INDIA: Volkswagen faces $2.8 billion tax dispute in India over import misclassification

Indian tax authorities have accused Volkswagen of evading ₹1.4 billion in taxes by misclassifying car imports over 12 years. The company now faces a potential tax liability of $2.8 billion, including penalties and interest.

According to court filings, Volkswagen is the only automaker alleged to have consistently misclassified imports to reduce tax payments. While competitors like Kia adjusted their practices after being flagged by authorities, Volkswagen is accused of using a strategy to import auto parts separately rather than declaring them as ‘completely knocked down’ (CKD) units, which are subject to a higher tax rate of 30% to 35%.

The case has raised concerns among investors, as it represents the largest import tax claim in India’s history. Volkswagen’s Indian subsidiary has described the legal battle as a matter of life and death. Authorities have also pointed out that other car manufacturers, including Mercedes-Benz, BMW, and Hyundai, have properly classified their imports despite using similar shipment methods.

Volkswagen has a relatively small presence in India’s massive automotive market, which is the third-largest in the world. Despite being a well-established global brand, Volkswagen struggles to compete with dominant players like Maruti Suzuki, Hyundai, and Tata Motors in the mass-market segment.

The company sells models such as the Virtus sedan, Taigun SUV, and Tiguan, but its market share remains limited. Volkswagen’s premium brand, Audi, also trails behind luxury rivals like Mercedes-Benz and BMW.