Volkswagen Sues Indian Authorities Over “Impossibly Enormous” Tax Demand
Volkswagen has sued Indian authorities to quash an “impossibly enormous” tax demand of US$1.4 billion, arguing that the ask is contradictory to New Delhi’s import taxation rules for car parts and will hamper the company’s business plans, court papers show.
Background
Volkswagen’s unit, Skoda Auto Volkswagen India, also told the High Court in Mumbai that 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.
The Tax Demand
In the biggest ever import tax demand, India in September slapped a US$1.4 billion tax notice on Volkswagen for using a strategy to break down imports of some VW, Skoda and Audi cars into many individual parts to pay a lower duty.
Allegations
Indian authorities alleged Volkswagen imported “almost the entire” car in unassembled condition – which attract a 30-35 per cent tax applicable on CKDs, or completely knocked down units, but evaded the levies by mis-classifying them as “individual parts” coming in separate shipments, paying just a 5-15 per cent levy.
Volkswagen’s Defense
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 says in the court challenge.
Conclusion
The tax dispute comes at a time when Volkswagen is battling to cut costs to better compete with Chinese rivals and cope with weak demand in Europe. The company argues that 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.
FAQs
Q: What is the amount of the tax demand?
A: The tax demand is US$1.4 billion.
Q: What is the basis of the tax demand?
A: The tax demand is based on allegations that Volkswagen imported car parts in unassembled condition and mis-classified them as “individual parts” to evade higher taxes.
Q: What is Volkswagen’s defense?
A: Volkswagen argues that 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.
Q: What is the impact of the tax dispute on Volkswagen’s business?
A: The tax dispute puts at risk Volkswagen’s investments of US$1.5 billion in India and is detrimental to the foreign investment climate.
Q: What is the next step in the case?
A: The High Court in Mumbai is due to start hearing the case on Feb 5.
