China’s Xiaomi faces legal troubles in key Indian market
Chinese smartphone giant Xiaomi is facing legal trouble in India as a federal financial crime agency and the tax authorities investigate the company’s business practices.
Xiaomi denies wrongdoing. But it recently made headlines with allegations that its executives faced harassment from Indian law enforcement officials, prompting public rebuttals from the agency and statements of support from China.
Here are details about the skirmishes in one of Xiaomi’s key markets:
WHAT IS THE ROYALTY CASE ABOUT?
India’s financial crimes agency, the Enforcement Directorate, has been investigating Xiaomi since February. On April 30, the agency said the smartphone maker had illegally transferred money abroad to three entities, including one belonging to a Xiaomi group entity, “in the guise of royalty payments.”
$725 million (approximately Rs 5,624 crore) was seized from Xiaomi’s local bank accounts, but an Indian court suspended the move after Xiaomi filed a lawsuit against it.
The Chinese company says all royalty payments were legitimate and related to the “licensed technologies and intellectual property rights” used in its Indian products.
Xiaomi alleges in the court documents that such payments were made to companies including US chip giant Qualcomm and that relevant information was provided to Indian authorities.
THREATS OF “PHYSICAL VIOLENCE”
Xiaomi’s Indian court documents show the company alleges its top executives faced “physical violence,” threats and coercion from the Enforcement Directorate.
The company alleges that Indian agents interrogated Xiaomi’s international vice president and former India head Manu Kumar Jain and current CFO Sameer BS Rao multiple times and warned them of “serious consequences” if they failed to make statements as demanded by the agency.
The Reuters report revealing the allegations prompted a response from the federal agency, which called Xiaomi’s allegations “false and unfounded” and said the executives were ousted “voluntarily in the most favorable environment.”
The Chinese Foreign Ministry in Beijing also responded, asking New Delhi to investigate compliance with the laws and ensure that Chinese companies are not discriminated against.
OTHER TAX INVESTIGATIONS, CHINA INVESTIGATION
Chinese companies have struggled to do business in India since 2020, when a border dispute erupted between the two countries. India has since cited security concerns in banning more than 300 Chinese apps, including popular ones like TikTok, and tightening standards for Chinese companies investing in India.
In December, Xiaomi’s offices and manufacturing facilities in India were raided as part of a separate ongoing investigation into alleged tax evasion.
And in another case in January, India’s Revenue Intelligence department demanded Xiaomi pay $84.5 million (approximately Rs 655 crore) for allegedly evading import duties.
Xiaomi has raised concerns in its latest lawsuit against the Enforcement Directorate, saying the agency’s actions “create an atmosphere of distrust and damage the country’s image in international circles.”
INDIA KEY MARKET FOR XIAOMI
Xiaomi also sells other tech gadgets, including smartwatches and televisions, and has a strong position in the Indian market.
However, the company is best known for its affordable smartphone pricing, which has helped it grow rapidly in India. In March, the company told analysts that it had maintained “the #1 position in India for 17 consecutive quarters.”
According to Counterpoint Research, the company’s market share has quadrupled from just 6 percent in 2016 to 24 percent last year, making it the market leader in India.
The company has 1,500 employees in India and is a source of income for at least 52,000 workers employed by third-party manufacturers, the court document said.
© Thomson Reuters 2022
