India: Apple production faces billions in taxes – lobbying the state

At least 25 percent of all global iPhone production has now migrated to India. Apple wants to reduce its dependence on China as a manufacturing location and at the same time avoid possible high punitive tariffs on products from the People’s Republic. However, the company is now threatened with a billion-dollar problem on the subcontinent itself: Apple’s usual manufacturer model could lead to high tax claims from Delhi if the company does not succeed in achieving changes to regulations and laws. This is what the Reuters news agency.

Apple is not allowed to finance machines

The reason is the way Apple usually proceeds with its production: Although it is awarded to large contract manufacturers – in India in addition to Foxconn, Tata and others – Apple controls the production very closely. As a result, the company also purchases the often extremely expensive machines that the manufacturers then use. Some of the contractors are not even able to acquire them, which is why Apple then takes over, it is said. The machines are not assigned to the contractors, but are only in their factory halls – they remain in the possession of Apple itself.

While this does not seem to be a tax problem in China, the situation is quite different in India, according to Reuters. According to the Income Tax Act there, the ownership of the machines would imply a direct “business connection” to the iPhones produced. Which would then mean that Apple’s later smartphone profits would suddenly be taxed, according to an Indian official and two industry sources Reuters spoke to. So far, billions of US dollars are said to have flowed through Foxconn, Tata & Co. into the construction of factories in India, millions of them for the production machines.

Expansion of production could falter

Apparently, Apple has not yet financed any of the machines in order not to fall under the Income Tax Act, which was introduced in 1961. However, this would probably have to happen with the expansion of production, observers say. “Contract manufacturers can only spend money to a certain extent,” an expert told Reuters. Only if the law changes, Apple could expand more easily on the subcontinent. “India would then be more competitive worldwide.”

The company is therefore now said to be in the process of lobbying intensively for an amendment to the Income Tax Act. The request has already been received in Delhi, where smartphone production is seen as an important industrial factor in politics. Apple’s proposal is already available and is being “cautiously examined,” it says. This is a difficult decision, according to informed circles. But India is threatened with the loss of billions in investments, because that’s how expensive the machines are in some cases. Apple, on the other hand, is not willing to pay billions in taxes to Delhi.