Volkswagen Faces $1.4 Billion Tax Evasion Notice in India
- 02-Dec-2024 11:45 PM
- Journalist: Phoebe Cary
German automaker Volkswagen has been slapped with import tax evasion notice in India to the tune of $1.4 billion. According to a notice issued by the Indian government, the automaker’s Indian unit, Skoda Auto Volkswagen India, is alleged to have imported "almost the entire car" in unassembled form, which attracts a 30-35% import duty in India for Completely Knocked Down (CKD) units.
The company is also accused of "mis-declaring and misclassifying" these imports as "individual parts" to pay a lower duty of just 5-15%. The notice claims this practice was used for models including the Skoda Superb and Kodiaq, Audi A4 and Q5, and VW's Tiguan SUV. The government allege that Volkswagen used different shipment consignments to evade detection and "wilfully evade payment" of higher taxes.
The Indian authorities reviewed Volkswagen India's internal software, which allegedly showed bulk orders being placed for cars and then broken down into 700-1,500 "main components/parts" per vehicle. These parts were then shipped from various countries in separate containers within a short timeframe, arriving at Indian ports around the same time.
Investigators believe this strategy was used to qualify for the lower duty on individual parts. Volkswagen claims this was for "efficiency of operations," but Indian authorities reject this explanation.
Financial Impact
The Indian government claims Volkswagen's India unit should have paid import taxes and related levies of about $2.35 billion since 2012, but only paid $981 million, resulting in a shortfall of $1.36 billion. If found guilty, Volkswagen could face penalties of up to 100% of the evaded amount, bringing the total liability to $2.8 billion.
Skoda Auto Volkswagen India has stated they are a "responsible organization" complying with all regulations and are cooperating with authorities. The company has not commented on whether they responded to the 30-day notice.
This is not the first time a foreign automaker has faced tax evasion accusations in India. Tesla and BYD have also been investigated for similar issues. The case adds to Volkswagen's struggles in India, where they are a minor player in the car market. This news comes at a time when Volkswagen is facing challenges globally, including labor disputes in Germany and pressure from Chinese competitors.
Overall
This is a significant development for Volkswagen in India. The company faces a hefty potential fine and could see its reputation tarnished. The outcome of the case will be closely watched by the auto industry and foreign investors in India.