Apple lobbies India to change tax law seen hindering its expansion

New Delhi: Sources say Apple has been lobbying the Indian government to change its income tax law to ensure the company is not taxed for ownership of high-end iPhone machines it supplies to its contract manufacturers, an issue seen as an impediment to the company’s future expansion.

This move coincides with Apple’s increasing presence in India, moving beyond China. Counterpoint Research says the iPhone’s share in the Indian market has doubled since 2022 to 8%. 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 billions of dollars into opening five factories, but millions of those expenses are going towards purchasing expensive machinery to assemble iPhones.

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.

Apple sources the machines used to make iPhones in China and gives them to contract manufacturers, and although it still owns them, it is not subject to tax.

But a senior government official and two other industry sources said this was not possible in India as the Income Tax Act would treat such ownership of Apple as a so-called “business connection” and make the US firm liable for Indian taxes on its iPhone profits.

Sources said Apple executives have been in talks with Indian officials in recent months to make changes to the law, fearing that existing legislation could hinder Apple’s future growth.

“Contract manufacturers cannot put in money after a certain point,” the first industry source said. “If the old law is changed, it will be easier for Apple to grow… India can become more competitive globally.”

Reuters He was the first to report Apple’s concerns and lobbying efforts over the law.

Apple did not respond Reuters India’s IT and finance ministries, which participated in the discussions, also did not ask questions.

India Is Carefully Examining Apple’s Request

Smartphone manufacturing is a key topic on Prime Minister Narendra Modi’s agenda, and India’s deputy IT minister said privately last year that China and Vietnam could compete as major smartphone export hubs due to their low tariffs on phone parts.

A senior Indian official said “discussions are ongoing on taxation rules affecting Apple” but New Delhi remains cautious as any changes to the law could reduce its sovereign right to tax a foreign company.

Emphasizing that Apple’s increasing investments are equally important, the official said, “This is a difficult decision.”

“India needs investments. We must find a solution.”

Apple has opened a handful of directly owned retail stores in India since 2023, but it also sells its products through online and offline distributors. Foxconn and Tata have invested more than $5 billion to set up Apple manufacturing over the years.

Specialized Equipment Could Cost Billions of Dollars

One of the Indian laws frequently cited by tax experts involves UK-based Formula 1. The Supreme Court of India ruled in 2017 that F1 was liable to pay tax on profits for the days it had full control during the Grand Prix India race, even though it did not have a track near New Delhi.

Experts said that if Apple had the machines in iPhone factories in India, it would amount to exercising control under existing laws.

“If Apple’s activities constitute a business connection, then global revenue can be used as the basis for calculating income attributable to India, leading to billions of dollars in taxes,” said Riaz Thingna, partner at Grant Thornton Bharat LLP.

Taiwan’s Foxconn is Apple’s largest contract manufacturer in India, having shipped $7.4 billion worth of products through August this year, compared to $7.5 billion in the whole of 2024, according to commercially available customs data.

But the income tax law does not bother Apple’s South Korean rival Samsung because almost all its phones are produced in its own Indian factories.

The Indian Cellular and Electronics Association (ICEA), which backs Apple, called for changes to the law in a confidential representation to the government, saying tax certainty is “crucial for businesses looking to expand and scale”.

“Typical CMs (contract manufacturers) are unable or unwilling to invest in such large amounts of specialized equipment… The cost of equipment can rise to billions of dollars,” ICEA said, without naming any companies.

“In certain cases (this) may also be available free of charge.”