In the last decade, Xiaomi has gone from being one of many Chinese companies to becoming one of the biggest brands in India.
A market leader in almost every electronic device we use these days, Xiaomi has become a part of our everyday lives.
However, things haven’t been going well for Xiaomi and the Indian government, which led to the ED (Enforcement Directorate) seizing the company’s assets.
Why did ED take action against Xiaomi?
Xiaomi has been accused of breaching the foreign exchange laws of India.
This led ED to seize the sum of 5,551 crores from the account of Xiaomi Technology India Pvt. Ltd.
Xiaomi Technology India Pvt. Ltd. is wholly owned by a subsidiary of Xiaomi Inc.
The ED revealed that it has been investigating Xiaomi since December 21 and found evidence that directs the company to remit funds in the guise of royalty payments to three foreign-based entities.
Such huge amounts in the name of royalty can only be remitted with the instruction and the authority of parent group entities.
In the face of royalty payments, Xiaomi has provided misleading information to the banks while remitting money abroad.
According to the ED, the royalty payment is completely invalid because Xiaomi Technology India Pvt. Ltd. manufactures all of its devices in India.
If the company would’ve been importing devices from the parent company, i.e., China, and then selling them in India, that royalty payment is valid.
But since Xiaomi India has not availed any service from the three entities, the money was remitted in the form of a royalty payment.
The actions by Xiaomi India have violated Section 4 of the FEMA Act of 1999.
As per reports, the government has been pushing foreign companies in India to manufacture goods with local companies rather than import them from outside.
The rules are being tightened in response to cross-border tensions with China and to promote India’s “Make in India” campaign.
Response from Xiaomi
Xiaomi has straight away denied availing any services from the three foreign entities to whom money was sent in the guise of royalty payment.
Addressing the royalty payments, Xiaomi has said it has made royalty payments but only for licenced technologies and IPS used in their Indian version products.
It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments.
Xiaomi is not alone in this, as back on December 22, the income tax department also raided the office of oppo along with Xiaomi.
The ED said the raids were conducted based on “actionable intelligence inputs” on several violations by Xiaomi and others.
Xiaomi is no new to this matter as back on Jan 22 Xiaomi India was fined ₹653 crores on charges of evasion of customs duty by the Finance Ministry
Govt. Of India asked Xiaomi to pay the import taxes on the royalty and license fees from 1st April 2017 to 30th June 2020.
Published by- NIKITA GOSWAMI