Volkswagen’s USD 1.4 billion India tax tussle rekindles overseas investor fears, ETCFO
India’s demand for again taxes operating right into a document USD 1.4 billion from Volkswagen, after 12 years of scrutiny, is reigniting considerations that prolonged investigations and litigation may bitter the plans of overseas corporations within the fastest-growing main financial system.
Automakers resembling Maruti Suzuki, Hyundai, Honda and Toyota face calls for for about USD 6 billion collectively in disputes on income-tax, customs and different funds that return years, a Reuters evaluation exhibits.
Though Prime Minister Narendra Modi has been courting overseas traders with guarantees to simplify laws and uproot bureaucratic hurdles, prolonged tax investigations stay a sore level, usually triggering lawsuits that stretch over years.
In a single high-profile incident, telecoms firm Vodafone received its case towards a USD 2-billion retrospective Indian tax demand after greater than a decade of authorized battles with New Delhi, together with worldwide arbitration on the Hague.
Now, Volkswagen’s transfer on January 29 to sue India for USD 1.4 billion in tax that the agency referred to as “impossibly huge” is making overseas corporations jittery.
Tax advisers and legal professionals say they’re fielding nervous queries from shoppers about how years-old tax instances may come again to hang-out them.
Calls are additionally rising for an amnesty scheme for instances operating for years, as India set a three-year window on February 1 to conclude critiques of customs shipments, however the rule excludes outdated disputes operating into billions of {dollars}.
“The federal government clearly recognised this now and redressed it, however it’s unlikely outdated tax demand notices might be given any profit,” mentioned Ameya Dadhich, a tax affiliate at world regulation agency DLA Piper.
“Such situations can deter overseas corporations from investing closely in India,” he added. “An amnesty scheme might be useful on condition that round 40,000 tariff disputes are pending.”
India’s finance ministry didn’t reply to queries from Reuters.
Modi desires to show India into a producing hub, however many digital and auto corporations depend on meeting operations utilizing elements for high-end vehicles or smartphones imported from markets resembling China and Europe, usually spurring investigations.
Authorities information exhibits whole pending arrears of service tax, customs and excise levies stood at almost USD 53 billion in November 2024, with a whopping 70% disputed in litigation.
Within the class of import tariff, or customs disputes alone, India had made tax calls for of USD 4.5 billion by March 2024, with a 3rd of these pending for greater than 5 years.
One tax adviser and a lawyer for a overseas automaker in India mentioned the Volkswagen information sparked a flurry of calls from corporations to collect updates on scrutiny of their shipments, to make sure their imports are categorised appropriately for tax.
In a transfer seen as aimed toward placating U.S. President Donald Trump, who as soon as referred to as India a “tariff king”, New Delhi minimize common tariffs on February 1 to 11% from 13%, although they nonetheless exceed these of China, Japan and america.
Imports of totally constructed luxurious vehicles face Indian taxes and levies of about 100%, whereas the speed is 150% for Scotch whisky and wine.
Within the extremely aggressive auto sector, Volkswagen is just not alone in going through tax scrutiny.
Maruti has USD 2.4 billion of tax calls for in dispute, with no less than one case regarding transactions from 1986. Volkswagen is locked in tussles over USD 1.2 billion, other than the newest demand, whereas Hyundai faces USD 488 million in such calls for.
India’s appeals tribunal for customs, excise and repair tax confronted a backlog of 80,000 instances, Sanjay Malhotra, then the income secretary, mentioned in 2023. With about 20,000 new instances annually, he mentioned, “We aren’t in a position to scale back the backlog.”
Within the case of Volkswagen, New Delhi accuses it of getting imported most elements of 14 fashions in separate shipments earlier than assembling them domestically, paying tax starting from 5% to fifteen%.
That technique circumvented the tax of 30% to 35% payable if the identical gadgets have been imported in a single cargo as a totally knocked down (CKD) unit.
In its court docket submitting to be heard this month within the monetary capital of Mumbai, Volkswagen is blaming Indian officers for his or her “inaction and tardiness” in taking years to assessment cargo data, some stretching again to 2012.
Had New Delhi wrapped up its critiques earlier, Volkswagen says, it may have challenged the transfer or re-evaluated its import technique, however the tax discover now places “at peril the very basis of religion and belief” overseas traders want.
Two authorities officers who spoke on situation of anonymity mentioned the slowness of Indian paperwork and an absence of enough documentation from Volkswagen each contributed to the delay.
“Lengthy pendency like in Volkswagen’s case has a detrimental impact on enterprise,” mentioned Shashi Mathews, head of oblique tax follow at Indian regulation agency, IndusLaw.
“We’re seeing a rise in queries from shoppers desirous to know the destiny of their cargo critiques.”
