Volkswagen is reportedly facing a $2.8 billion fine for alleged customs evasion in India, according to a 95-page document from Indian customs authorities. The report accuses VW of intentionally misclassifying imported vehicle parts since 2012 to pay lower tariffs.
VW operates two plants in India, assembling Skoda, Audi, and VW models. The company claims compliance with all laws and is cooperating with the investigation. If found guilty, VW could face one of the largest penalties in its history.
Volkswagen’s Indian subsidiary, SKODA Auto Volkswagen India, has been accused by the Indian government of evading $1.4 billion in taxes.
According to Reuters, the government claims that the company intentionally underpaid import tax on components for its Audi, VW, and SKODA cars including the SKODA Superb and Kodiaq, luxury cars like the Audi A4 and Q5, and VW’s Tiguan SUV.
This is one of the largest tax evasion demands ever made by the Indian authorities against a multinational corporation.
Tax evasion
Volkswagen allegedly underpaid import tax on car components
As per a 95-page notice released by the Office of the Commissioner of Customs in Maharashtra, seen by Reuters, Volkswagen is accused of importing “almost the entire” car in unassembled condition.
This practice draws a 30-35% import tax under Indian rules for completely knocked down (CKD) units.
But, the company allegedly evaded these levies by misdeclaring and misclassifying these imports as “individual parts,” paying only a 5-15% duty.
Deceptive tactics
Indian authorities claim Volkswagen used deceptive tactics
The Indian authorities allege that Volkswagen used different shipment consignments to avoid detection and intentionally evade higher taxes.
“This logistical arrangement is an artificial arrangement…operating structure is nothing but a ploy to clear the goods without payment of the applicable duty,” the notice that has not been made public from the customs office states.
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Share impact
Shares drop following tax evasion allegations
Following Reuters’s report on the tax evasion notice, Volkswagen’s shares took a major hit on the Frankfurt stock exchange. The company’s shares dropped as much as 2.13%.
This financial impact highlights the gravity of the allegations against SKODA Auto Volkswagen India and how they could affect the German automaker’s operations in India.
Company response
Volkswagen India responds to tax evasion allegations
In light of the allegations, SKODA Auto Volkswagen India has said 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.”
The notice requests a response within 30 days, but Volkswagen has not commented on whether it has done so, Reuters reports.
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Global challenges
Volkswagen India’s tax evasion allegations amid global challenges
The tax evasion allegations against Volkswagen come at a challenging time for the company, both at home and abroad.
In Germany, the automaker is facing labor disputes over plant closures and layoffs.
Meanwhile, in China – Volkswagen’s largest market where sales have been declining – the company has announced plans to sell some of its operations due to years of increasing pressure.
Scenario
Volkswagen’s total liability could go up to $2.8 billion
The government’s show cause notice to Volkswagen’s local unit, demands an explanation for its alleged tax evasion and why it should not face additional penalties and interest under Indian law, on top of the $1.4 billion in evaded duties.
An anonymous government official told Reuters that if found guilty, the penalty could reach up to 100% of the evaded amount, potentially increasing Volkswagen’s total liability to $2.8 billion.
