India seizes $725 million of Xiaomi assets over illegal remittances

[Vanguard One]

Staff members stand near the company logo at a Xiaomi store in Shanghai, China November 1, 2021. REUTERS/Aly Song/Files

NEW DELHI, April 30 (Reuters) - India said on Saturday it had seized $725 million from the local bank accounts of China's Xiaomi Corp (1810.HK) after a probe found the smartphone maker had made illegal remittances to foreign entities by passing them off as royalty payments.

The Enforcement Directorate had been investigating the Chinese company's business practices over suspected violations of Indian foreign exchange laws. read more


The financial crime fighting agency said on Saturday it had seized the bank account assets from Xiaomi Technology India Private Limited after finding the firm had remitted the foreign currency equivalent of 55.5 billion rupees to three foreign-based entities, including one Xiaomi group entity, "in the guise of royalty" payments.

The remittance to two other unidentified and unrelated U.S.-based entities was also for "the ultimate benefit of the Xiaomi group entities", the agency added in a statement.


"Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities," the directorate said.

Xiaomi said in a statement issued later on Saturday that it complies with Indian laws and believed its "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 ... we are committed to working closely with government authorities to clarify any misunderstandings," it added.


The directorate's actions against Xiaomi signal widening scrutiny of the Chinese smartphone maker, whose India office was raided in December in a separate investigation over alleged income tax evasion. Some other Chinese smartphone markers were also raided at the time.

Reuters reported on April 12 that Xiaomi's former India head, Manu Kumar Jain, had been summoned for questioning as part of the directorate's investigation. read more

Jain, who is now a global vice president at Xiaomi based in Dubai, appeared before investigators earlier this month, said a source with direct knowledge of the probe, asking not to be named due to the sensitivity of the matter.

The Enforcement Directorate also asked the company for details of foreign funding, shareholding and funding patterns, financial statements and information of key executives running the business.

Xiaomi was India's leading smartphone seller in 2021, with a 24% market share, according to Counterpoint Research. South Korea's Samsung was the No. 2 brand with a 19% share.

Many Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has cited security concerns in banning more than 300 Chinese apps since then, including popular ones like TikTok, and also tightened norms for Chinese companies investing in India.

India seizes $725 million of Xiaomi assets over illegal remittances

India said a probe found the smartphone maker made illegal remittances to foreign entities by passing them off as royalty payments.

www.reuters.com

 

[Aspen]

India is fool to do this, if they mess with Xiaomi, China will make them pay for it somewhere else. India has way more to lose and obviously Chinese know that. It's not like India could replace Xiaomi with their own companies. And royalties seem legit to me, in fact, it is probably baked into the contract they signed with the govt. India might not like terms but they should have said something then. Xiaomi lawyers would have made sure of it exactly because of a situation like this.

 

[STREANH]

India is fool to do this, if they mess with Xiaomi, China will make them pay for it somewhere else. India has way more to lose and obviously Chinese know that. It's not like India could replace Xiaomi with their own companies. And royalties seem legit to me, in fact, it is probably baked into the contract they signed with the govt. India might not like terms but they should have said something then. Xiaomi lawyers would have made sure of it exactly because of a situation like this.

It is related to tax evasion. If there is enough evidence with Xiaomi, it will be dismissed in the arbitration court.

There was another tax related issue years ago with Vodafone ($2.7 Billion). Vodafone won that in the international arbitration courts, and India's tax department has appealed that judgement.

India's tax department tries to milk everything and everyone.

 

[Broccoli]

European courts do the same with American companies so I fail to see large anti-China conspiracy.

 

[INS_Vikrant]

It's not like India could replace Xiaomi with their own companies.

Why not as Xiaomi doesn't have much of R&D division of it's own and mostly just assembles parts brought from various other vendors from Korea, Japan and US.

 

[Aspen]

It is related to tax evasion. If there is enough evidence with Xiaomi, it will be dismissed in the arbitration court.

There was another tax related issue years ago with Vodafone ($2.7 Billion). Vodafone won that in the international arbitration courts, and India's tax department has appealed that judgement.

India's tax department tries to milk everything and everyone.

In Xiaomi's case, I would be surprised if they go for arbitration when China itself could do more damage to Indian companies in China. But I would not be surprised if this is the work of the tax dept again.