Apple Inc. (AAPL) is said to be actively engaging with the Indian government, lobbying for amendments to its income tax laws, a move crucial to the tech giant's expansion plans in the country. This development is seen as vital for avoiding potentially substantial tax liabilities linked to the iPhone manufacturing equipment supplied to contract manufacturers in India.
The market is closely watching Apple's moves in India, as the outcome could significantly impact the company's operational strategy and financial commitments in one of the world's fastest-growing smartphone markets.
The current tax framework, based on India's Income Tax Act of 1961, could classify Apple's provision of machinery to manufacturers like Foxconn and Tata as establishing a “business connection,” thus subjecting Apple to local taxation on profits derived from those assets.
Apple's growing presence in India is undeniable, with its iPhone market share doubling to 8% since 2022. Furthermore, India's contribution to global iPhone shipments has surged from 6% in 2022 to 25%. This growth has been supported by over $5 billion in investments by Apple's contract manufacturers, establishing five manufacturing plants across India. However, the high costs associated with acquiring advanced assembly machinery present a challenge, particularly if Apple faces tax repercussions for supplying this equipment.
The Indian government is carefully considering Apple's request, balancing the attraction of foreign investment with the preservation of its tax sovereignty. Discussions regarding the taxation rules impacting Apple are ongoing, with emphasis on finding a solution that fosters investment while upholding the country's right to tax foreign entities. The India Cellular & Electronics Association (ICEA), representing major industry players, has also advocated for revisions to the tax law, emphasizing that tax certainty is paramount for businesses looking to expand and scale.
If the current tax law remains unchanged, experts warn that Apple could face billions of dollars in additional taxes.
In contrast, Apple's competitor, Samsung, operates differently in India by manufacturing most of its phones in fully owned local factories. This approach allows Samsung to avoid the tax implications linked to foreign ownership of manufacturing equipment, giving it a competitive edge under the current tax regime.
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