Indian tax officials froze $478 million (about Rs. 3,699 crores) in deposits in local bank accounts of China’s Xiaomi in February as part of an investigation into alleged tax evasion, according to two sources and a Reuters-reviewed court file.
The tax authorities freeze on funds, first reported by Reuters, comes on top of another legal battle facing Chinese smartphone giant Xiaomi, where it has – successfully so far – secured $725 million (about Rs. . 5,624 crores) of its funds by another Indian enforcement agency for allegedly illegal foreign remittances.
In the income tax case, authorities blocked about Rs. 3,699 crores in February under a legal provision allowing officials to take such actions to protect New Delhi’s revenues, a Xiaomi court document shows.
Xiaomi has not responded to a request for comment.
The spokesman for the IRS declined to comment.
Two sources with direct knowledge said the amount blocked by tax inspectors resulted from the December raids carried out on Xiaomi India offices for alleged tax evasion.
That investigation, one of the sources said, concerns allegations that the Chinese company has bought smartphones from its contract manufacturers at high cost in India, allowing it to make smaller profits from selling them to customers and evading corporate taxes.
It is not clear whether the company has appealed the decision.
Xiaomi cited the freeze by the income tax department in a May 4 lawsuit in the southern state of Karnataka, where it is challenging the other seizure of bank accounts made by the federal crime-fighting agency, the Enforcement Directorate, in the royalty case.
The directorate says Xiaomi has illegally made foreign transfers to certain entities “under the guise of” royalties, even though it has not used them, a claim the company denies. The Indian court has postponed the directorate’s decision on Xiaomi’s appeal to May 23.
Regarding the two investigations, Xiaomi states in its court document that it “cooperated with each of these investigations and provided all required information”.
The Indian Income Tax Department “pledged” $478 million (about Rs. 3,699 crores) of its deposits by an order dated Feb. 18, 2022, Xiaomi stated in its filing.
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 recently made headlines with allegations that its executives faced harassment from Indian directorate officials, with public rebuttals from the agency and statements of support from the Chinese government.
Xiaomi saw its share of the Indian smartphone market quadruple from just 6 percent in 2016 to 24 percent last year, making it the market leader, according to Counterpoint Research.