Explanation: China’s Xiaomi fights back against investigations in India’s key market

A man walks past a logo of Xiaomi, a Chinese consumer electronics maker, outside a store in Mumbai, India, May 11, 2022. REUTERS/Francis Mascarenhas

Sign up now for FREE unlimited access to Reuters.com

NEW DELHI, May 12 (Reuters) – Chinese smartphone giant Xiaomi Corp (1810.HK) is facing legal trouble in India as a federal anti-financial crime agency and tax authorities investigate its business practices.

Xiaomi denies any wrongdoing. But it recently made headlines with accusations that its executives faced intimidation by Indian law enforcement officials, drawing public rebuttals from the agency and words of support from China.

Here are details of the fights in one of Xiaomi’s key markets:

Sign up now for FREE unlimited access to Reuters.com

WHAT IS THE ROYALTY CASE ABOUT?

India’s anti-financial crime agency, the Directorate of Enforcement, has been investigating Xiaomi since February. On April 30, the agency said the smartphone maker had illegally transferred funds abroad to three entities, including one from a Xiaomi group entity, “under the guise of royalty payments.”

It seized $725 million from Xiaomi’s local bank accounts, although an Indian court stayed that decision following a legal challenge by Xiaomi. read more

The Chinese company says its royalty payments were all legitimate and were for “licensed technologies and IP” used in its Indian products.

In its court documents, Xiaomi says that such payments were made to companies including US chip giant Qualcomm Inc (QCOM.O) and that relevant disclosures had been made to Indian authorities. read more

THREATS OF “PHYSICAL VIOLENCE”

Xiaomi’s Indian court filing revealed that the company had alleged that its senior executives faced threats of “physical violence” and coercion from the Compliance Directorate.

The company alleged that Indian agents repeatedly questioned Xiaomi Global Vice President and former India Director Manu Kumar Jain, as well as current CFO Sameer BS Rao, and warned them of “serious consequences” if they did not make the desired statements. by the agency. read more

The Reuters report revealing those allegations prompted a response from the federal agency, which called Xiaomi’s allegations “false and baseless” and said the executives had been deposed “voluntarily in the most conducive environment.”

China’s Foreign Ministry in Beijing also reacted, calling on New Delhi to carry out investigations into law enforcement and ensure that Chinese companies are not discriminated against. read more

OTHER TAX INVESTIGATIONS, EXAMINATION OF CHINA

Chinese companies have had trouble doing business in India since 2020, when a border clash between the two nations occurred. India has cited security concerns by banning more than 300 Chinese apps since then, including popular ones like TikTok, and stricter rules for Chinese companies investing in India.

Xiaomi’s offices and manufacturing units in India were raided in December in a separate ongoing investigation into alleged income tax evasion.

And in another case in January, India’s Revenue Intelligence wing asked Xiaomi to pay $84.5 million for allegedly evading some import duties.

Xiaomi expressed concern in its latest court filing against the Enforcement Directorate, saying the agency’s action “creates an atmosphere of mistrust and the country’s image suffers in international circles.”

KEY INDIAN MARKET FOR XIAOMI

Xiaomi also sells other tech gadgets, including smart watches and TVs, and has a lot riding on the Indian market.

However, the company is best known for its affordable range of smartphones which has helped it grow rapidly in India. In March, the company told analysts that it retained “the No. 1 position in India for 17 consecutive quarters.”

Its market share has quadrupled from just 6% in 2016 to 24% 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 workers employed by its third-party manufacturers, it said in its court filing.

Sign up now for FREE unlimited access to Reuters.com

Reporting from Munsif Vengattil and Aditya Kalra in New Delhi; Edited by Kim Coghill

Our standards: the Thomson Reuters Trust Principles.

Add Comment