Apple is lobbying for tax law changes in India because it could face billions of dollars in taxes on new iPhone assembly equipment.
Currently, about 25% of iPhones are manufactured in India, and the company is looking to increase this percentage even further, but there are potentially significant barriers to further expansion…
iPhone assembly equipment
Assembling an iPhone on a production line requires very expensive specialized equipment. In some cases, Apple’s manufacturing partners, such as Foxconn and Tata, will pay for the purchase of these machines. However, increasing production to new levels may prove too costly upfront for even these large contract manufacturers.
The approach Apple has taken in China is to pay for the machines themselves. They will be installed in factories owned by Apple’s manufacturing partners, but Apple will pay for them and retain ownership.
While this approach has worked well in China, Apple faces potentially significant barriers to doing the same in India as it seeks to further expand production there.
Apple faces billions in taxes
In China, the fact that Apple owns production equipment has no tax implications. However, the situation in India is very different. Reuters I will explain.
Income tax law would consider such ownership by Apple to be so-called “business-related,” making the U.S. company’s iPhone profits subject to Indian taxes, a senior government official and two other industry sources said (…)
“If Apple’s activities constitute a business nexus, global earnings could be used as the basis for calculating income attributable to India, potentially leading to billions of dollars in tax liability,” said Riaz Singha, a partner at Grant Thornton Bharat.
In other words, the profits generated from iPhones manufactured using this Apple-owned machinery will be taxed in India.
9to5Mac’s opinion
The Indian government faces a dilemma here. On the other hand, we want to encourage this type of inward investment in the growing manufacturing sector. On the other hand, when foreign companies create value domestically, they want to make sure they get a piece of the tax pie.
Ultimately, both parties need this arrangement to work, so it seems likely that a compromise that is acceptable to both parties will be reached.
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Photo by Igor Omilaev on Unsplash
