India says Xiaomi "evaded taxes" of 560 million yuan!
On Wednesday (January 5), local time, the Indian Ministry of Finance issued a statement in the Information Bureau (PIB) of the Indian government, saying that the Indian Tax Intelligence Agency (DRI) has issued a notice to Xiaomi Technology India Limited to recover 653 million rupees (about 560 million yuan) of tax from the company.
This is the second consecutive year that Xiaomi has been hit by an international "big stick" at the beginning of the year. In mid-January last year, during Trump's last week in office, 9 Chinese companies, including Xiaomi Group, were suddenly blacklisted by the United States. However, a few months later, xiaomi's involvement in the military reversed.
For the participation in the tax recovery by the Indian Ministry of Finance, Xiaomi responded late at night on the 5th: Xiaomi adheres to legal and compliant operations around the world and abides by the relevant laws and regulations of the place of operation.
The Indian market is one of Xiaomi's largest overseas markets, what is the real reason why India has successively attacked China's best-selling brands? How will the tax payment event be interpreted?
Why is India pursuing taxes?
According to foreign media reports, on January 5, India's Ministry of Finance said in a statement that after the investigation found that there was tax evasion, it had issued a notice to Xiaomi Technology India Pvt. (hereinafter referred to as "Xiaomi India") to recover Rs 653 crore taxes from the company.
Xiaomi said that the Indian authorities required Xiaomi to pay back the import tax related to the royalties between April 1, 2017 and June 30, 2020, which has nothing to do with Xiaomi's recent business, and the official statement is not the final result.
"The root cause of this tax problem is that there are differences between the parties on the price determination of imported goods. Whether royalties, including patent royalties, should be included in the price of imported goods is a complex technical dilemma in all countries. Xiaomi said that for this issue, it will continue to communicate with the relevant departments in India.
Earlier, foreign media quoted the Indian Ministry of Finance as saying that Xiaomi India remitted royalties and licensing fees to Qualcomm and Xiaomi Mobile Software, which were not included in the transaction value of its imported goods. The statement said that Xiaomi and its contract manufacturers also did not include the royalties of imported MI brand mobile phones and their parts in the assessable value of the product.
In the report, a spokesperson for Xiaomi India said: "At Xiaomi India, we take great importance in ensuring that we comply with all Indian laws. We are currently reviewing the notification in detail. As a responsible company, we will provide all the necessary documents to support the authorities. ”
The Indian Ministry of Finance's tax recovery of Xiaomi this time is not sudden, and it has previously raided a number of Chinese companies on the grounds of "tax evasion".
According to the Indian media New Delhi Television (NDTV), on December 21, 2021, law enforcement officers from the tax department of the Indian Ministry of Finance conducted surprise investigations in 11 states, mainly targeting Xiaomi, OPPO, OnePlus and other Chinese-funded mobile phone companies. Subsequently, the Indian branches of Xiaomi and OPPO issued statements one after another, saying that they would cooperate with the Indian investigation, while stressing that they "attach great importance to abiding by Indian laws."
Subsequently, the Indian income tax department said that the two smartphone manufacturers could be fined Rs 100 crore for violating the law on non-disclosure of related party transactions. While the department did not name specific companies in its press release, sources confirmed that the two companies were Xiaomi and OPPO.
The Indian tax authority's statement also claimed: "Neither company complied with the regulatory requirements set out in the Income Tax Act of 1961 to disclose transactions with affiliates." Under the Income Tax Act 1961, such lapses put them liable for criminal proceedings, which could be more than Rs 1,000 crore,"
Why did India conduct large-scale raids on Xiaomi, OPPO, realme, etc., which have a dominant market share in the Indian market? There is currently no official answer.
However, a relevant person from the Chinese Academy of Information and Communications Technology analyzed a possibility to reporters: Chinese mobile phones have suffered a certain blow in the Indian market, and the possibility of India planning to support its local brands is not ruled out.
How should Xiaomi respond?
For Xiaomi, this is not the first time that it has encountered a foreign "year's robbery".
Just before the beginning of last year, the U.S. government also put nine Chinese companies on the blacklist of so-called "related to the Chinese military", including mobile phone manufacturer Xiaomi and aircraft manufacturer COMAC. Under the investment ban, U.S. investors are required to sell their shares in "blacklisted" companies by November 11 of that year. Affected by this, after the opening of Hong Kong stocks at that time, xiaomi group stocks fell sharply.
However, in May last year, Xiaomi Group reached a settlement agreement with the US Department of Defense, the former will be removed from the so-called "military blacklist" of the Trump era.
If it is said that for Xiaomi, last year's military-related incidents are more directed to the secondary market dimension. Then this tax involvement may mean that real money and silver are needed for blood loss.
According to preliminary conversions, 6.53 billion Indian rupees of tax were recovered, or about 558 million yuan. Compared with Xiaomi's financial report, in 2020, Xiaomi's revenue reached 245.9 billion yuan, and its adjusted net profit was 13 billion yuan. This means that this total amount of tax recovery has reached more than 4% of Xiaomi's net profit in 2020.
In addition to the financial implications of the possibilities, what is more important is the constraints on Xiaomi's strategy.
Although the tax paid back is relatively small, India has always been an important market for Xiaomi, and Canalys data shows that in the third quarter of 2021, Xiaomi's smartphone market share in India ranked first, down 14% year-on-year.
Whether the supplementary tax will affect the price and sales of Xiaomi mobile phones in India, in addition to the internationalization strategy, will affect Xiaomi's other strategies, which will undoubtedly increase uncertainty.
Just last month, Lei Jun just announced that Xiaomi will benchmark Apple, especially in terms of product quality and specifications, to "learn from Apple". This shows that even if he has stepped down from the positions of legal representative and executive director of a number of Xiaomi's companies, and slowly delegated the work of mobile phones to other colleagues, saying that he wants to concentrate on building cars, he still can't put down Xiaomi's mobile phone business.
According to Yinxi Finance, Ding Jihua, deputy director of the Beijing New Century Multinational Company Research Institute and expert of the Expert Committee of the National Enterprise Compliance Committee of the China Trade Promotion Commission, told reporters that for this matter, Xiaomi needs to take the initiative to provide complete customs declaration records and other materials to the local regulatory authorities in a timely manner, and contact legal, tax and other professionals to actively respond.
If it is determined, the follow-up millet will not only have to make up taxes, but also may face civil or criminal liability, and may also lose some of the convenience of previous customs clearance.
In addition, for the tax compliance problems faced by multinational enterprises, Ding Jihua pointed out that multinational companies first need to change their thinking, in the past, enterprises went to sea mainly to find tax depressions, and now they need to give priority to finding places with a better business environment.
The relevant responsible persons of the company need to strengthen tax planning and make timely adjustments to the laws and tax changes of various countries, such as Huawei appointing independent directors in each precinct and maintaining communication with the local government, which can effectively reduce risks.
(Titanium Media APP Editor Liu Dafang Comprehensive Securities Times, Daily Economic News, etc.)