Volkswagen sues Modi government over 'impossibly enormous' $1.4B tax demand
What's the story
Volkswagen has sued the Indian government over a tax demand of $1.4 billion, which it considers "impossibly enormous." The German automaker contends that the demand goes against India's import taxation rules on car parts and may even jeopardize its business. The lawsuit was filed by Volkswagen's subsidiary Skoda Auto Volkswagen India in the Bombay High Court.
Investment risk
Volkswagen's investments in India threatened
The tax dispute could endanger Volkswagen's $1.5 billion investments in India, according to the company's 105-page court filing. The German automaker argues that this is detrimental to the foreign investment climate in the country. In September, Indian authorities served Volkswagen with a $1.4 billion tax notice for allegedly employing a strategy to evade higher import taxes on select Volkswagen, SKODA, and Audi cars by importing them as individual parts instead of complete units.
Allegations
Import strategy under scrutiny
Indian authorities allege Volkswagen imported nearly all of a car unassembled, which would attract a 30-35% tax on completely knocked down units (CKDs). However, the company is accused of evading these taxes by misclassifying them as "individual parts" coming in separate shipments, paying only a 5-15% levy. Responding to the allegations, Volkswagen insists it had kept the Indian government informed about its "part-by-part import" model and received clarifications supporting its approach in 2011.
Legal action
Commitment to compliance amid tax dispute
Volkswagen India has said that it is using all legal remedies available as it cooperates with authorities. The company continues to remain committed to ensuring "full compliance" with all global and local laws. Although it is a minor player in India's vast car market, the German automaker could be penalized with around $2.8 billion if it loses the dispute, a government source told Reuters.
Tax liability
Volkswagen's defense against higher tax liability
Volkswagen claims it isn't liable to pay higher taxes as it didn't import car parts together as single "kit," but shipped them separately, combining them with some local components to make a car. The Bombay High Court will start hearing the case on February 5.