Delphi Automotive, the supplier that has been associated with the ongoing General Motors ignition switch recall catastrophe now has another federal investigation to worry about – a dispute against its European tax domicile, according to Crain’s Detroit Business.
The General Motors investigation revolves around Delphi’s faulty ignition switches, which were made in Mexico, and the company’s noncompliance with GM throughout the federal investigation.
The newest federal investigation is concerned with Delphi’s tax base in the United Kingdom, while its operational headquarters are stationed in Troy, MI. Delphi changed its tax base after recovering from Chapter 11 bankruptcy protection in 2009, but kept its headquarters in the same location. The Internal Revenue Service (IRS) has recently declared that Delphi should be taxed as a domestic organization, instead of abroad.
Delphi has chosen to appeal the IRS’s claim, which if proved unsuccessful, would cost the company millions in newly acquired federal income taxes. At an effective rate of 17 percent, Delphi paid $256 million in taxes in 2013. According to Delphi, under U.S. Tax code, Delphi’s rate could increase to as much as 22 percent.
“We intend to vigorously contest the conclusion reached in the (Notic of Proposed Adjustment) through the IRS’s administrative appeals process, and, if we are unable to reach a satisfactory resolution with the IRS, through litigation,” stated the company in the SEC filing.
David Leiker – an analyst for Robert W. Baird & Co. – stated that Delphi could seek a lower tax rate in the U.S. tied to future net-operating losses, if the IRS’ order remains.
Delphi has stated that it continues to cooperate with government agencies in regards to the recall issue. With a large bull’s-eye on their back, Delphi’s feeling the heat from two federal investigations.