Delphi now part of 2 federal investigations

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DETROIT -- Parts supplier Delphi Automotive plc is now part of two federal investigations -- one of them tied to the ongoing General Motors recall crisis and the other a potential challenge to its European tax domicile. 

The U.S. House Energy and Commerce Committee, which held its second hearing on GM's ignition-switch recall last week, released documents on Thursday that show Delphi -- which made the faulty switches in Mexico -- has turned over information to a U.S. grand jury investigating the recall. GM's internal report, led by Anton Valukas and released earlier this month, said Delphi refused to let its employees participate in GM’s internal probe of the matter.

Also Thursday, Delphi disclosed in a U.S. Securities and Exchange Commission filing that the Internal Revenue Service has asserted that the supplier should be taxed as a domestic corporation, instead of abroad.

After it emerged from Chapter 11 bankruptcy protection in 2009, Delphi set up its tax base in the United Kingdom. However, its operational headquarters and executive team remains in Troy, Mich., near Detroit.

Chrysler made a similar move in January following Fiat’s merger with the company. Fiat Chrysler Automobile NV maintains its headquarters near Detroit, but its tax base is now in the Netherlands.

Delphi is appealing the IRS’s claim, but if unsuccessful, the supplier would be subject to millions of dollars in new federal income taxes.

In 2013, Delphi paid $256 million in taxes at a 17 percent effective rate. That figure could rise to as much as 22 percent under U.S. tax code, Delphi said in the SEC filing.

Under the U.S. tax code, Delphi’s tax spend could have increased more than $75 million to roughly $331.3 million in 2013.

“We intend to vigorously contest the conclusions reached in the (Notice 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,” the company said in the SEC filing.

If the IRS’ order sticks, Delphi could attempt to seek a lower tax rate in the U.S. tied to future net-operating losses, stated David Leiker, an analyst for Robert W. Baird & Co., in an analyst note.

Delphi’s net operating losses in 2008, the last year it retained a U.S. tax base, were $483 million, Leiker wrote. However, the company was in bankruptcy protection.

On the GM matter, Delphi turned over documents relating to the design and manufacturing of the ignition switches in question, which have led to 2.6 million recalls by GM and are linked to at least 13 deaths.

Delphi has said it continues to cooperate with all government agencies regarding the recall issue.

Delphi ranks No. 13 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $15.5 billion in 2013.

Automotive News contributed to this report.

You can reach Dustin Walsh at dwalsh@crain.com.


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