Chinese smartphone giant Xiaomi faces legal challenges in India as a federal anti-financial crime agency, and the tax authorities investigate its business practices.
Xiaomi denies wrongdoing. But recently, it made headlines with allegations that its executives faced harassment from Indian enforcement officials, public rebuttals from the agency, and statements of support from China.
Here are details of the battle in one of Xiaomi’s key markets:
WHAT IS THE ROYALTY MATTER ABOUT?
India’s financial crime-fighting agency, the Enforcement Directorate, has been investigating Xiaomi since February. On April 30, the agency said the smartphone maker had illegally transferred money abroad to three entities, including one from a Xiaomi group entity, “under the guise of royalties”.
It seized $725 million (about Rs. 5,624 crores) from Xiaomi’s local bank accounts, although an Indian court has put that decision on hold following a legal challenge by Xiaomi.
The Chinese company says its royalty payments were all legitimate and earmarked for the “licensed technologies and IPs” used in its Indian products.
In its court files, Xiaomi says such payments have been made to companies, including US chip giant Qualcomm, and relevant disclosures have been made to Indian authorities.
“PHYSICAL VIOLENCE” THREATS
Xiaomi’s Indian court filing revealed that the company had alleged that its top executives faced threats and coercion with “physical violence” by the enforcement directorate.
The company alleged that Indian agents multiple times questioned Xiaomi’s global vice president and former head of India, Manu Kumar Jain, and current Chief Financial Officer Sameer BS Rao, warning them of “serious consequences” if they fail to make statements. as desired by the agency.
The Reuters report revealing these allegations sparked a response from the federal agency, which called Xiaomi’s allegations “false and unfounded” and said executives had been “voluntarily deposed in the most favorable environment”.
The Chinese Foreign Ministry in Beijing also responded, asking New Delhi to investigate compliance with laws and ensure that Chinese companies were not discriminated against.
OTHER TAX INVESTIGATIONS, CHINA INVESTIGATION
Chinese companies had struggled to do business in India since 2020 when a border dispute erupted between the two nations. India has raised security concerns with the ban on more than 300 Chinese apps since then, including popular ones like TikTok, and tightened standards for Chinese companies investing in India.
Xiaomi’s offices and manufacturing facilities in India were raided in December in a separate ongoing investigation into alleged tax evasion.
And in another case in January, India’s Revenue Intelligence department asked Xiaomi to pay $84.5 million (about Rs. 655 crores) for allegedly evading some import taxes.
Xiaomi has expressed concern in its latest lawsuit against the Enforcement Directorate, saying the agency’s action “creates an atmosphere of mistrust and suffers the image of the country in international circles.”
INDIA KEY MARKET FOR XIAOMI
Xiaomi also sells other tech blog news, including smartwatches and televisions, and has plenty in the Indian market.
However, the company is best known for its affordable smartphone price range, which has helped it grow rapidly in India. In March, the company told analysts it “maintained the No. 1 position in India for 17 consecutive quarters”.
Its market share has quadrupled from just 6 percent in 2016 to 24 percent last year, making it the Indian market leader, according to Counterpoint Research.
The company has 1,500 employees in India and provides a source of income for at least 52,000 employees employed by its third-party manufacturers, it said in its court filing.
© Thomson Reuters 2022