Volkswagen is currently facing a massive tax dispute in India where the Customs department has threatened that there will be ‘catastrophic consequences’ if the carmaker manages to have a $1.4 billion tax bill quashed. The case is based on accusations that Skoda Auto Volkswagen India, a subsidiary of Volkswagen, has wrongly declared the import duties of the auto parts to reduce the taxes they pay.
The authorities accused the company of separating the vehicles and importing them separately and not in form of CKD units which are taxed at 30%-35% than the 5%-15% imposed on individual parts. It has emerged that the tax investigation has resulted in the country’s heaviest ever back tax demand being made for import duties.
Volkswagen says that Customs department failed to inspect the goods which it received because of procedural reasons and called the tax demand ‘a question of life and death’ with respect to its Indian operations. The company also pointed out that such actions threaten investor’s confidence especially when Prime Minister Narendra Modi is trying to attract foreign investments through business friendly policies.
However, the tax authority disageres with Volkswagen’s explanations and in a court paper, explains that the company purposefully did not provide important import information that would have sped up the investigation. They note that if other importers start doing this and then claim that the investigation time is up, then it will be a precedent.
If the company is found guilty, then it can be liable to pay up to $2.8 billion, including penalties and interest. The case is set to be heard by the Bombay High Court on March 24, 2025, a decision that may have implications for other international companies doing business in India.
