A legal battle over a massive $1.4 billion tax bill has put Volkswagen’s Indian operations in jeopardy, with the automaker warning that the financial burden could force it out of the country.
The dispute centers on claims by Indian tax authorities that Skoda Auto Volkswagen India, a subsidiary of the German car giant, manipulated import classifications to reduce duty payments. Authorities allege the company broke down shipments of Volkswagen, Skoda, and Audi cars into separate parts to pay levies as low as 5-15%, instead of the 30-35% applicable to fully assembled vehicles.
Facing the prospect of paying backdated taxes spanning 12 years—along with penalties that could bring the total to $2.8 billion—the company is now fighting for its survival. In court, legal representatives argued that such a payment would cripple the business, which employs 6,000 people in India.
“This is no longer just a legal matter. It’s life or death for the company,” its senior advocate stated.
The case has reignited concerns among global businesses about India’s tax policies, raising questions about the investment climate in one of the world’s fastest-growing economies.
While Volkswagen has a relatively small footprint in India’s auto market—where its Audi brand trails far behind Mercedes-Benz and BMW—the outcome of this battle could have wider implications for foreign automakers and investors.
The court proceedings are set to continue later this week.
