Volkswagen sues India to quash 'enormous' $1.4 billion tax demand, legal filing shows

Volkswagen has sued Indian authorities to quash an "impossibly enormous" taxation request of $1.4 billion, arguing the inquire is contradictory to New Delhi's import taxation rules for car parts and volition hamper the company's concern plans, tribunal papers show.

Volkswagen's unit, Skoda Auto Volkswagen India, besides told the High Court successful Mumbai the taxation quality puts astatine hazard its investments of $1.5 cardinal successful India, and is detrimental to the overseas concern climate, according to the 105-page filing which is not nationalist but was reviewed by Reuters.

In the biggest ever import taxation demand, India successful September slapped a $1.4 cardinal taxation announcement connected Volkswagen for utilizing a strategy to interruption down imports of immoderate VW, Skoda and Audi cars into galore idiosyncratic parts to wage a little duty.

Indian authorities alleged Volkswagen imported "almost the entire" car successful unassembled information - which pull a 30-35% taxation applicable connected CKDs, oregon wholly knocked down units, but evaded the levies by misclassifying them arsenic "individual parts" coming successful abstracted shipments, paying conscionable a 5-15% levy.

Volkswagen India had kept the Indian authorities informed of its "part-by-part import" exemplary and received clarifications successful its enactment successful 2011, the institution says successful the tribunal challenge.

The taxation announcement is "in implicit contradiction of the presumption held by the authorities ... (and) places astatine peril the precise instauration of religion and spot that overseas investors would tendency to person successful the actions and assurances" of the administration, the Jan. 29 tribunal filing states.

The Indian concern ministry and the customs authoritative who issued the request bid did not respond to requests for remark extracurricular regular concern hours.

Volkswagen's India portion said successful a connection it is utilizing each ineligible remedies arsenic it cooperates with authorities and remains committed to ensuring "full compliance" with each planetary and section laws.

A Volkswagen spokesperson successful Germany did not respond to a petition for a comment.

The German carmaker is simply a tiny subordinate successful India's 4 cardinal units a twelvemonth car market, the world's 3rd biggest, wherever its Audi marque besides lags competitors successful the luxury conception similar Mercedes and BMW.

A authorities root earlier told Reuters that with penalties, Volkswagen India whitethorn person to wage astir $2.8 cardinal if it loses the dispute. In 2023-24, VW India reported income of $2.19 billion, and a nett net of $11 million.

The taxation quality comes astatine a clip erstwhile Volkswagen is battling to chopped costs to amended vie with Chinese rivals and header with anemic request successful Europe. In December it announced 35,000 aboriginal occupation cuts successful Germany. In its biggest market, China, the carmaker has said it volition merchantability immoderate of its operations.

Volkswagen argues it is not liable to wage higher taxes arsenic it did not import car parts unneurotic arsenic a azygous "kit", but alternatively shipped them separately, combining them with immoderate section components to marque a car.

To explicate what a "kit" is, it refers to a "practical analogy" of buying a seat online from Amazon, which is past delivered successful 1 shipment with each parts and fixtures needed to assemble the portion of furniture.

In the case, authorities alleged Volkswagen's section portion regularly placed bulk orders for cars done interior bundle which connected it to suppliers successful Czech Republic, Germany, Mexico and different nations.

And aft the bid was placed, the bundle broke it down into "main components/parts", astir 700-1,500 for each conveyance depending connected the model, which were shipped separately implicit time.

This, the Indian authorities said, was "a ploy to wide the goods without the outgo of the applicable duty."

The institution says successful the tribunal filing "there is nary exclusive utilization of the parts towards manufacture of 1 circumstantial car."

Volkswagen India besides contests the alleged clandestine bundle usage by arguing it lone helps dealers convey car orders truthful that it tin way "consumer request astatine a macro level".

High taxes and prolonged ineligible disputes person often been a sore constituent for overseas companies successful India, with Tesla besides publically complaining astir precocious taxes connected imported EVs.

The taxation announcement "deals a assemblage blow" to the much-advertised "policy of easiness of doing concern successful India for overseas investors," the institution said.

The High Court successful Mumbai is owed to commencement proceeding the lawsuit connected Feb. 5.