Volkswagen and India: dispute over a billion-dollar tax claim

German carmaker Volkswagen has decided to take strong legal action against the Indian authorities and has filed a lawsuit against their tax ruling. The company is seeking cancellation of an "extremely high" tax claim of $1.4 billion. According to Volkswagen, this demand is in violation of India's rules for importing auto parts and threatens the carmaker's business plans.

The tax claim and its impact on foreign investment

Indian authorities assessed a record import tax of $1.4 billion onVolkswagen $VWA.BRin September 2023 . They argue that the carmaker artificially split imports of VW, Skoda and Audi cars into individual components to avoid higher duties. Indian law imposes a 30-35% duty on CKD units (completely disassembled cars), while individual parts are taxed only 5-15%.

Volkswagen's defence is that it has informed the Indian authorities about its import method and received confirmation that the procedure is in accordance with the law. The suit claims that India's decision…