The Enforcement Directorate, India’s official financial investigation agency, on Saturday seized $725 million from Xiaomi Technology India Pvt., accusing it of breaking the country’s foreign exchange laws by making illegal remittances abroad.
Xiaomi Technology India Pvt., a wholly-owned subsidiary of Beijing-based tech firm Xiaomi, started business in India in 2014 and began remittances in 2015. It has reportedly remitted about 55.127 billion Indian rupees ($725 million) to three foreign entities. “Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities,” the agency said.
Xiaomi said it believes its payments were legitimate, stating: “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.”
This is not the first time that Indian authorities have taken such actions against Xiaomi. On January 5, 2022, the Indian Ministry of Finance said it had sent three cause notices to Xiaomi Technology India Pvt. to recover 6.53 billion rupees ($88 million) in taxes from the company.
The statement said Xiaomi and its contract manufacturers failed to include the royalties of imported mobile phones and their components in the assessable value of the products, contravening the provisions of the Indian Customs Act and customs valuation rules.
At that time, Xiaomi said that the root of this tax issue is disagreement among the parties on the determination of the price of imported goods. Whether royalties, including patent license fees, should be covered in the price of imported goods is a complicated technical problem in all countries. Xiaomi said that it would continue to communicate with relevant Indian authorities on this issue.
Xiaomi entered the Indian market in 2014 and became the largest smartphone brand in the country in 2017. According to a report released by market research firm Canalys, in the first quarter of 2022, India shipped 38 million smartphones, and Xiaomi ranked first with 8 million units shipped, with a market share of 21%.