TLDRs;
- Apple is pushing India to revise tax rules on foreign-owned manufacturing equipment.
- Current laws could expose Apple to large tax liabilities through “business connection” provisions.
- India’s share of global iPhone production has surged to 25%, making it a key manufacturing hub.
- Without policy clarity, Apple may rely on local financiers to lease production gear tax-efficiently.
Apple is urging the Indian government to revise its income tax laws to avoid being taxed for high-value iPhone manufacturing equipment it supplies to local assemblers such as Foxconn and Tata.
According to sources close to the matter, Apple has warned that the existing framework could expose it to steep tax liabilities, jeopardizing its ambitious plan to turn India into a key global production hub.
The dispute revolves around how India treats assets owned by foreign companies but used within local facilities. Under current law, if Apple owns production machinery inside contract manufacturers’ factories, tax authorities could deem this as creating a “business connection” in India. This designation could make Apple liable for taxes on profits attributable to Indian operations, even if the actual manufacturing is done by third-party partners.
In contrast, China , where Apple built its supply chain empire, does not impose such taxes on owned equipment within contractor sites. The difference has raised concerns within Apple’s leadership about the competitiveness of India’s production environment compared to China’s more flexible approach.
Apple’s Expanding Footprint in India
Apple’s lobbying comes amid a rapid expansion of its manufacturing presence in India. The country’s share of global iPhone shipments has surged from 5% in 2022 to 25% in 2024, according to Counterpoint Research. Apple’s market share in India has also doubled to around 8% in the same period, fueled by rising domestic demand and government incentives under the Production-Linked Incentive (PLI) scheme.
India has emerged as a crucial player in Apple’s diversification strategy as the company reduces its dependency on China amid geopolitical risks. Contract manufacturers like Foxconn, Wistron (now owned by Tata), and Pegatron have collectively invested over $5 billion in setting up iPhone assembly plants across Tamil Nadu and Karnataka.
However, Apple’s equipment ownership structure now poses legal and financial uncertainty under India’s tax regime. Talks between Apple executives and Indian officials have reportedly been ongoing for months, but New Delhi remains cautious about revising laws that could weaken its tax sovereignty.
Legal Ambiguity and Global Precedents
India’s tax treatment of foreign-owned assets stems from principles of “Permanent Establishment” (PE) under international tax law.
A notable precedent is the 2017 Formula One Supreme Court ruling, which held that temporary control over premises during events constituted a taxable presence. If applied similarly, Apple’s ownership of production gear could trigger taxable presence status, exposing its global iPhone revenue to partial taxation in India.
Industry associations have joined Apple in pushing for greater clarity. They argue that tax certainty is essential for sustaining foreign investment, particularly in electronics manufacturing, which the government aims to grow into a $300 billion industry by 2026. Without reforms, India risks deterring high-tech companies from relocating supply chains from China, a key goal under Prime Minister Narendra Modi’s “Make in India” initiative.
Financing Alternatives on the Table
If India’s tax policy remains unchanged, Apple may need to adopt new financing models to continue scaling production. Analysts say one option is to rely on Indian equipment lessors or non-banking financial companies (NBFCs) to own and lease the specialized machinery to contractors.
Such a structure could preserve Apple’s operational flexibility while avoiding direct ownership, and thus potential tax exposure.
However, this approach raises questions about Goods and Services Tax (GST) compliance and eligibility for PLI incentives, which have allocated over ₹229 billion ($2.7 billion) to electronics manufacturers.
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