iPhone assembly equipment could cost Apple billions of tax dollars

Apple is pushing to change India’s tax law, where it could potentially face billions of dollars in taxes on new iPhone assembly equipment.

About 25% of iPhones are now made in India, and the company is looking to push that percentage even higher, but there is a major potential hurdle to further expansion.

iPhone assembly equipment

Assembling iPhones on a production line requires very expensive specialized equipment. In some cases, Apple’s manufacturing partners, such as Foxconn and Tata, bear the cost of purchasing these devices. But when it comes to scaling production to new levels, upfront costs can be prohibitive even for these large contract manufacturers.

The approach Apple has taken in China is to pay for the devices themselves. They are installed in the factories of the company’s manufacturing partners, but Apple bears the cost and retains ownership.

This approach has worked well in China, but Apple faces a potentially significant hurdle to doing the same in India as it seeks to further expand production there.

Apple faces billions of dollars in taxes

In China, Apple’s ownership of production equipment has no tax implications. But the situation in India is completely different Reuters He explains.

A senior government official and two other industry sources said the income tax law would consider such ownership by Apple to amount to a so-called “business connection,” making the iPhone maker’s US profits subject to Indian taxes.

“If Apple’s activities constitute a business nexus, global revenues could be used as a basis for calculating income attributable to India, creating a tax exposure in billions,” said Riyaz Thegna, partner at Grant Thornton Bharat LLP.

In other words, profits generated from iPhones manufactured using these Apple-owned machines will become taxable in India.

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The Indian government faces a dilemma here. On the one hand, China wants to encourage this type of inward investment in its growing manufacturing sector. On the other hand, when foreign companies create value in the country, they want to make sure they get their share of the tax pie.

Both parties ultimately need this arrangement to work, so a mutually acceptable settlement seems the likely outcome.

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