Carmaker Kia becomes latest global firm to face tax trouble in India

Indian tax authorities have sent a confidential notice to South Korean car maker Kia Motors accusing it of evading millions of dollars in taxes.

The amount could be as high as $155m (£125m) and the notice was sent in April last year, according to Reuters.

Kia India told the BBC it has already filed a "detailed response supported by comprehensive evidence and documentation" to the tax claim, issued by a customs commissioner in the city of Chennai.

It did not provide further details. The BBC has approached the finance ministry for comment.

Kia has a manufacturing facility in the southern Indian state of Andhra Pradesh and has sold more than a million cars in India since its launch in 2019.

Reuters, which first reported the story, said the government's 432 page notice accused Kia of importing the components for its Carnival car model in separate lots rather than as a single shipment, a move that attracts significantly lower customs duties.

Last year, Indian officials slapped a similar tax notice of $1.4bn on German auto giant Volkswagen's unit, Skoda Auto Volkswagen India.

Volkswagen has challenged the demand in the Bombay High Court and said it is "availing itself of all legal remedies".

The pile up of these new tax disputes and lack of quick resolution mechanisms could have significant implications for foreign investment into India, whose economy has slowed in recent months.

Net foreign direct investment (FDI) into the economy has halved over the last year, according to calculations by HSBC Securities, due to a number of reasons.

Such cases also raise concern among foreign investors about policy uncertainty, say experts.

"The issue is being agitated before the courts and so it would not be appropriate to comment on the merits of the revenues' claim," says Dinesh Kanabar, tax expert and former Deputy CEO of KPMG India.

"What, however, is concerning is the dispute resolution process in India takes several years and, in the meantime, there is a risk of having to make a part payment of the demand."

If India is to revive FDI inflows, addressing "ease of business and the tax dispute resolution process" will be critical, he adds.

There has been a spate of high-profile tax disputes between the Indian government and global corporations where litigation has dragged on for years.

The most high-profile was a $2bn tax demand on Vodafone over its purchase of the Indian arm of Hutchison in 2007, where the court ruled in favour of the UK telecoms company.

Similarly, Edinburgh-based oil and gas major Cairn Energy was embroiled in a longstanding $1.4bn dispute with the taxmen over a 2014 retrospective bill that went to an international tribunal. Cairn won the case and the government was forced to settle last year.

"We need a degree of accountability at the tax office, given that the track record of defending demands in appeal is quite poor," said Mr Kanabar.