Xiaomi continues to run afoul of India’s tax regulations – here’s why

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The business pretends to be blameless.

image credits: gizmochina

On the same weekend that Xiaomi was named India’s top smartphone firm, it was revealed that the Enforcement Directorate had taken Rs 5551.27 crore ($725 million) from the Chinese company’s local bank accounts. It is now accused of making illicit transactions to overseas businesses while posing as royalty payments.

Xiaomi has been accused of this in India on a regular basis. The Directorate of Revenue Intelligence, another arm of the Indian tax administration, raided Xiaomi’s offices across the country in January this year and discovered a scam, alleging that the ‘royalty and licence fee’ paid by Xiaomi India was not being added to the transaction value of the goods imported by the company and its contract manufacturers. Xiaomi India was issued three show cause letters for demand and recovery of duty in the amount of Rs 653 crore.

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The situation and Xiaomi’s reaction

The most recent seizure is a follow-up to the January raids, and it was also based on actionable intelligence information obtained by the authorities.

After discovering that Xiaomi Technology India had remitted over Rs Rs 5500 crore to foreign-based entities, including one Xiaomi group entity, in the guise of royalty payments, the Enforcement Directorate said it seized the bank account assets from the company under the provisions of the Foreign Exchange Management Act (FEMA). The directorate stated that “such massive amounts in the name of royalties were remitted on the directions of their Chinese parent group organisations.”

Xiaomi, for one, stated that it is dedicated to working closely with government officials to clear up any ambiguities.

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“We thoroughly examined the order from government officials. Our royalty payments and bank statements, we feel, are all legitimate and accurate. These royalties were paid by Xiaomi India for in-licensed technology and IPs that were used in our Indian edition products. Making such royalty payments is a legal business arrangement for Xiaomi India. We are dedicated, however, to working collaboratively with government officials to clear up any misunderstandings “In a tweet, the corporation stated.

However, that is a standard corporate response, similar to what Xiaomi did on the previous time.

Xiaomi isn’t the only company that runs afoul of Indian tax laws on a daily basis. In India, another thorny Chinese firm, Huawei, has been accused of significant tax evasion. Tax sleuths raided the Chinese company and discovered tax fraud worth several crores of rupees. Another Chinese smartphone business, Oppo, as well as contract manufacturer Foxconn, have recently been the target of tax probes.

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The Indian government is in a good position

The Indian government has stated unequivocally that Chinese enterprises are not being targeted. These businesses have certainly been involved in financial misdeeds. The government has also provided detailed explanations of the various instances and what it has confiscated thus far. The Chinese corporations, on the other hand, appear to be playing the victim card.

“Indian authorities concerned have taken a series of steps to restrict Chinese firms and their products in India, which gravely affects the legitimate rights and interests of Chinese companies,” a Chinese government spokesperson said after the latest round of tax raids.

But no one believes this claim of innocence, and authorities here swear that raids were carried out only when the tax sleuths had gathered sufficient material. India has also stated that, despite its neighbor’s provocations, it has treated it fairly. For the record, bilateral trade volume between the two countries reached $125.7 billion in 2021, up 43 percent year over year.

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