Xiaomi vs Indian government: what’s going on?
Xiaomi India is in the news lately. The company creates a lot of buzz with its smartphones which not only offer best-in-class hardware but often come at great prices. Although it may not be news, the Indian division of the company that violates foreign exchange regulations has attracted a lot of attention.
The Law Enforcement (ED) Directorate on April 30 announced that it had seized more than Rs 5,500 crore of assets from Xiaomi India, saying the smartphone maker had made illegal payments to foreign entities and presented them as royalty payments. ED’s investigation reveals that Xiaomi India started paying foreign currency equivalent to Rs 5,551.27 crore since 2015, a year after it started operations in India.
According to the Federal Financial Crimes Agency, Xiaomi India handed over the huge sum under cover of royalties from three companies, one of which was a Xiaomi Group entity. The statement further states that Xiaomi India remitted the amount following instructions from its parent group in China. “The amount paid to two other unrelated US-based entities was also for the ultimate benefit of Xiaomi Group entities,” ED’s statement said.
Further, the ED said that Xiaomi India did not engage any service from the three foreign entities to which Rs 5,550 crore was transferred. In fact, the company has sourced its products from various manufacturers across the country. Xiaomi India was also found to have provided misleading information to banks when disbursing money on board, the ED said.
What did Xiaomi India say?
Xiaomi India, in its statement of defense, said the company is engaged in India and abides by local laws and regulations. “These royalty payments that Xiaomi India made were for licensed technologies and IP addresses used in our Indian version products. It is a legitimate business agreement for Xiaomi India to make such royalty payments. However , we are committed to working closely with government authorities to clarify any misunderstandings.”
Not a first for Xiaomi India
This is not the first time that Xiaomi India finds itself surrounded by various Indian federal agencies. On the very last day of 2021, the Department of Income Tax issued a statement to the press stating that two companies had been found guilty of violating the Related Party Transaction Nondisclosure Act. The IT department did not specifically mention the names of these two companies. However, reports have surfaced that these two companies are Xiaomi and Oppo.
The statement further disclosed that the department is investigating the two companies for alleged false borrowings of more than Rs.5,000 crore. The IT department also discovered that one of the local businesses of the two companies was managed from a neighboring country. “The search action has revealed that two major companies have made royalty payments, to and on behalf of its overseas group companies, which total over Rs.5500 crore,” the statement said. computer department press.
A week after the raids, the Directorate of Tax Intelligence (DRI) issued three show cause notices to Xiaomi India for a demand and duty recovery amounting to Rs 653 crores. The DRI, in its statement, said that Xiaomi India was found evading customs duties through undervaluation.
The DRI then opened an investigation against Xiaomi India and its subcontractors. Some documents found at Xiaomi India office premises revealed that the company paid royalties and licensing fees to Qualcomm USA and Beijing Xiaomi Mobile Software Co.
According to one of the statements released to the press, one of the administrators of Xiaomi India confirmed the said payments.
In addition, investigations revealed that the royalty and license fees paid by Xiaomi India to Qualcomm USA and Beijing Xiaomi Mobile Software Co in China were not reflected in the transaction value of the goods imported by Xiaomi India or its sub-companies. contractors – Foxconn and Dixon. The DRI found that Xiaomi India and its sub-contractors include the royalty amount paid in the accessible value of the goods imported by them, which is in violation of Section 14 of the Customs Act 1962. Thus, in n not adding royalty and license fee to the transaction value, Xiaomi India escaped customs duties.
Xiaomi India, following the incident, issued a statement which read, “At Xiaomi India, we place the utmost importance on compliance with all Indian laws. We are currently reviewing the notice in detail. As a responsible company, we will support the authorities with all the necessary documentation.
Manu Jain summoned by ED
Following investigations by the IT department and DRI, the ED summoned the former Indian managing director of Xiaomi India, Manu Kumar Jain, Reuters reported. Asked about the investigation, a Xiaomi spokesperson said the company adheres to all Indian laws and is “fully compliant with all regulations”.
In addition to this, the statement indicates that Xiaomi India is cooperating with the authorities in their ongoing investigation to ensure that they have all the required information. The ED has not released details of the ongoing investigation. However, the Reuters report, citing sources, revealed that ED asked Jain to provide various company documents, which included details of foreign funding, shareholding and funding models, financial statements and information about key company executives.
Xiaomi India is currently the number one smartphone company in India with a market share of around 25%. Analysts say the ongoing review could damage the brand’s image, but is unlikely to affect the company’s sales figures in India.