On August 19, Beijing-based Xiaomi announced its Q2 and H1 results for this year. In an earnings call, Xiaomi Group President Wang Xiang responded to the Indian tax investigation fiasco. He said that more than $700 million of funds were released, and that the company was actively communicating with the Indian authorities in a frank manner, while appealing by judicial means.
Matters relating to the Indian business were also disclosed in the results issued by Xiaomi. The firm said that from time to time, it was involved in various claims, litigation and legal proceedings in the ordinary course of its business. Since December 2021, investigations and notifications have been initiated by Indian authorities, including the Income Tax Department, the Tax Intelligence Bureau and the Enforcement Directorate, against Xiaomi Technology India Private Limited, in respect of compliance with relevant income tax regulations, customs regulations and foreign exchange regulations.
Further to the above investigation, Xiaomi India received another order on 11 August 2022 that imposed more restrictions on certain bank deposits. The allegation was that Xiaomi India had improperly deducted certain costs and expenses, including payments for the acquisition of handsets and royalty payments to LICs and the Group’s companies.
Wang Xiang said that an additional portion of the frozen funds is being negotiated, and that Xiaomi‘s business progress and factory production in India are also proceeding normally. Xiaomi says it will seriously and actively communicate frankly with the relevant departments of the Indian government, also appealing through the judicial system.
In January, India’s Ministry of Finance reported that Xiaomi India had evaded 6.53 billion rupees (about $82.28 million) in taxes. Documents show that Xiaomi India paid royalties and license fees to Qualcomm and Beijing Xiaomi Mobile Software, and by not including the “royalties and license fees” in the value of the transaction, Xiaomi India had evaded customs duties and became the beneficial owner of the imported cell phones and their components.
In May, Indian authorities seized about $725 million in assets belonging to Xiaomi Technology India Pvt., claiming the firm and its subsidiaries were suspected of illegally sending money to foreign entities in violation of Foreign Exchange Management Act (India).
Besides Xiaomi, OPPO and vivo have also been subjected to tax investigations in India.