Summary: On April 30, the Anti-Money Laundering Executive Board of India seized $725 million of funds from the bank account of Xiaomi and its Indian subsidiary on suspicion of violating India's local Foreign Exchange Control Law.
On April 30, the Anti-Money Laundering Executive Board of India seized $725 million of funds from the bank accounts of Xiaomi and its Indian subsidiary on suspicion of violating India's local Foreign Exchange Control Law.
The Indian Enforcement Agency said the investigation found that Xiaomi Technology India Pvt, an Indian subsidiary of Chinese smartphone maker Xiaomi Group, was found. (hereinafter referred to as "Xiaomi India") illegally remitted money to foreign entities by pretending to pay royalties, violating the relevant provisions of India's Foreign Exchange Control Act of 1999, and thus seized the assets of Xiaomi India Company of 55.51 billion rupees (about US$725 million, 4.8 billion yuan).
According to market research agency Canalys data, in the first quarter of 2022, in the Indian market smartphone market, Xiaomi ranked first in the shipment list with 8 million units of shipments and a market share of 21%.
It is worth mentioning that as early as the beginning of this year, the Indian Law Enforcement Agency launched an investigation into the illegal remittance of Xiaomi India Company and questioned Manu Kumar Jain, xiaomi's global vice president.
In a statement, the Indian Enforcement Agency said, "The company (Xiaomi Group) started operating in India in 2014 and has been sending remittances since 2015." The company has remitted the equivalent of INR 555.127 million in foreign currencies to three foreign entities, including a Xiaomi Group entity under the guise of royalties. The huge sums paid in the name of royalties were remitted in accordance with the instructions of its Chinese parent entity... Xiaomi India sources fully manufactured phone kits and other products from Indian manufacturers. Xiaomi India has yet to receive any services from the three foreign entities where these amounts have been transferred. Under the cover of camouflage of various unrelated documents created between group entities, the company remitted the money abroad in the name of royalties, in violation of Article 4 of FEMA (Foreign Exchange Control Act). The company also provided misleading information to banks while sending funds abroad. ”
That is to say, the Indian side believes that Xiaomi India remitted patent licensing fees and royalties related documents to Qualcomm and China's Beijing Xiaomi Mobile Software Company, which are not included in the transaction value of its imported goods, constituting tax evasion and tax evasion, and needs to be re-taxed.
A legal person focusing on overseas markets told reporters that it can be seen that indian law enforcement departments are questioning the authenticity of several intellectual property transactions and the reasonableness of pricing and other tax issues, of which there are several issues that need to be refined: First, does the intellectual property license fee need to be included in the quotation of imported products? Second, are the related party transactions and transfer pricing between Xiaomi entities reasonable?
The legal source said that whether the royalties need to be subject to tariffs depends on whether the following three conditions are met: First, whether the royalties paid by Xiaomi India to Qualcomm and China's Xiaomi Mobile Software Company are related to the import of goods from India. If it is determined to be related to the import of goods by Xiaomi India, it should pay the tax back; conversely, if it is deemed unrelated, it should not pay the tax.
The second is whether the payment of royalties constitutes a precondition for the sale of imported goods into India. If it is found that the payment of royalties constitutes a condition for the sale of imported goods to India, Xiaomi India Company shall pay back the tax; conversely, if it is determined that it does not constitute a condition for the sale of the goods in India, it shall not pay the tax.
The third is whether the royalties are included in the dutiable value at the time of declaration of imported goods.
In response to the seizure of $725 million, on May 1, Xiaomi India issued a statement saying: "All operations of Xiaomi India strictly comply with local laws and regulations, and the royalties paid are used for the licensed technology and intellectual property rights used in the Indian version of the product." It is a legitimate business practice for Xiaomi India to pay such royalties and will work closely with the government to clarify any misunderstandings. ”
India has called Xiaomi "tax evasion" of Rs 653 crore
According to the Securities Times, just at the beginning of this year, according to foreign media reports, on January 5, the Indian 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 Pte., requesting that 653 million rupees (about 570 million yuan) of tax be recovered from the company.
In response, Xiaomi responded that Xiaomi adheres to legal and compliant operations around the world and abides by the relevant laws and regulations of the place of operation.
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. ”
It is worth mentioning that the Daily Economic News reporter inquired about the 2021 annual report of Xiaomi Group and found that as of September 30, 2021, the restricted deposit of Xiaomi Group was 2.564 billion yuan. However, as of December 31, 2021, the company's mortgage restricted deposits were RMB4,319.7 million, mainly due to ongoing tax investigations in India.
It is reported that Xiaomi is not the only brand that has been chased by the Indian Ministry of Finance to pay taxes. According to the data, since December last year, the law enforcement personnel of the Taxation Department of the Ministry of Finance of India have inspected taxes in more than 20 places across India, and Chinese-funded mobile phone companies such as Xiaomi and OPPO have been searched, which are the more well-known mobile phone brands in India.
Editor: Xin ZhiXun - Lin Zi Source: Daily Economic News, Securities Times