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MS WTO tax push skips IP, values software at zero

It's only worth the same as a blank CD, apparently...

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Microsoft's main objective at the WTO ministerial conference is to make sure that there are no moves to impose duties or tariffs on software sent outside the US electronically, and that where there is a medium such as a CD-ROM for the software, only the value of the medium would be considered for tax purposes, and not the value of the intellectual property. Brad Smith, Microsoft's general counsel, international, outlined the issues that were important to Microsoft in a conference call last night. He said that Microsoft was in favour of free trade, and believed that this would lead to strong economic growth. He claimed this would result in "lower prices for consumers" (which is not the case for Windows, of course), and "increase the choice for consumers" (which doesn't seem to have happened in the operating system market). Smith did not refer to the US Foreign Sales Corporation (FSC) tax benefit that the WTO has declared to be illegal, and against which the US is currently appealing. Smith wants the WTO to make permanent the provisional agreement that freezes duties and tariffs on electronic commerce. Avoiding a protectionist environment was another desideratum, especially as there has been a move by Argentina towards imposing duties on software, although it has not yet been put into effect. A key issue was how software would be treated. Smith attempted to escape from the horns of the dilemma as to whether software was a good or a service by claiming it was intellectual property, and therefore neither. So far as "cultural products" such as motion pictures and sound recordings were concerned, Smith was evidently happy to sidestep the issue by giving way, so as not to inflame Gallic sensitivities to US cultural imperialism. It seems pretty clear that Microsoft wants to be sure that there is a cast-iron international regulatory framework in place that prevents any form of taxation on Web-delivered software. When this has been brought about, Redmond will most likely switch to mainly electronic distribution, cutting out resellers even more than at present. No doubt another hoped-for benefit is to curb piracy, but this would most likely require users to allow Microsoft to access a unique identifier on the user's hardware. If so, this would likely be a step too far for many people. ®

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