On May 1, Xiaomi was exposed to the seizure of assets by its subsidiary in India, involving an amount of up to 55.513 billion Indian rupees (equivalent to 4.806 billion yuan). Indian law enforcement authorities said that Xiaomi Technology India Pte Ltd remitted money to three overseas entities including Xiaomi Group in the name of "paying royalties", which "violated" India's Foreign Exchange Management Law, so law enforcement seized the relevant account assets of Xiaomi's subsidiaries.
In this regard, Xiaomi India issued a statement saying that as a brand dedicated to India, all the company's operations strictly comply with local laws and regulations. Xiaomi India said, "We have carefully studied the orders of the authorities and we believe that the royalties and bills we pay to the banks are legal and real. These royalties paid by Xiaomi India are used for licensed technology and intellectual property rights used in our Indian version of our products. For Xiaomi India, paying such royalties is a legitimate business practice. Of course, we will work closely with the government to clarify any misunderstandings."
Documents from Indian law enforcement show that Xiaomi India is a mobile phone trader and distributor of the Xiaomi brand in India. Xiaomi India sources fully manufactured mobile devices and other products from manufacturers in India. Xiaomi India remitted the money abroad in the name of royalties, in violation of Article 4 of the Foreign Exchange Control Act.
According to public information, Xiaomi entered the Indian market in 2014 and became the largest smartphone brand in India in 2017, which has been four consecutive years. According to a report released by market research agency Canalys, in the first quarter of 2022, India shipped 38 million smartphones, and Xiaomi ranked first with 8 million units of shipments, with a market share of 21%.
Canalys reports data
It is worth noting that this is not the first time that India has taken a similar move, the NanduWan Finance News Agency reporter learned that in December 2021, the Indian income tax department conducted an investigation into the compliance of mobile phone manufacturing companies including Xiaomi India with relevant income tax regulations, and on January 5, 2022, the Indian Tax Intelligence Agency issued a notice to Xiaomi India to recover the import tax owed from April 1, 2017 to June 30, 2020 of Rs 653 million (equivalent to RMB 560 million). The Indian side believes that neither Xiaomi India nor its contract manufacturers have included the "royalty amount" paid by Xiaomi India in the appraised value of its imported goods, which violates the provisions of India's Customs Law and customs valuation rules.
At that time, Xiaomi Group responded that Xiaomi insisted on legal and compliant operations around the world and complied with the relevant laws and regulations of the place of operation. 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.
In addition, in the 2021 financial report, Xiaomi mentioned that the tax investigation had no impact on the operating results in 2021. However, due to the ongoing tax investigation in India, as of the end of December 2021, Xiaomi Group's restricted deposits reached 4.32 billion yuan, compared with 2.56 billion yuan at the end of September.
Written by: Ye Lu, reporter of Nanduwan Finance Agency