Following income tax raids at its offices all over the country last week, Chinese phone-maker Xiaomi was yesterday slapped a tax notice for Rs 653 crore (roughly $87 million) for alleged non-payment of royalty and licence fee in the value of its imports.
And today the Chinese media quoted the company as saying that the tax issue was caused by 'disagreement in the methodology to determine the price for imported goods'. In other words, the federal Indian government and the Chinese phone maker are not on the same page over interpretation of the rules.
Xiaomi said it has been asked to pay back the import taxes on the royalty and license fees from April 1, 2017 to June 30, 2020, which are not related to the company's recent business. "The official statement from the Indian authorities is not the final decision," it added. Err! We are not sure about that though, as in the past India's law enforcement agencies have chased down and recovered such dues.
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Xiaomi evading customs duty: DRI
The Directorate of Revenue Intelligence (DRI), which keeps tab on tax violations by companies, claimed to have acted on tip-offs that Xiaomi India had evaded customs duty by way of undervaluation. This resulted in DRI officials raiding Xiaomi India and its contract manufacturers.
This operation, it said, had "led to the recovery of incriminating documents indicating that Xiaomi India was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd, under contractual obligation." One of the directors of Xiaomi India confirmed the said payments, the DRI added.
However, during the investigations, it was found that the “royalty and licence fee” paid by Xiaomi India were not being added to the transaction value of the goods imported by the company and its contract manufacturers. The DRI said this action had violated provisions under Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007.
By not adding “royalty and licence fee” into the transaction value, the DRI said, Xiaomi India was evading customs duty. It slapped three show cause notices Xiaomi India for demand and recovery of duty amounting to Rs 653 crore.
On the face of it, it is clear that the Indian tax authorities and the Chinese company are not on the same page on whether or not royalties including patent license fees should be included in the price of imported goods. The two parties have opposite views on the price determination of imported goods.
Xiaomi, however, said the taxmen notice is not the final result and it would continue to communicate with relevant Indian authorities on this issue.
For what it is worth, it added that it always complies with the relevant laws and regulations of the places where it operates.
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