In its annual report for 2021, Microsoft reported that the tax rate for Microsoft has reduced from 17% to 14%. Such a reduction is mainly due to the Indian Supreme Court decision. The decision covered withholding taxes on software payments. Multinational Transfer Pricing Advance Pricing Agreement between India and USA was the other reason, where transfer pricing structures deployed by Microsoft were agreed upon by the Indian transfer pricing authorities in advance.
Microsoft paid TDS (withholding tax) on software sales through distributors in India. In early 2021, the Indian Supreme Court ruled favourably in 86 separate corporate appeals, some even dating back to 2012. The ruling held that software sales are not subject to India withholding taxes.
Microsoft recorded an income tax benefit of USD 620 million in 2021 owing to the decision.
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