Microsoft busted by Indian government for avoiding royalty tax by saying that it sells — not licenses — its software

Microsoft's been hoist on its own petard in an Indian tax dispute. Microsoft argued that it should be exempt from paying a royalty tax on sales of its software, since the transaction was a sale, not a license, and so the money wasn't really a royalty. The clever Indian authorities noticed that every inch of Microsoft's packaging and presentation is plastered in license agreements sternly informing customers that they don't own Windows, that they're only licensing it, and furthermore, the license terms are onerous and must be obeyed.

This have-your-cake-and-eat-it-too approach to licensing and sales isn't unique to Microsoft. The musician T-Bone Burnett once explained to me that the standard record deal gives artists seven percent royalties on sales and fifty percent royalties on licenses. However, when artists get paid by their labels for iTunes downloads, they're only paid the seven percent sales royalty, despite the fact that the record companies keep telling courts, Congress and customers that a download is not a sale, it's only a license, and don't you dare try to resell your music, loan it, or give it away — all stuff you're allowed to do with purchased goods.

So Microsoft uses the sales/license flip-flop to avoid its taxes, and the record companies use it to pocket six-sevenths of the money they owe artists for downloads.


(via /.)