Apple Lobbies India to Change Tax Law Hindering iPhone Expansion

Key Takeaways

• Apple is lobbying India to change a 1961 tax law that could impose billions in taxes on iPhone profits
• The law treats Apple’s ownership of manufacturing equipment as a “business connection” in India
• India faces a delicate balance between attracting Apple’s investment and preserving tax sovereignty

Apple is actively lobbying the Indian government to amend a decades-old income tax law that threatens to impose billions of dollars in additional taxes on the company, potentially hindering its expansion plans in the world’s second-largest mobile market.

Tax Law Creates Expansion Hurdle

The core issue involves Apple’s practice of providing high-end iPhone manufacturing machinery to its contract manufacturers. Under India’s 1961 Income Tax Act, this equipment ownership creates a “business connection” that could make Apple’s global iPhone profits liable for Indian taxation.

This contrasts with Apple’s operations in China, where the company provides manufacturing equipment to partners without tax consequences despite retaining ownership.

Growing India Presence

Apple’s lobbying push comes as the company significantly expands its India footprint. iPhone’s market share has doubled to 8% since 2022, while India’s portion of global iPhone shipments has quadrupled to 25% during the same period.

Contract manufacturers Foxconn and Tata have invested billions to establish five plants in India, with substantial costs going toward expensive iPhone assembly machinery.

Government Discussions Ongoing

Apple executives have held multiple meetings with Indian officials in recent months, concerned that current legislation could hamper future growth. “Contract manufacturers cannot put up money beyond a point,” revealed one industry source. “If the legacy law is changed, it will become easy for Apple to expand… India can become more competitive globally.”

A senior Indian official confirmed that “discussions on taxation rules impacting Apple are ongoing” but noted New Delhi’s caution about diminishing its sovereign right to tax foreign companies. “It’s a tough call,” the official said. “India needs investments. We have to find a solution.”

Legal Precedent and Industry Support

Tax experts point to a 2017 Supreme Court case involving UK-based Formula One, where the court ruled that F1’s control during events constituted taxable business activity in India.

Riaz Thingna of Grant Thornton Bharat LLP explained: “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.”

The India Cellular & Electronics Association (ICEA) has supported Apple’s position in confidential representations to the government, emphasizing that tax certainty is “paramount for businesses seeking to expand and scale.”

Meanwhile, Samsung faces no similar tax concerns since it manufactures most phones in its own Indian factories.