Such huge amounts in the name of royalties?
Enforcement Directorate (ED) on Saturday seized Rs.5,551.27 crore belonging to Chinese mobile phone manufacturer Xiaomi Technology India Private Limited under the provisions of the Foreign Exchange Management Act. Xiaomi India is a wholly-owned subsidiary of the China-based Xiaomi group. In December, Income Tax Department registered a case against Xiaomi’s India operations suspecting huge tax evasions and finding forex transactions, and a few days ago ED questioned the company’s global vice-president Manu Kumar Jain, stationed in Dubai
According to the ED, the seized amount was lying in the bank accounts of the company. The ED had initiated an investigation in connection with the illegal remittances made by the company. “The company started its operations in India in the year 2014 and started remitting the money from the year 2015. The company has remitted foreign currency equivalent to INR 5551.27 crore to three foreign-based entities which include one Xiaomi group entity in the guise of ‘royalty‘. Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi group entities,” said ED in a statement.
The anti-money laundering probe agency said that Xiaomi India is a trader and distributor of mobile phones in India under the brand name MI. “Xiaomi India procures completely manufactured mobile sets and other products from the manufacturers in India. Xiaomi India has not availed any service from the three foreign-based entities to whom such amounts have been transferred. Under the cover of various unrelated documentary façades created amongst the group entities, the company remitted this amount in the guise of royalty abroad which constitutes a violation of Section 4 of the FEMA. The company also provided misleading information to the banks while remitting the money abroad,” the ED statement said.
Xiaomi (under the brand name MI) was India’s leading smartphone seller in 2021, with a 24% market share. South Korea’s Samsung was the No. 2 brand with a 19% share. Many Chinese companies have struggled to do business in India due to political tensions following a border clash in 2020. India has cited security concerns in banning more than 300 Chinese apps since then, including popular ones like TikTok, and also tightened norms for Chinese companies investing in India.
Xiaomi said in a statement issued later on Saturday that it complies with Indian laws and believed its “royalty payments and statements to the bank are all legit and truthful”.”These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products… we are committed to working closely with government authorities to clarify any misunderstandings,” it added.
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