Microsoft liable for income tax in India, finally? [India]

If a survey is conducted in India with the sole objective of finding a non-user of Microsoft software, the exercise may not yield tangible results at all. In other words, no computer literate can even feign ignorance about his familiarity with Microsoft products. So pervasive and entrenched are the Microsoft brand name and products in any computer-literate society.
Microsoft pays income tax on income generated from its software licensing in all other countries in the world. But not many know that the Microsoft Corporation does not contribute even a single penny to the Indian exchequer in terms of income tax!

The CIT(A) -- Commissioner of Income Tax (Appeals) -- handling international taxation cases in Delhi has recently held that the Gracemac Corporation, a 100% subsidiary of Microsoft which had in 1999 granted proprietary and ownership right in license and in intellectual property (IPR) of Microsoft software and hardware products, is liable to pay income tax on its gross royalty income earned out of licensing of software to Indian customers.

The total gross royalty income for the six assessment years -- from 1999 to 2005 -- is computed to be about Rs 2,240 crore (Rs 22.40 billion). Going by 15% tax on royalty u/s 9(1)(vi) of the Income Tax Act read with Article 12 of the DTAA (Double Taxation Avoidance Treaty) with the United States, the total tax liability on the Microsoft subsidiary which has been named after Bill Gates' wife -- Melinda -- is calculated to be about Rs 350 crore (Rs 3.50 billion). Given that interest has also been confirmed, the total liability is likely to exceed Rs 700 crore (Rs 7 million).
No doubt, this case has all the makings of a big revenue newsmaker which would travel up to the Apex Court in due course of time, but a studious perusal of the facts, the legal positions -- both domestic as well as international -- and the lucidity with which every point of the counsels of the assessee has been torn apart, reveals that the Revenue department has indeed made a solid case which would serve as a model decision for others in the department and also a quality training material for the young revenue officers who are keen to dabble into the complex architecture of international finances and their tax liabilities.

Drug makers concerned over compulsory licensing [India]

Local units of multinational drug makers — who make billions of dollars of revenues from drugs protected by patents — say they are increasingly worried over a vigorous push by Indian peers to revoke such protection through what are called compulsory licences, and questioned such efforts in the absence of a national emergency.

Local drug makers, who make most of their revenues from sales of non-patented or generic drugs, are exploring the use of a controversial public health provision in global trade laws called compulsory licence that allows the World Trade Organization’s member-nations to override patents and permit cheaper versions of patented drugs. This provision can be invoked if a drug maker is willing to make and supply copies of patented drugs in a medical emergency or to export to least developed countries, which are yet to be covered by the TRIPS, or the Trade-Related aspects of Intellectual Property Rights, regime and entitles the patent holder to an “adequate remuneration”.

It was reported on 29 January that Hyderabad-based Natco Pharma Ltd’s request for compulsory licences on two patented cancer drugs could emerge as a larger trend. Natco Pharma is seeking licences for Sutent, a renal cancer drug of Pfizer Inc. and Swiss F. Hoffmann-La Roche Ltd’s lung cancer medication, Tarceva, which costs Rs1.5 lakh for a month’s treatment—nearly four times the Indian per capita annual income. Sutent, awaiting a patent grant in India, is likely to be priced at $4,000 (Rs1.57 lakh) for a six-week treatment.

Expressing concern that patent provisions could be misused to make products available illegally in the Indian market, Pfizer Ltd’s managing director Kewal Handa said in an email response, “This would be a clear disregard of Indian patent laws.” He added that if continued, this would take the country back “to the pre-product patent era.” He expects the judiciary and the Indian government to “uphold the spirit of innovation.”

The top executive at Novartis India Ltd said the move was unjustified in the absence of a national emergency for which compulsory licensing is designed. “Generic drug makers talk of evergreening of patents but this is (cutting short) patents. What signals are we giving to the global drug makers?” asked Ranjit Shahani, managing director of the Novartis unit. Makers of patented drugs are often accused of trying to extend the life of patents beyond 20 years, a tactic commonly called patent evergreening.

Roche Scientific Co. (India) Pvt. Ltd’s managing director Girish Telang declined comment.
Cipla Ltd, one of country’s largest drug makers, is fighting Roche over the latter’s patent in India for Tarceva in the Delhi high court, though the Indian firm is not asking for a compulsory licence on it.

Foreign drug makers also point out that they run patient access programmes to deliver their patented drugs to those who can’t afford it, though patient groups argue the reach of such initiatives is limited. Pfizer, for instance, has recently put together a Sutent Patient Access Programme that will partly or fully subsidize treatment options for patients in India and expects to extend it to Nepal.

Novartis’ Glivec International Patient Assistance Programme helps some 7,000 patients of myeloid leukaemia, the company says on its website. Novartis is fighting in court and at an appeals tribunal the rejection of a patent for the cancer drug by Indian authorities.