On a weekend in which it emerged that Xiaomi continued to be the top smartphone company in India, it also came to light that the Enforcement Directorate had seized Rs 5551.27 crore ($725 million) from the local bank accounts of the Chinese company. It now faces charges of having made illegal remittances to foreign entities by passing them off as royalty payments.
It is a charge that Xiaomi has been continuously facing in India. In January this year, another arm of Indian tax administration, the Directorate of Revenue Intelligence, raided the premises of Xiaomi across the country and unearthed a scam, saying 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. It slapped three show cause notices Xiaomi India for demand and recovery of duty amounting to Rs 653 crore.
The case and Xiaomi's response
The latest seizure is a follow up to the raids conducted in January and also based on actionable intelligence inputs that the authorities had got .
The Enforcement Directorate said it seized the bank account assets from Xiaomi Technology India, under the provisions of Foreign Exchange Management Act (FEMA), after finding the company had remitted over Rs Rs 5500 crore to foreign-based entities, including one Xiaomi group entity, in the guise of royalty payments. "Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities," the directorate said.
Xiaomi, for its part, said that it is committed to working closely with government authorities to clarify any misunderstandings.
"We have studied the order from government authorities carefully. We believe our royalty payments and statements to the bank are all legit and truthful. These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products. It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. However, we are committed to working closely with government authorities to clarify any misunderstandings," the company said in a tweet.
pic.twitter.com/QPfHboEP8XApril 30, 2022
But it is a typical corporate response, something on the lines that Xiaomi did on the previous occasion too.
But it is not just Xiaomi alone which finds itself afoul of Indian tax laws regularly. Another controversial Chinese company Huawei was accused of massive tax fraud in India. Raids by tax sleuths revealed tax manipulation worth several crores of rupees by the Chinese company. Another Chinese smartphone company Oppo, and contract manufacturer Foxconn also faced the brunt of the tax investigations recently.
Indian govt on strong wicket
Indian governmental authorities have made it clear that the Chinese companies were not being targeted. And financial misdemeanours had indeed been committed by these companies. The government has also explained the various cases in details and what it has seized so far. But the Chinese companies seem to be playing the victim card.
After last round of searches by the taxmen, a Chinese government spokesperson was quoted as saying, "Indian authorities concerned have taken a series of measures to suppress Chinese companies and their products in India, which seriously damages the legitimate rights and interests of Chinese companies."
But none is ready to buy this protestation of innocence, and authorities here insist that raids were carried out only after adequate information was obtained by the tax sleuths. India has also said, despite the provocations from its neighbour, it has treated it fairly. For the record, in 2021, bilateral trade volume between the two countries reached $125.7 billion, a year-on-year increase of 43%.
