India has issued a notice to German carmaker Volkswagen for allegedly evading $1.4bn (R25,416,227,060) in taxes by "wilfully" paying lesser import tax on components for its Audi, VW and Skoda cars, a document shows, in what is one of the biggest such demands.
A notice dated September 30 said Volkswagen used to import "almost the entire" car in unassembled condition, which attracts a 30% to 35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by "mis-declaring and mis-classifying" the imports as "individual parts", paying only a 5% to 15% duty.
The imports were made by Volkswagen's India unit, Skoda Auto Volkswagen India, for its models including the Skoda Superb and Kodiaq, luxury cars such as the Audi A4 and Q5, and VW's Tiguan SUV. Different shipment consignments were used to evade detection and "willfully evade payment" of higher taxes, the Indian investigation found.
"This logistical arrangement is an artificial arrangement. Operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty," said the 95-page notice by the office of the commissioner of customs in Maharashtra, which is not public but was seen by Reuters.
Volkswagen shares fell as much as 2.13% on the Frankfurt stock exchange after Reuters reported the India tax notice.
Since 2012, Volkswagen's India unit should have paid import taxes and several other related levies of about $2.35bn (R42,648,736,945) to the Indian government, but paid only $981m, amounting to a shortfall of $1.36bn (R24,667,136,000), the authority said.
In a statement, Skoda Auto Volkswagen India said it is a "responsible organisation, fully complying with all global and local laws and regulations. We are analysing the notice and extending our full cooperation to the authorities."
The notice asks it to respond within 30 days, but Volkswagen didn't comment if it has done so.
India's finance ministry and the customs department did not respond to Reuters queries.
News about the alleged tax evasion comes at a time when the Wolfsburg-based carmaker is fighting multiple battles at home and abroad. Volkswagen is locked in an escalating dispute with its labour in Germany over plant closures and layoffs while Chinese competitors are attacking Europe's established carmakers on their home turf.
In China, Volkswagen's biggest market where sales have been flagging, the carmaker said it will sell some operations, succumbing to years of mounting pressure.
The "show cause notice" issued by the government authority asks Volkswagen's local unit to explain why its alleged tax evasion should not attract penalties and interests under Indian laws, over and above the $1.4bn (R25,392,638,180) evaded duties.
A government official who spoke on condition of anonymity said the penalty typically in such cases, if the company is found guilty, could go as high as 100% of the amount evaded, which could force the company to pay up about $2.8bn (R50,785,276,360) in total.
High taxes and prolonged legal disputes have often been a sore point for foreign companies in India.
Electric vehicle maker Tesla, for example, has for years complained about high taxes on imported cars and Vodafone has fought cases related to back taxes. Chinese carmaker BYD also faces an ongoing Indian tax investigation for underpaying taxes of roughly $9m (R163,277,154) on imports.
Factories searched, executives questioned
Volkswagen has plans to invest $1.8bn (about R32,656,320,000) to build EVs and hybrids in Maharashtra and in February signed an agreement to supply India's Mahindra with electric components. The group's finance chief said in May he was "very positive about India".
Volkswagen is a tiny player overall in India's 4-million units a year car market and has struggled to boost sales. The case can increase its headaches in India, where its Audi brand lags competitors in the luxury segment such as Mercedes and BMW.
Indian investigators said in their notice Mercedes was following the necessary rules to pay a 30% tax by importing the CKD units of their cars, and not separate the individual parts.
Inspectors searched three of Volkswagen India's facilities in 2022, including the two factories in Maharashtra. Documents related to component imports and email backups of top executives were seized at the time.
The company's India MD Piyush Arora was questioned last year and asked "why all the parts required to assemble a car are not shipped together", but "he was not able to answer the question", the investigators said in the notice.
Arora did not respond to a Reuters request for comment.
Use of software, modus operandi
The Indian notice, based on review of the company's internal software, said Volkswagen India regularly placed bulk orders for cars through an internal software which connected it to suppliers in Czech Republic, Germany, Mexico and other nations.
After the order was placed, the software broke it down into "main components/parts", roughly 700 to 1,500 for each vehicle depending on the model.
Then the supplies started.
The car parts were packed abroad in different containers within a three to seven consecutive days under multiple invoices, and reached the Indian port roughly at the same time, Indian authorities alleged.
"This appears to have been done to pay lesser duties applicable on the individual parts," the notice said, adding the carmaker "deliberately misled customs authorities".
Volkswagen told investigators it was using such a route for "efficiency of operations", but the argument was dismissed.
"Logistics is a very small and rather least significant step of the whole process. (Skoda-Volkswagen India) is not a logistics company," the notice said.
VW India unit faces $1.4bn tax evasion notice
Image: Sean Gallup/Getty Images
India has issued a notice to German carmaker Volkswagen for allegedly evading $1.4bn (R25,416,227,060) in taxes by "wilfully" paying lesser import tax on components for its Audi, VW and Skoda cars, a document shows, in what is one of the biggest such demands.
A notice dated September 30 said Volkswagen used to import "almost the entire" car in unassembled condition, which attracts a 30% to 35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by "mis-declaring and mis-classifying" the imports as "individual parts", paying only a 5% to 15% duty.
The imports were made by Volkswagen's India unit, Skoda Auto Volkswagen India, for its models including the Skoda Superb and Kodiaq, luxury cars such as the Audi A4 and Q5, and VW's Tiguan SUV. Different shipment consignments were used to evade detection and "willfully evade payment" of higher taxes, the Indian investigation found.
"This logistical arrangement is an artificial arrangement. Operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty," said the 95-page notice by the office of the commissioner of customs in Maharashtra, which is not public but was seen by Reuters.
Volkswagen shares fell as much as 2.13% on the Frankfurt stock exchange after Reuters reported the India tax notice.
Since 2012, Volkswagen's India unit should have paid import taxes and several other related levies of about $2.35bn (R42,648,736,945) to the Indian government, but paid only $981m, amounting to a shortfall of $1.36bn (R24,667,136,000), the authority said.
In a statement, Skoda Auto Volkswagen India said it is a "responsible organisation, fully complying with all global and local laws and regulations. We are analysing the notice and extending our full cooperation to the authorities."
The notice asks it to respond within 30 days, but Volkswagen didn't comment if it has done so.
India's finance ministry and the customs department did not respond to Reuters queries.
News about the alleged tax evasion comes at a time when the Wolfsburg-based carmaker is fighting multiple battles at home and abroad. Volkswagen is locked in an escalating dispute with its labour in Germany over plant closures and layoffs while Chinese competitors are attacking Europe's established carmakers on their home turf.
In China, Volkswagen's biggest market where sales have been flagging, the carmaker said it will sell some operations, succumbing to years of mounting pressure.
The "show cause notice" issued by the government authority asks Volkswagen's local unit to explain why its alleged tax evasion should not attract penalties and interests under Indian laws, over and above the $1.4bn (R25,392,638,180) evaded duties.
A government official who spoke on condition of anonymity said the penalty typically in such cases, if the company is found guilty, could go as high as 100% of the amount evaded, which could force the company to pay up about $2.8bn (R50,785,276,360) in total.
High taxes and prolonged legal disputes have often been a sore point for foreign companies in India.
Electric vehicle maker Tesla, for example, has for years complained about high taxes on imported cars and Vodafone has fought cases related to back taxes. Chinese carmaker BYD also faces an ongoing Indian tax investigation for underpaying taxes of roughly $9m (R163,277,154) on imports.
Factories searched, executives questioned
Volkswagen has plans to invest $1.8bn (about R32,656,320,000) to build EVs and hybrids in Maharashtra and in February signed an agreement to supply India's Mahindra with electric components. The group's finance chief said in May he was "very positive about India".
Volkswagen is a tiny player overall in India's 4-million units a year car market and has struggled to boost sales. The case can increase its headaches in India, where its Audi brand lags competitors in the luxury segment such as Mercedes and BMW.
Indian investigators said in their notice Mercedes was following the necessary rules to pay a 30% tax by importing the CKD units of their cars, and not separate the individual parts.
Inspectors searched three of Volkswagen India's facilities in 2022, including the two factories in Maharashtra. Documents related to component imports and email backups of top executives were seized at the time.
The company's India MD Piyush Arora was questioned last year and asked "why all the parts required to assemble a car are not shipped together", but "he was not able to answer the question", the investigators said in the notice.
Arora did not respond to a Reuters request for comment.
Use of software, modus operandi
The Indian notice, based on review of the company's internal software, said Volkswagen India regularly placed bulk orders for cars through an internal software which connected it to suppliers in Czech Republic, Germany, Mexico and other nations.
After the order was placed, the software broke it down into "main components/parts", roughly 700 to 1,500 for each vehicle depending on the model.
Then the supplies started.
The car parts were packed abroad in different containers within a three to seven consecutive days under multiple invoices, and reached the Indian port roughly at the same time, Indian authorities alleged.
"This appears to have been done to pay lesser duties applicable on the individual parts," the notice said, adding the carmaker "deliberately misled customs authorities".
Volkswagen told investigators it was using such a route for "efficiency of operations", but the argument was dismissed.
"Logistics is a very small and rather least significant step of the whole process. (Skoda-Volkswagen India) is not a logistics company," the notice said.
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