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Published 12:19 IST, February 5th 2025

Volkswagen Facing A $1.4 Billion Tax Dispute In India -- All You Need To Know

This was done to wilfully evade payment of higher taxes, the Indian investigation found.

Reported by: Business Desk
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Volkswagen
Volkswagen | Image: Pixabay

These are trying times for the German automaker Volkswagen as it is facing several battles at home and abroad, and a $1.4 billion tax dispute has been added to that list of problems.

This problem comes amid sales and profit challenges, cheaper Chinese competitors, labour troubles and Trump tariffs which are threatening the firm's Mexico operations.

The firm holds a less than 2% share of the Indian automobile market and is expanding by launching new models and planning future investments. In 2019, Volkswagen Group India received regulatory as well as statutory approvals to merge its three passenger car subsidiaries to on entity.

Previously, in July the firm had announced investments of around1 billion euros as part of the India 2.0 project. In 2023-24, the company had also reported a sales of $2.19 billion, and a net profit of $11 million.

In 2024, India issued a notice to Volkswagen for allegedly evading $1.4 billion of taxes by "wilfully" paying lesser import tax on components for its Audi, VW and Skoda cars, Reuters wrote in a reported, which is one of the biggest such demands.

According to the notice, "almost the entire" car in unassembled condition was imported by the firm, which attracts a 30-35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by mis-classifying imports as "individual parts," while paying a duty of mere 5-15%.

This was done to wilfully evade payment of higher taxes, the Indian investigation found.

The 95-page notice by the Office of the Commissioner of Customs in Maharashtra said that this logistical arrangement is an artificial arrangement, adding that the "operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty."

The firm's India unit should have paid import taxes since 2012, including several other related levies of about $2.35 billion to the government but has paid only $981 million, which amounts to a shortfall of $1.36 billion, according to authorities.

After receiving the notice, the firm is saying that it is a "responsible organization, fully complying with all global and local laws and regulations. We are analyzing the notice and extending our full cooperation to the authorities."

Updated 12:19 IST, February 5th 2025