Xiaomi Corp faces legal issues in India over business practices

Chinese smartphone giant Xiaomi Corp faces legal headaches in India as a federal financial crime agency and tax authorities investigate its business practices.

Xiaomi denies any wrongdoing. But it has recently made headlines with accusations that its leaders have been intimidated by Indian law enforcement officials, prompting public rebuttals from the agency and words of support from China.

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

WHAT IS THE ROYALTY AFFAIR?

India’s financial crime agency, the Law Enforcement Directorate, has been investigating Xiaomi since February. On April 30, the agency said the smartphone maker illegally transferred funds overseas to three entities, including one from a Xiaomi Group entity, “under cover of royalties.”

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

The Chinese company claims that its royalty payments were all legitimate and related to “licensed technology and IP” used in its Indian products.

In its court documents, Xiaomi claims such payments were made to companies such as US chip giant Qualcomm Inc and that relevant information was disclosed to Indian authorities.

THREATS OF “PHYSICAL VIOLENCE”

Xiaomi’s Indian court filing revealed that the company alleged that its top executives were subjected to threats of “physical abuse” and coercion from the Law Enforcement Branch.

The company alleged that Indian agents repeatedly questioned Xiaomi’s global vice president and former head of India, Manu Kumar Jain, as well as current chief financial officer Sameer BS Rao, and warned them of the “consequences disastrous” if they did not submit the declarations desired by the agency.

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

China’s Foreign Ministry in Beijing also responded, asking New Delhi to conduct law enforcement investigations and ensure Chinese companies were not discriminated against.

OTHER TAX POLLS, CHINA REVIEW

Chinese companies have struggled to do business in India since 2020, when a border clash occurred between the two nations. India has cited security concerns by banning more than 300 Chinese apps since then, including popular apps, such as TikTok, and tightening standards for Chinese companies investing in India.

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

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

Xiaomi expressed concerns in its latest legal filing against the Law Enforcement Branch, saying the agency’s action “creates an atmosphere of distrust and the country’s image suffers in international circles.” .

INDIA KEY MARKET FOR XIAOMI

Xiaomi also sells other tech gadgets including smartwatches and TVs and has a lot going for it in the Indian market.

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

Its market share 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.

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About Charles D. Goolsby

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