By Aditya Kalra, Nikunj Ohri and Aditi Shah NEW DELHI (Reuters) -Apple is lobbying India's government to modify its income tax law to ensure the company is not taxed for ownership of high-end iPhone machinery it provides to its contract manufacturers, an issue seen as a hurdle to its future expansion, sources say. The push coincides with Apple's growing India presence as it diversifies beyond China. Counterpoint Research says iPhone's share in the Indian market has doubled to 8% since 2022. And while China still accounts for 75% of global iPhone shipments, India's share has quadrupled to 25% since 2022. India is the world's second-largest mobile market. Apple's contract manufacturers Foxconn and Tata have pumped in billions of dollars to open five plants, but millions of those expenses go into acquiring pricey machines for iPhone assembly. Experts say Apple potentially faces billions of dollars in additional taxes if it changes its business practices without convincing New Delhi to change a 1961 law covering foreign ownership of equipment used in India. In China, Apple procures the machines used to make iPhones and gives them to its contract manufacturers, and is not subject to tax even though it still owns them. But that's not possible in India as the Income Tax Act would consider such ownership by Apple as a so-called "business connection", making the U.S. firm's iPhone profits liable for Indian taxes, said a senior government official and two other industry sources. Apple executives have held talks with the Indian officials in recent months to tweak the law as it fears the current legislation could hamper its future growth, said the sources. "Contract manufacturers cannot put up money beyond a point," said the first industry source. "If the legacy law is changed, it will become easy for Apple to expand … India can become more competitive globally." Reuters is first to report Apple's concerns and lobbying efforts on the law. Apple did not respond to Reuters questions, and neither did India's IT and finance ministries who are involved in the discussions. INDIA CAUTIOUSLY REVIEWING APPLE REQUEST Smartphone manufacturing is a key plank of Prime Minister Narendra Modi's agenda, and India's deputy IT minister last year privately said China and Vietnam could race ahead as major smartphone export hubs due to their lower tariffs on phone parts. A senior Indian official said "discussions on taxation rules impacting Apple are ongoing", but New Delhi is cautious as any changes to the law could diminish its sovereign right to tax a foreign company. "It's a tough call," said the official, who highlighted that Apple's increased investments are equally important. "India needs investments. We have to find a solution." Apple has since 2023 opened a handful of directly-owned retail stores in India, though it also sells it products through online and offline distributors. Foxconn and Tata have over the years invested more than $5 billion in setting up Apple manufacturing. SPECIALIZED EQUIPMENT CAN COST BILLIONS One precedent of Indian law often cited by tax experts involves UK-based Formula One. India's Supreme Court held in 2017 that even though F1 did not own a circuit near New Delhi, it was liable to pay tax on profits for the days when it exerted full control during its Grand Prix India event. If Apple were to own machines inside Indian iPhone factories, it would amount to exerting control under current laws, experts said. "If the activities of Apple constitute a business connection, then the global revenue may be used as a basis to compute the income attributable in India, leading to billions in tax exposure," said Riaz Thingna, a partner at Grant Thornton Bharat LLP. Taiwan's Foxconn is Apple's largest contract manufacturer in India, having shipped products worth $7.4 billion this year by August, compared to $7.5 billion in all of 2024, commercially available customs data shows. The income tax law, however, does not bother Apple's South Korean rival Samsung as almost all of its phones are made in its own Indian factories. The India Cellular & Electronics Association (ICEA), which backs Apple, has in a confidential representation to the government called for changes to the law, saying tax certainty is "paramount for businesses seeking to expand and scale." "Typical CMs (contract manufacturers) are unable or unwilling to invest in such large quantities of specialized equipment … The cost of the equipment can rise to billions of dollars," ICEA said, without naming any company. "In certain cases (it) may also be supplied … free of cost." (Reporting by Aditya Kalra, Nikunj Ohri and Aditi Shah; Additional reporting by Munsif Vengattil; Editing by Kim Coghill)
(The article has been published through a syndicated feed. Except for the headline, the content has been published verbatim. Liability lies with original publisher.)
