India tells Microsoft to pay $175 mn in tax: report

NEW DELHI: India has asked US software giant Microsoft to pay 175 million dollars in back taxes and interest for revenue earned from licensing its software here, the Times of India reported Thursday.

An Indian tax authority ruled Wednesday that Microsoft's India subsidiary Gracemac Corporation should have paid tax on the 560 million dollars it showed as revenue for the six financial years up to March 31, 2004, the report said.

The dispute revolves around whether the amount qualifies as royalties or sales.

The amount should have been taxed as royalties, the Commissioner of Income Tax ruled in New Delhi, citing language in the end-user license agreement shipped with the company's software.

India taxes royalties at 15 percent, but the tax appeals body appeared to be levying a similar amount in penalties and interest charges.

Microsoft's India subsidiary did not pay taxes on the income, citing a double tax-avoidance treaty between India and the United States and noting that an overseas subsidiary paid tax in the US on profits from the software sales.

"Microsoft believes it is in full compliance with Indian tax laws and the income tax treaty agreement between India and the US," a Microsoft statement said.

"Microsoft is reviewing the order and will determine its course of action accordingly." The technology giant is expected to appeal the decision.