Volkswagen brand is mounted by an worker on a manufacturing line for the Golf VIII and Tiguan automobiles on the VW headquarters in Wolfsburg, Germany Might 23, 2024.
Fabian Bimmer | Reuters
Volkswagen has sued Indian authorities to quash an “impossibly huge” tax demand of $1.4 billion, arguing the ask is contradictory to New Delhi’s import taxation guidelines for automobile components and can hamper the corporate’s enterprise plans, court docket papers present.
Volkswagen’s unit, Skoda Auto Volkswagen India, additionally informed the Excessive Courtroom in Mumbai the tax dispute places in danger its investments of $1.5 billion in India, and is detrimental to the overseas funding local weather, in line with the 105-page submitting which isn’t public however was reviewed by Reuters.
Within the largest ever import tax demand, India in September slapped a $1.4 billion tax discover on Volkswagen for utilizing a technique to interrupt down imports of some VW, Skoda and Audi automobiles into many particular person components to pay a decrease obligation.
Indian authorities alleged Volkswagen imported “virtually all the” automobile in unassembled situation – which magnetize a 30-35% tax relevant on CKDs, or fully knocked down items, however evaded the levies by misclassifying them as “particular person components” coming in separate shipments, paying only a 5-15% levy.
Volkswagen India had stored the Indian authorities knowledgeable of its “part-by-part import” mannequin and obtained clarifications in its assist in 2011, the corporate says within the court docket problem.
The tax discover is “in full contradiction of the place held by the federal government … (and) locations at peril the very basis of religion and belief that overseas traders would need to have within the actions and assurances” of the administration, the Jan. 29 court docket submitting states.
The Indian finance ministry and the customs official who issued the demand order didn’t reply to requests for remark exterior common enterprise hours.
Volkswagen’s India unit stated in a press release it’s utilizing all authorized cures because it cooperates with authorities and stays dedicated to making sure “full compliance” with all international and native legal guidelines.
A Volkswagen spokesperson in Germany didn’t reply to a request for a remark.
The German carmaker is a tiny participant in India’s 4 million items a 12 months automobile market, the world’s third largest, the place its Audi model additionally lags opponents within the luxurious phase like Mercedes and BMW.
A authorities supply earlier informed Reuters that with penalties, Volkswagen India might should pay about $2.8 billion if it loses the dispute. In 2023-24, VW India reported gross sales of $2.19 billion, and a internet revenue of $11 million.
The tax dispute comes at a time when Volkswagen is battling to chop prices to higher compete with Chinese language rivals and deal with weak demand in Europe. In December it introduced 35,000 future job cuts in Germany. In its largest market, China, the carmaker has stated it can promote a few of its operations.
‘Physique blow’ for investor sentiment
Volkswagen argues it’s not liable to pay increased taxes because it didn’t import automobile components collectively as a single “equipment”, however as a substitute shipped them individually, combining them with some native parts to make a automobile.
To elucidate what a “equipment” is, it refers to a “sensible analogy” of shopping for a chair on-line from Amazon, which is then delivered in a single cargo with all components and fixtures wanted to assemble the piece of furnishings.
Within the case, authorities alleged Volkswagen’s native unit frequently positioned bulk orders for automobiles by way of inner software program which linked it to suppliers in Czech Republic, Germany, Mexico and different nations.
And after the order was positioned, the software program broke it down into “important parts/components”, roughly 700-1,500 for every car relying on the mannequin, which have been shipped individually over time.
This, the Indian authorities stated, was “a ploy to clear the products with out the cost of the relevant obligation.”
The corporate says within the court docket submitting “there isn’t any unique utilization of the components in direction of manufacture of 1 particular automobile.”
Volkswagen India additionally contests the alleged clandestine software program use by arguing it solely helps sellers convey automobile orders in order that it could monitor “client demand at a macro stage”.
Excessive taxes and extended authorized disputes have typically been a sore level for overseas firms in India, with Tesla additionally publicly complaining about excessive taxes on imported EVs.
The tax discover “offers a physique blow” to the much-advertised “coverage of ease of doing enterprise in India for overseas traders,” the corporate stated.
The Excessive Courtroom in Mumbai is because of begin listening to the case on Feb. 5.