The Indian tax law has become a "roadblock" for Apple Inc. (AAPL.US), urgently lobbying to resolve the difficult issue of billions of dollars in taxes.

According to informed sources, Apple Inc. is lobbying the Indian government to amend its income tax laws to ensure that ownership of the high-end iPhone production equipment it provides to its partner manufacturers is exempt from taxes. The sources pointed out that this tax issue has become a barrier to Apple Inc.'s future expansion in India. This move comes at a critical time as Apple Inc. accelerates its expansion in India and seeks to diversify its supply chain outside of China. Data from market research firm Counterpoint shows that since 2022, iPhone's market share in India has doubled to 8%. While China still accounts for 75% of global iPhone shipments, India's share has tripled during the same period, reaching 25%. As the second-largest mobile market in the world, India is strategically important for Apple Inc. Currently, Apple Inc.'s contract manufacturers Foxconn and Tata Group have invested billions of dollars and set up five factories in India. However, a significant portion of these investments is used to procure expensive iPhone assembly equipment. Tax experts have stated that India's tax laws enacted in 1961 have clear provisions regarding the ownership of equipment by foreign companies in India. If Apple Inc. does not push for a modification of this law by the Indian government and adjust its own business model, it may face billions of dollars in additional taxes. In a mature supply chain layout like China, Apple Inc.'s operating model is completely different. Apple Inc. is responsible for procuring iPhone production equipment and delivering it to contract manufacturers, and even if Apple Inc. owns the equipment, no taxes need to be paid. However, the situation in India is completely different. A senior Indian government official and two industry insiders explained that under India's Income Tax Act, Apple Inc.'s ownership of production equipment is considered "business-related." This classification would require Apple Inc. to pay taxes on iPhone-related profits in India. The sources added that due to concerns that the current regulations could hinder growth, Apple Inc. executives have held several meetings with Indian officials in recent months to push for tax law revisions. "The investment capacity of contract manufacturers is limited," said one industry insider. "If this old regulation can be modified, Apple Inc.'s expansion process will significantly accelerate, and India's competitiveness in the global smartphone manufacturing industry will also be greatly enhanced." Apple Inc. did not respond to requests for comments, and the Indian Ministry of Information Technology and Ministry of Finance also did not respond to inquiries related to the discussions. India cautiously evaluates Apple Inc.'s demands Developing the smartphone manufacturing industry is a core pillar of Indian Prime Minister Modi's policy agenda. However, a senior Indian Ministry of Information Technology official revealed last year in an off-the-record conversation that due to lower tariffs on mobile phone components in China and Vietnam, these two countries may be ahead of India in the competition for smartphone exports. A senior Indian government official confirmed, "Discussions are ongoing regarding the tax rules affecting Apple Inc.," but the Indian government is cautious. Their central concern is that amending the tax laws could weaken India's sovereignty in taxing foreign companies. "It is a difficult balancing act," admitted the official. Increasing investments by Apple Inc. in India are equally important, "India needs foreign investments, and we must find a balance." Since 2023, Apple Inc. has opened multiple owned retail stores in India and sells products through online and offline distributors. Over the years, Foxconn and Tata Group's investments in Apple Inc.'s production base in India have exceeded $5 billion. Specialized equipment costs billions Tax experts often cite the case of Liberty Media Corp. Series C Liberty Formula One (F1) in the UK to illustrate the applicability logic of Indian tax laws. In 2017, the Supreme Court of India ruled that although F1 did not own the race track near New Delhi, during the Indian Grand Prix, F1 had full control over the track and therefore had to pay taxes on the profits from the race. Experts point out that under the current regulations, if Apple Inc. owns the equipment in its iPhone factory in India, it would be deemed to have actual control over the factory, triggering tax obligations. "If Apple Inc.'s activities are deemed 'business-related,' its global revenue could be used as the basis for calculating taxable income in India, which would result in billions of dollars in tax exposure," said Riaz Thingna, partner at Grant Thornton Bharat LLP. Customs data shows that Foxconn is Apple Inc.'s largest contract manufacturer in India. As of August this year, Foxconn's shipments from its India factories had reached $7.4 billion, with a projected full-year shipment for 2024 at $7.5 billion. It is worth noting that Apple Inc.'s Korean competitor Samsung (SSNLF.US) is not affected by this tax law. This is because Samsung produces almost all of its phones in India at its own factories, avoiding the issue of "ownership of equipment belonging to contract manufacturers." The India Mobile and Electronics Association (ICEA), which supports Apple Inc., has submitted confidential documents to the government calling for amendments to the relevant regulations. The association stated in the documents that "tax certainty is crucial for companies to scale up and achieve growth." The ICEA did not mention any specific company names in the documents but explicitly stated, "Traditional contract manufacturers do not have the capacity or willingness to invest such large amounts in specialized equipment, the cost of which could amount to billions of dollars. In some cases, the equipment may even be provided free of charge by the (brand)."