India has issued a notice to German carmaker Volkswagen, accusing it of tax evasion amounting to $1.4 billion by deliberately underreporting import tax on parts for Audi, VW and Skoda cars, based on a Reuters report. This is one of the most important demands of this kind by the Indian authorities.
Business today was unable to independently confirm the event of the situation.
The September 30 notice said that Volkswagen was importing almost complete cars in unassembled form, which generally attracts an import tax of 30-35% in India under the CKD (completely disassembled) unit rule, the report added.
Volkswagen allegedly misclassified and misdeclared these imports as “single parts,” which allowed it to pay a much lower duty of 5 to fifteen percent.
The imports were made by Volkswagen’s local unit, Skoda Auto Volkswagen India, models similar to Skoda Superb and Kodiaq, Audi A4 and Q5 and the VW Tiguan SUV. The investigation revealed that various shipments were used to avoid detection and deliberately evade paying higher taxes.
“This logistical arrangement is an artificial arrangement… The operational structure is a ploy to clear goods without paying the duty payable,” said a 95-page notification issued by the Office of Commissioner of Customs, Maharashtra.
Since 2012, Volkswagen’s Indian unit must have paid $2.35 billion in import taxes and related fees to the Indian government, nevertheless it only paid $981 million, which authorities said would have resulted in a shortfall of $1.36 billion.
Reply Skoda Auto Volkswagen India
Skoda Auto Volkswagen India, in response, said it’s a “responsible organization, fully compliant with all global and local laws and regulations” and that it’s currently reviewing the notice and cooperating with the authorities.
The “show cause” requires Volkswagen’s local unit to clarify why it shouldn’t face penalties and interest under Indian law, on top of allegedly $1.4 billion in unpaid taxes.
High taxes and long-term legal disputes are constant challenges for foreign corporations operating in India. Electric vehicle maker Tesla has repeatedly criticized India’s high taxes on imported cars, while Vodafone has been involved in protracted legal disputes over back taxes. Chinese automaker BYD can be under investigation in India for underreporting import taxes.
Volkswagen plans to speculate $1.8 billion to supply electric and hybrid vehicles in Maharashtra and in February signed a deal to provide electric components to Mahindra.
In 2022, investigators raided three Volkswagen India plants, including two in Maharashtra. They seized documents related to the import of components and emails from senior management. Piyush Arora, managing director, Volkswagen India, was asked why all of the parts needed to assemble the automotive weren’t shipped together, but was unable to offer a solution, based on the notice.
Volkswagen defended its actions by saying it was done for the sake of “operational efficiency”, but authorities rejected this explanation, stressing that logistics were only a small part of the method.
