Volkswagen India Faces $1.4 Billion Tax Evasion Allegations | Image Source: Rawpixel.com
NEW DELHI, 29 November 2024 – Volkswagen’s German Indian unit was charged with evacuating $1.4 billion in taxes, according to a government notice issued on September 30th. The claims concern the classification of the company’s imports, which would have resulted in the payment of lower import duties. The Notice, published by the Office of the Commissioner of Customs at Maharashtra, states that Volkswagen has “voluntaryly” misclassified almost complete vehicle imports as individual parts to benefit from lower tax rates.
Under Indian customs rules, fully demolished units (CKDs) attract an import tariff of 30 to 35%, while individual parts of cars are taxed at a reduced rate of 5 to 15%. Volkswagen reportedly imported unassembled whole cars for models such as Skoda Superb, Kodiaq, Audi A4, Q5 and Volkswagen Tiguan, dividing into separate shipments to avoid detection. The authorities claim that the company paid $1.36 billion in service between 2012 and today, creating one of the largest tax disputes in the Indian automotive sector.
Skoda Auto Volkswagen India, the local Volkswagen unit, denied the mistake. In a statement, the company stated: “We are a responsible organization, fully compliant with all global and local laws and regulations. We analyse the opinion and extend full cooperation to the authorities.” Although the notice ordered a response within 30 days, Volkswagen did not publicly confirm whether it responded. Potential penalties for such cases can double the initial $2.8 billion.
Research sheds light on Volkswagen’s supposed methods. According to officials, the company used internal software to process bulk orders of vehicle components from suppliers in countries such as Germany, the Czech Republic and Mexico. The software would have segmented orders into smaller shipments, classified as individual parts, which were packaged separately and shipped within days. The authorities consider that this logistics strategy was designed to avoid higher CKD taxes.
The opinion follows numerous probes, including on-site searches and interviews of executives in 2022. The investigators seized documents and e-mail and interviewed the general manager of Skoda-Volkswagen India, Piyush Arora. Officials cited discrepancies in the explanations provided, noting that rivals such as Mercedes-Benz complied with CKD rules by paying the total import duties of 30%. The authorities argued that Volkswagen’s approach reversed customs and created an unfair competitive advantage.
Volkswagen’s challenges in India add to its growing global concerns. The car manufacturer is struggling with internal labour disputes in Germany, the reduction of market share in China and increased competition from start-ups of electric vehicles. Despite its intention to invest $1.8 billion in the manufacture of electric and hybrid vehicles in Maharashtra, this tax dispute could affect the growth of India’s automotive market. Industry analysts point out that these cases reflect broader concerns among foreign firms about India’s tax environment, with prolonged disputes often discouraging investment.
The Indian authorities stressed the seriousness of the case. If Volkswagen is found guilty, sanctions and interest could establish a new benchmark for the application of taxes in the industry. The dispute highlights the review of multinational companies operating in India, where persistent tax and regulatory barriers remain.
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