India accuses Volkswagen of $1.4 billion in tax evasion over misclassified car imports

The Volkswagen logo is seen at the Volkswagen power plant on the day Volkswagen AG and the industrial union IG Metall began talks on a new collective agreement for six of their German plants in Wolfsburg on September 25, 2024. Photo: R

India has issued a notice to German automaker Volkswagen, accusing the company of evading $1.4 billion in taxes by deliberately understating import duties on components for its Audi, VW and Skoda cars.

A statement dated September 30 said Volkswagen used to import “almost the entire” car in an unassembled state – which attracts a 30-35% import tax in India under CKD rules – or completely dismantled units, but the Taxes were evaded through “false imports”. declaring and misclassifying these imports as “individual parts” and paying only a 5-15% duty, News.Az reported citing Reuters.

Such imports were made by Volkswagen’s India subsidiary Skoda Auto Volkswagen India for its models such as Skoda Superb and Kodiaq, luxury cars such as Audi A4 and Q5 and VW’s Tiguan SUV. India’s investigation found that various shipments were used to evade detection and “deliberately evade payment” of higher taxes.

“This logistical arrangement is an artificial arrangement…The operational structure is nothing but a ploy to clear the goods without paying the applicable duty,” the 95-page notice from the office of the Customs Commissioner in Maharashtra said, not made public but seen by Reuters seen.

Since 2012, Volkswagen’s India subsidiary should have paid around $2.35 billion in import taxes and several other related duties to the Indian government, but paid only $981 million, resulting in a shortfall of $1.36 billion -dollars, according to the authority.

In a statement, Skoda Auto Volkswagen India said it is a “responsible organization that fully complies with all global and local laws and regulations. We are analyzing the communication and extending our full cooperation with the authorities.”

The notice asks for a response within 30 days, but Volkswagen did not comment on whether or not this happened.

India’s Finance Ministry and Customs Department did not respond to Reuters queries.

The government agency’s so-called “show cause notice” asks Volkswagen’s local unit to explain why the alleged tax evasion should not, under Indian law, attract penalties and interest beyond the $1.4 billion in evaded customs duties -dollars go out.

A government official who spoke on condition of anonymity said that in such cases, if the company is found guilty, the penalty could typically be up to 100% of the amount evaded, which would require the company to pay a total of about $2.8 billion. could force dollars.

High taxes and lengthy legal disputes have often been a sore point for foreign companies in India.

The electric vehicle manufacturer Tesla, for example, has been complaining for years about high taxes on imported cars and Vodafone is fighting against back taxes. Chinese automaker BYD also faces an ongoing Indian tax investigation over underpayment of about $9 million in taxes on imports.

Volkswagen is a tiny player in India’s 4 million-unit-a-year car market overall and is struggling to boost sales. The case could cause even more headaches in India, where the Audi brand already lags behind luxury segment rivals such as Mercedes and BMW.

Indian investigators said in their statement that Mercedes followed the necessary rules to pay a 30% tax by importing the CKD units of its cars and not separating the individual parts.

In 2022, inspectors raided three Volkswagen India plants, including the two factories in Maharashtra. At that time, documents related to component imports and email backups from top executives were confiscated.

News.Az