Apple is lobbying the Indian government to amend provisions in the Income-Tax Act of 1961 that treat ownership of expensive iPhone manufacturing machinery (which Apple supplies to its contract manufacturers) as creating a “business connection”2
Under current rules, such ownership could make Apple liable to pay taxes on profits attributed to India, even for machinery that’s owned by Apple but operated by its manufacturing partners.
In China, Apple supplies such machinery to its partners without facing equivalent tax exposure. The company is seeking similar tax treatment in India to avoid being taxed simply for owning the equipment.
Why This Change Matters for Apple & India
- Expansion and scaling costs: Apple has been investing heavily in India—contract manufacturers like Foxconn and Tata have opened multiple iPhone-assembly plants. High costs for machinery and the tax implications of owning these machines complicate expansion.
- Competitive positioning: India’s share of global iPhone shipments has reportedly grown significantly, and Apple’s share of Indian smartphone market has increased since 2022. Relaxing this tax liability could make India more attractive relative to other manufacturing hubs.
- Investment signals: Modifying the law could improve “tax certainty,” a term often used by industry associations (such as ICEA) that Apple works with, to reduce risk for large capital investments.
Government Concerns & Challenges
- Sovereignty and precedent: India wants to protect its right to tax foreign firms. Changing tax laws for Apple could create precedents for other multinationals to seek similar treatment.
- Risk of revenue loss: If ownership of high-cost machinery is decoupled from taxable “business connection,” the government risks lower tax collections or exposure to disputes over how much profit should be attributed to Indian operations.
- Legal / judicial precedent: Existing case law, like a 2017 Supreme Court ruling involving Formula One, has held foreign entities liable under a “business connection” even without a permanent establishment. Changing the law may require careful drafting to shield from such interpretations
What’s at Stake
| Stakeholder | Potential Benefit | Potential Risk / Concern |
|---|---|---|
| Apple / Manufacturers | Lower taxes, easier expansion, less regulatory risk & cost of capital | Uncertainty during legal change; possibly needing to renegotiate contracts |
| Indian Economy | More investment, jobs, tech transfer, positioning India as a global electronics hub | Short-term tax revenue hit; setting a precedent impacting other industries |
| Other Global Firms | May push for similar relaxations, making Indian investment more attractive | Risk of unequal treatment; legal or fairness challenges from other companies |
| Government / Tax Authorities | Could attract greater foreign direct investment; boost overall industrial output and exports | Balancing revenue needs vs attracting investment; ensuring law is not seen as favouring one firm too much |
Where Things Stand Now
- Apple has held discussions with India’s Finance & IT ministries. India Today
- India is cautiously reviewing the request, with officials aware of the need to attract investment but also mindful of maintaining the tax base.
- No law change has yet been made public; any amendment will likely require legislative or regulatory process.
Broader Implications
- Could signal a shift in how India treats foreign capital investment and intellectual property / equipment ownership models in manufacturing.
- May affect similar debates for other sectors beyond electronics (e.g. pharmaceuticals, aerospace) that use expensive equipment.
- The outcome may influence whether India becomes a stronger alternative to China for manufacturing—if companies see lower regulatory/tax friction.
