Volkswagen Lawsuit Against Indian Tax Demand
Summary:
Volkswagen has filed a lawsuit against Indian authorities to overturn a $1.4 billion tax demand. The automaker argues that the demand violates Indian import tax regulations and jeopardizes its business operations.
Key Points:
* India issued a tax notice to Volkswagen for $1.4 billion, alleging that the company evaded taxes by importing unassembled car parts as "individual parts."
* Volkswagen claims it informed the government of its "part-by-part import" model and received clarifications in its support in 2011.
* The tax notice is seen as a "body blow" to foreign investors' confidence in India's business environment.
Volkswagen's Arguments:
* The company did not import car parts as a single "kit" but shipped them separately.
* The parts were combined with local components to assemble cars.
* There is no exclusive use of the parts for manufacturing one specific car.
* Volkswagen contests the alleged use of clandestine software, claiming it only helps convey car orders.
Government's Allegations:
* Volkswagen imported "almost the entire" car in unassembled condition, attracting a 30-35% tax rate.
* The company misclassified the parts as "individual parts" to pay a lower duty of 5-15%.
Implications:
* The tax dispute puts Volkswagen's $1.5 billion investments in India at risk.
* It highlights concerns about high taxes and legal disputes for foreign companies in India.
Court Proceedings:
* The Mumbai High Court is scheduled to hear the case on February 5.
* A government source estimated that Volkswagen may have to pay up to $2.8 billion if it loses the dispute.