Apple has requested the Indian government to reconsider certain aspects of its income tax legislation that could impede the company’s growth in the country, according to Reuters. Specifically, Apple is seeking amendments to ensure that it is not taxed for possessing costly iPhone manufacturing equipment provided to its contract manufacturers in India.
This initiative coincides with Apple’s strategy to diversify its production away from China and enhance its manufacturing presence in India. Data from Counterpoint Research indicates that the iPhone’s market share in India has surged to 8% since 2022. While China remains the primary source of global iPhone shipments at 75%, India’s share has quadrupled to 25% during the same period.
India, as the world’s second-largest mobile market, has emerged as a pivotal focus for Apple’s manufacturing strategies. Notably, contract manufacturers like Foxconn and Tata have invested substantial amounts to establish five iPhone plants in India. A significant portion of this investment has been allocated to sophisticated machinery necessary for iPhone assembly. However, concerns have been raised that Apple might face substantial additional taxes under India’s existing tax regulations if it continues the practice of owning the machinery while allowing contract partners to utilize it.
In contrast to India, Apple faces no taxation in China for owning machinery, as the local tax laws do not view this ownership arrangement as a business connection. Conversely, India’s 1961 Income Tax Act categorizes such ownership as a “business connection,” potentially subjecting Apple’s profits to taxation in India.
Sources mentioned in the report reveal that Apple executives have engaged in multiple discussions with Indian authorities regarding potential modifications to this law. An industry insider highlighted, “Contract manufacturers cannot exceed a certain financial threshold. Altering the existing law would facilitate Apple’s expansion. It can enhance India’s global competitiveness.”
Smartphone manufacturing forms a crucial component of India’s economic strategy, aiming to position the country as a global electronic hub. While discussions regarding tax rules impacting Apple are ongoing, no definitive decisions have been reached yet, as per a senior government official. The official emphasized the need to balance attracting investments with safeguarding the government’s taxation rights concerning foreign entities.
Since 2023, Apple has established retail outlets in India and continues to distribute products through online and offline channels. Foxconn and Tata collectively injected over Rs 5,000 crore into Apple-related manufacturing ventures within the country.
Tax experts underscore that Apple’s possession of specialized machinery in Indian facilities may render it liable for taxation, drawing parallels with a previous case involving Formula One. In 2017, India’s Supreme Court ruled that the UK-based Formula One organization was obligated to pay taxes in India due to its complete control over a racing circuit near New Delhi during an event, despite not owning it.
Riaz Thingna, a partner at Grant Thornton Bharat LLP, expressed concerns stating, “If Apple’s activities constitute a business connection, the global revenue could serve as a basis for calculating the attributable income in India, potentially leading to substantial tax liabilities.”
Notably, Foxconn, Apple’s principal contract manufacturer in India, had shipped products worth Rs 7.4 billion by August this year, almost on par with its Rs 7.5 billion exports for the entire 2024. Unlike Apple, South Korean smartphone giant Samsung remains unaffected by these tax issues, as it produces the majority of its devices in its Indian factories.
The India Cellular & Electronics Association (ICEA), representing Apple and other global corporations, has privately urged the government to modernize the law, emphasizing that tax predictability is vital for businesses aiming to expand and scale operations.
ICEA’s submission highlighted that contract manufacturers often face challenges in investing substantial amounts in specialized equipment, which can cost billions of dollars. In some instances, such equipment may even be provided free of charge by the parent company.