June 30, 2025, Microsoft identifies the US as jurisdiction of its ultimate parent, while the report is published by Microsoft Ireland Operations. It also notes that the figures are not prepared under tax-reporting instructions, meaning public CbCR and tax-authority CbCR are not directly comparable.


Ireland dominates the European picture. Microsoft reports around $196 bn of revenue there, alongside $47.08 bn of profit before tax, $5.58 bn of I-T paid on a cash basis, $6.65 bn of current tax accrued, and 6,654 employees.

Germany reports about $11.69 bn of revenue, $661 mn of profit before tax, and 3,471 employees.

France records $6.67 bn of revenue, $487 mn of profit, and 2,568 employees.

Luxembourg, with only 34 employees, reports $198.9 mn of revenue, $283.36 mn of profit before tax, $7.14 mn of tax paid, and $9.25 mn of current tax accrued - an effective tax rate of barely 3%.

This is not a courtroom brief against Ireland. It may legitimately host substantial legal, operational, licensing, procurement, finance, IP and distribution functions. Yet, the report illustrates a broader reality: in the digital economy, markets may be spread across the world, but profits are often booked in a much smaller number of jurisdictions.

For India, this is more than a European curiosity. Despite being one of the world's largest digital markets, global digital profits are still taxed largely where contracts, IP, risks and key entrepreneurial functions are located. Public CbCR exposes the gap between market presence and profit recognition.

India already receives confidential CbCR information under I-T Act 1961, pursuant to OECD BEPS Action 13, which requires large MNCs to report the global allocation of income, taxes and economic activity to tax authorities. The EU model goes further by making key information public, allowing legislators, investors and civil society to assess whether profits broadly align with revenues, employees and taxes.

That matters, because tax transparency can no longer remain solely a matter between companies and tax authorities. Disconnect between market presence and profit recognition is precisely what the international community is trying to address. Negotiations are underway on a UN Framework Convention on International Tax Cooperation to give market jurisdictions a stronger voice in shaping global tax rules.

Microsoft India's FY25 financials illustrate the issue. Its largest expense was royalty payments of ₹20,294 cr - over 70.6% of operating revenue - paid to group entities. India recorded ₹28,755 cr of revenue, but retained only ₹1,245 cr of profit, about 4.3%, with much of the remainder flowing abroad as royalties to IP-holding entities.

The contrast with Ireland is stark. Compared to its revenue and profit before tax mentioned above, India reports roughly $3.4 bn of revenue, and only about $148 mn of profit. The comparison captures why public CbCR matters: India has the market, Ireland hosts the IP. Profits largely follow the latter.

India's digital tax debate has centred on equalisation levy, significant economic presence, withholding tax, royalty characterisation and permanent establishment. These tools address symptoms. Public CbCR addresses visibility. It prompts the right questions: why are profits concentrated in particular jurisdictions? Who owns or manages the IP? Where are finance and procurement functions located? How much profit remains in market jurisdictions?

Greater transparency benefits both tax authorities and taxpayers. As India competes for data centres, cloud investment, AI infrastructure and high-end tech jobs, it should also demand greater tax transparency. Incentives should reward real economic activity, public procurement should recognise tax transparency, and CbCR should be used as a risk-assessment tool - not a blunt audit trigger.

Microsoft's EU filing is, ultimately, a map of modern capitalism. It shows that in the digital economy, profits are mobile, legal structures matter, and market jurisdictions must work harder to see the full picture.

The writer is former principal DG ofI-T (administration), New Delhi