India probes BMW over taxes

Indian authorities are probing whether the local arm of German automaker BMW AG may owe an extra $120 million in taxes on auto-part imports since March 2011, a report said Wednesday. Dow Jones Newswires, quoting a source it said had knowledge of the matter, said tax authorities were investigating allegations that BMW imported partly assembled auto parts and declared to customs that they were unassembled to avoid paying higher taxes. The news agency said BMW could owe Indian tax authorities an additional $120 million in taxes. India's government has been moving aggressively to raise the amount of taxes it collects as it seeks to close a large federal budget gap and it has stepped up its scrutiny of foreign companies as part of its drive. Authorities have seized a shipment of BMW engines and transmission equipment worth 250 million rupees ($4.6 million), the news agency quoted the unnamed person as saying. Dow Jones said a BMW spokesman in Germany confirmed India is investigating whether the parts are either "completely knocked-down" or "semi-knocked-down". Completely knocked down, or CKD, is a manufacturing term referring to an automobile that is fully unassembled while semi-knocked down, or SKD, refers to a vehicle that is partly assembled. But Dow Jones said the BMW spokesman had denied that a shipment had been seized and added that the company was cooperating with Indian authorities. India imposes up to a 100 percent tax on partly assembled auto parts. Unassembled components are taxed at only 10 percent in a move by the government intended to encourage global car manufacturers to manufacture locally. The German automaker opened a plant near the southern Indian city of Chennai six years ago where it assembles vehicles for the Indian market. Many of the parts such as engines and transmission equipment, however, are imported into India and then assembled. International carmakers such as BMW, General Motors and Ford have all invested in India, where they see long-term sales growth potential. Separately, the Press Trust of India quoted an unnamed Indian finance department official as saying tax authorities would serve a "show cause" notice on BMW asking the firm to justify why it should not pay $120 million in extra taxes. The finance ministry official said the government believed that BMW may have imported semi-knocked down cars but paid duty for completely knocked down cars, PTI said.