Will tax charges threaten Volkswagen’s investment in India?

Volkswagen has been hit with a tax bill from the Indian tax authorities of US$1.4bn. This is based on a ruling that Volkswagen has been misreporting the status of components imported into India for the manufacture or, more accurately, assembly of various models. India has specific tax rules that levy 30-35% import duty on completely-knocked-down (CKD) kits versus 5-15% on loose components imported for full manufacturing operations. Volkswagen classified the imported parts as loose components and therefore paid the lower tax rate and amount. The government argues that, since 2012, Volkswagen should have paid around US$2.35bn in duties and other taxes but has only paid US$981m, leading to the US$1.4bn dispute.