JSW Group seeks $1.4 billion tax liability cover from Volkswagen: Report

JSW Group is seeking assurances from Volkswagen AG that the German automaker will bear a potential $1.4 billion tax liability in India, a key unresolved issue that could threaten a proposed partnership between the two companies, Bloomberg News reported, citing people familiar with the matter.

According to the report, JSW and Volkswagen have reached a preliminary understanding on the structure of a proposed joint venture and other commercial terms. However, the final valuation remains a critical issue as the companies begin financial due diligence. The treatment of Volkswagen’s potential tax liability is among the outstanding matters being negotiated, the people said.

The proposed transaction involves an investment by JSW Group in closely held Skoda Auto Volkswagen India Pvt., with the Sajjan Jindal-led group seeking a majority stake. The combined business is expected to develop, manufacture and sell passenger vehicles in India and overseas markets. The portfolio could include internal-combustion engine vehicles, battery-electric vehicles, plug-in hybrids and hybrids.

The report said JSW Group and Skoda Auto Volkswagen India did not immediately respond to requests for comment.

The tax dispute stems from allegations by Indian authorities that Volkswagen misclassified vehicle assembly kits imported from countries including Germany, the Czech Republic and Hungary between 2012 and 2024. Authorities have alleged that the classification resulted in lower import duties being paid.

Volkswagen has denied the allegations and is challenging the tax demand before a court in Mumbai. A resolution is not expected before the end of this year, according to the people cited by Bloomberg News.

JSW’s position is that any liability arising from the pending tax case should remain with Volkswagen, the report said. One person familiar with the discussions said JSW would not proceed with the transaction if it had to assume the potential financial burden. The issue could influence the valuation of the businesses being combined as well as the amount of capital contributed by each partner.

The proposed alliance comes as Volkswagen seeks to strengthen its position in India, one of the world's largest and fastest-growing automobile markets. The German automaker has spent nearly two years looking for a local partner after discussions with Mahindra & Mahindra ended without a deal.

Volkswagen currently has a relatively small presence in India through Skoda Auto despite years of investment in manufacturing capacity and locally developed vehicles. A partnership with JSW is part of the broader strategy to share investment and risks while expanding its footprint in the market.

The negotiations have also faced a leadership change. Klaus Zellmer, Skoda’s chief executive, recently left to become CEO of Volvo Car AB. Zellmer had been closely involved in discussions with JSW and had said in August that he expected the partnership to be finalised later this year.

The two sides had been targeting a binding agreement by December. However, the tax dispute and Zellmer’s departure have slowed the negotiations, according to people familiar with the matter cited by Bloomberg News.