Volkswagen AG has sued Indian authorities to quash an “impossibly enormous” tax demand of US$1.4 billion, arguing the ask is contradictory to New Delhi’s import taxation rules for car parts and would hamper the company’s business plans, court papers show.
Volkswagen’s unit, Skoda Auto Volkswagen India Pvt Ltd, also told the High Court in Mumbai the tax dispute puts at risk its investments of US$1.5 billion in India, and is detrimental to the foreign investment climate, according to the 105-page filing which is not public, but was reviewed by Reuters.
In the biggest ever import tax demand, India in September last year slapped a US$1.4 billion tax notice on Volkswagen for using a strategy to break down imports of some Volkswagen, Skoda and Audi cars into many individual parts to pay a lower duty.
Photo: REUTERS
Indian authorities alleged Volkswagen imported “almost the entire” car unassembled — which attracts a 30 percent to 35 percent tax applicable on completely knocked down units (CKD), but evaded the levies by misclassifying them as “individual parts” coming in separate shipments, paying just a 5 percent to 15 percent levy.
Volkswagen India had kept the Indian government informed of its “part-by-part import” model and received clarifications in its support in 2011, the company said in the court challenge.
The tax notice is “in complete contradiction of the position held by the government ... [and] places at peril the very foundation of faith and trust that foreign investors would desire to have in the actions and assurances” of the administration, the Jan. 29 court filing states.
The German car manufacturer is a tiny player in India’s 4-million-units-a-year car market, the world’s third largest, where its Audi brand also lags behind competitors in the luxury segment such as Mercedes AG and BMW AG.
A government source earlier told Reuters that with penalties, Volkswagen India might have to pay about US$2.8 billion if it loses the dispute. From 2023 to last year, Volkswagen India reported sales of US$2.19 billion and a net profit of US$11 million.
Volkswagen argues it is not liable to pay higher taxes as it did not import car parts together as a single “kit,” but instead shipped them separately, combining them with some local components to make a car.
To explain what a “kit” is, it refers to a “practical analogy” of buying a chair online from Amazon.com Inc, which is then delivered in one shipment with all parts and fixtures needed to assemble the piece of furniture.
In the case, authorities alleged Volkswagen’s local unit regularly placed bulk orders for cars through internal software which connected it to suppliers in Czech Republic, Germany, Mexico and other nations.
And after the order was placed, the software broke it down into “main components/parts,” roughly 700 to 1,500 for each vehicle depending on the model, which were shipped separately over time.
This was “a ploy to clear the goods without the payment of the applicable duty,” Indian authorities said.
“There is no exclusive utilization of the parts towards manufacture of one specific car,” the company said in the court filing.
Volkswagen India also contests the alleged clandestine software use by arguing it only helps dealers convey car orders so that it could track “consumer demand at a macro level.”
The tax notice “deals a body blow” to the much-advertised “policy of ease of doing business in India for foreign investors,” the company said.
The High Court in Mumbai is due to start hearing the case on Wednesday.
CHIP WAR: Tariffs on Taiwanese chips would prompt companies to move their factories, but not necessarily to the US, unleashing a ‘global cross-sector tariff war’ US President Donald Trump would “shoot himself in the foot” if he follows through on his recent pledge to impose higher tariffs on Taiwanese and other foreign semiconductors entering the US, analysts said. Trump’s plans to raise tariffs on chips manufactured in Taiwan to as high as 100 percent would backfire, macroeconomist Henry Wu (吳嘉隆) said. He would “shoot himself in the foot,” Wu said on Saturday, as such economic measures would lead Taiwanese chip suppliers to pass on additional costs to their US clients and consumers, and ultimately cause another wave of inflation. Trump has claimed that Taiwan took up to
A start-up in Mexico is trying to help get a handle on one coastal city’s plastic waste problem by converting it into gasoline, diesel and other fuels. With less than 10 percent of the world’s plastics being recycled, Petgas’ idea is that rather than letting discarded plastic become waste, it can become productive again as fuel. Petgas developed a machine in the port city of Boca del Rio that uses pyrolysis, a thermodynamic process that heats plastics in the absence of oxygen, breaking it down to produce gasoline, diesel, kerosene, paraffin and coke. Petgas chief technology officer Carlos Parraguirre Diaz said that in
SUPPORT: The government said it would help firms deal with supply disruptions, after Trump signed orders imposing tariffs of 25 percent on imports from Canada and Mexico The government pledged to help companies with operations in Mexico, such as iPhone assembler Hon Hai Precision Industry Co (鴻海精密), also known as Foxconn Technology Group (富士康科技集團), shift production lines and investment if needed to deal with higher US tariffs. The Ministry of Economic Affairs yesterday announced measures to help local firms cope with the US tariff increases on Canada, Mexico, China and other potential areas. The ministry said that it would establish an investment and trade service center in the US to help Taiwanese firms assess the investment environment in different US states, plan supply chain relocation strategies and
Japan intends to closely monitor the impact on its currency of US President Donald Trump’s new tariffs and is worried about the international fallout from the trade imposts, Japanese Minister of Finance Katsunobu Kato said. “We need to carefully see how the exchange rate and other factors will be affected and what form US monetary policy will take in the future,” Kato said yesterday in an interview with Fuji Television. Japan is very concerned about how the tariffs might impact the global economy, he added. Kato spoke as nations and firms brace for potential repercussions after Trump unleashed the first salvo of
RSS