India singles out Volkswagen in $1.4B tax row—notes Kia's correction
What's the story
German automotive giant Volkswagen is facing a $1.4 billion tax dispute with Indian authorities. The company has been accused of misclassifying its car imports over a 12-year period to evade taxes. This allegation is exclusive to Volkswagen, as court documents reveal other automakers like Kia have corrected their practices after similar issues were raised.
Tax scheme
Volkswagen's tax evasion strategy under scrutiny
The Indian tax authorities allege that Volkswagen devised a secret plan to import auto parts in separate consignments, avoiding detection and paying lesser taxes. The company reportedly did not declare these items as "completely knocked down" (CKD) units, which attract higher taxes of 30% to 35%. This allegation forms the crux of the ongoing legal battle.
Import practices
Other automakers' import practices contrast with Volkswagen's
In response to Volkswagen's court appeal, tax authorities have named 10 car manufacturers, including Mercedes-Benz, BMW, and Hyundai, who have accurately classified their imports despite using "split consignments" for parts delivery. This highlights a stark contrast between Volkswagen's alleged tax evasion strategy and the import practices of other leading automakers in India.
Kia's response
Kia rectifies import classification after warning
South Korean automaker Kia changed its approach after it was warned by Indian tax authorities. The authorities noted in their 506-page filing that "earlier, they were clearing such imports as parts, against which investigation was undertaken." They added that "post the investigation, they have started classifying such imports correctly," showing that Kia was proactive in addressing the issue.
Survival threat
A matter of survival
Volkswagen's Indian unit has termed the ongoing tax dispute a matter of "life and death." If guilty, the company could be slapped with dues worth $2.8 billion, including penalty and delayed interest. The case is the highest import tax demand in India's history and has raised investor concerns over long-term disputes derailing their plans.
Legal challenge
Volkswagen challenges tax demand in court
Volkswagen has challenged the tax demand in court, arguing that it contradicts New Delhi's own tax rules on car parts imports. The company has also criticized India for taking up to 12 years to review some shipment records. However, tax authorities counter this claim by stating that the investigation delay was due to Volkswagen not providing necessary documents on time.