Apple urges India to modify tax law over iPhone assembly equipment

Apple is urging the Indian government to amend its income tax law to avoid being taxed for high-value iPhone manufacturing equipment it supplies to local contract manufacturers, according to sources familiar with the matter.

The issue comes as Apple increases its presence in India, where its market share has doubled to 8% since 2022, while the country’s share of global iPhone shipments has quadrupled to 25% in the same period, according to Counterpoint Research.

India is the world’s second-largest mobile market, and contract manufacturers such as Foxconn and Tata have invested over US$5 billion in five factories assembling iPhones.

Current Indian law could expose Apple to significant tax liabilities if it owns production equipment, a practice that does not trigger additional taxes in China.

Talks between Apple executives and Indian officials have taken place in recent months, but the government remains cautious about changing the law, citing concerns over tax sovereignty.

Industry groups have also asked for legal changes, arguing that tax certainty is essential for further investment.

🔗 Source: Reuters

🧠 Food for thought

Implications, context, and why it matters.

India’s tax law puts foreign principals at a disadvantage versus integrated manufacturers

India may treat equipment owned by a foreign principal as creating a business connection, similar to a Permanent Establishment (PE), taxing only India-attributable profits 1. Samsung manufactures in its own Indian plants, so it avoids this uncertainty.
In 2017, the Supreme Court in Formula One held that temporary control over premises during events creates a taxable presence. If applied to Apple, tax authorities could use global iPhone revenue to compute income attributable in India, which can run into billions.
This may put the contract manufacturing model at a disadvantage compared to owning factories outright. China lets Apple own machines inside contractor sites without tax exposure, which gives it an edge that India lacks.

Lessors and financiers can fill the gap if Apple cannot own tools

If India’s tax law remains unchanged, Apple’s contractors like Foxconn and Tata will need outside funding for the specialized gear Apple would otherwise supply. They have put over $5 billion into Indian sites. Most contract manufacturers are unable or unwilling to fund such equipment at that scale.
Equipment lessors plus non-banking financial companies (NBFCs) in India could set up tax-efficient leases. They would own imported capital goods, rent them to Apple’s contractors, then manage customs. They also need clarity on Goods and Services Tax (GST) for job work versus supply. Job work, outsourced processing or assembly performed on goods owned by another party, typically draws an 18% GST rate 2. Leases must align with the Production-Linked Incentive (PLI) scheme for passive electronic components with an INR 229.19 billion allocation 3.
Large Indian NBFCs plus equipment financiers with cross-border customs expertise could meet this demand if they prove that leases preserve incentive eligibility while avoiding a business connection or PE risk from foreign ownership.