Apple Pushes India to Rethink Tax Rules That Threaten iPhone Manufacturing Growth

India, now the world’s second-largest mobile market, has become central to Apple’s global manufacturing strategy. Contract manufacturers like Foxconn and Tata have invested over Rs 5,000 crore to set up five iPhone plants in the country. Much of this investment supports Apple's goal of moving production away from China. As a result, India's share of global iPhone shipments has quadrupled to 25% since 2022, even though China still holds the lion’s share at 75%. With its own retail stores now open, Apple’s presence in India is stronger than ever.

Tax Trouble Over Expensive Machinery

Apple’s expansion strategy includes providing its contract manufacturers with high-end iPhone assembly machines. However, Indian tax laws, based on the 1961 Income Tax Act, treat this as a “business connection,” possibly making Apple liable for taxes on global profits. In contrast, China does not treat such arrangements as taxable. Experts warn this could result in billions of dollars in tax exposure for Apple. Riaz Thingna from Grant Thornton Bharat LLP noted, “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.”

Behind-the-Scenes Talks With Government

Apple executives have reportedly held multiple discussions with Indian officials, pressing for a revision of the current tax rule. A senior official confirmed, “It’s a tough call. India needs investments. We have to find a solution.” The main concern for the government is that changing the law could weaken its ability to tax foreign companies. Still, industry insiders argue that the law is outdated and needs to align with modern manufacturing models. One insider said, “If the legacy law is changed, it will become easy for Apple to expand. India can become more competitive globally.”

Contract Manufacturers Feel the Strain

Apple’s contract partners often don’t have the capital to buy specialised machines, many of which cost billions. In several cases, Apple supplies the equipment free of charge. The India Cellular & Electronics Association (ICEA), which represents Apple and other tech firms, has urged the government to offer more tax certainty. Their submission warned that manufacturers are “unable or unwilling to invest in such large quantities of specialised equipment.” While Apple faces these hurdles, Samsung sidesteps them altogether by owning and operating its own Indian factories.

Formula One Case Adds to Apple’s Worries

The Indian tax department’s stance draws support from a 2017 Supreme Court ruling in a case involving Formula One. The court found that the UK-based company had to pay tax in India due to its control over a racetrack during events, even though it didn’t own the facility. This precedent could apply to Apple, which owns the machinery in Indian plants operated by Foxconn and Tata. Already, Foxconn shipped iPhones worth Rs 7.4 billion by August this year, nearly reaching its full-year 2024 export figure. With stakes this high, both Apple and India must find a workable middle ground.