Taxman calls on MS India for understating income

After Nokia and Royal Dutch Shell, the Income Tax department has sent a demand notice to software giant Microsoft's Indian arm, which said it has challenged the same.

IT department reportedly sent notice to Microsoft seeking details of its income from Indian operations for four years beginning with the 2005-06 fiscal.

Details have been sought about income from work done at Microsoft's Indian research and development sites on several softwares, which were marketed globally.

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When reached for comments, Microsoft India said it has approached appellate forums for the resolution of the issue.

"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," it said in an e-mail statement.

The IT department notice reportedly does not quantify the amount of profits earned by its US-based parent Microsoft Corporation that are attributable to the work performed at its R&D centres in India.

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The company said: "Since the matter is sub judice, we are unable to provide further details or comments regarding the same.

"We are hopeful that the Rangachary Committee recommendations on R&D Centers and Safe Harbours will help facilitate resolutions to TP litigations in the IT industry."

Last year, the government had set up a panel, headed by former Central Board of Direct Taxes Chairman N Rangachary, to address issues like approach to taxation of development centres, tax treatment of 'onsite services' of domestic software firms and those related to finalising Safe Harbour provisions.

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Safe Harbour principles are international disclosure practices to check litigations in transfer pricing -- an accounting mechanism undertaken by MNCs to reduce their tax liabilities.

In March this year, the Indian subsidiary of the Finnish mobile phone maker Nokia was served the IT notice asking it to pay over Rs 2,000 crore (Rs 20 billion) for alleged evasion of taxes in its business transactions in the country.

Similarly, tax authorities in February 2012 charged Shell India, part of Anglo-Dutch oil major Royal Dutch Shell, of underpricing a share transfer within the group by Rs 15,220 crore (Rs 152.2 billion) and consequently evading taxes.

The order relates to the issue of 8.7 crore (87 million) shares by Shell India to an overseas company Shell Gas BV in March 2009.