ED reportedly freezes $478 million worth of Xiaomi’s funds amid probe
Indian tax officials in February froze $478 million (about Rs 3,699 crore) in assets in local bank accounts of China’s Xiaomi as part of an investigation into alleged tax evasion, two sources said and a court document seen by Reuters.
The freeze of funds by the tax authorities, first reported by Reuters, comes on top of another legal battle facing Chinese smartphone giant Xiaomi, which successfully challenged a $725 million (roughly Rs 5,624 crore) block of its funds by another Indian enforcement agency over alleged illegal overseas transfers.
In the income tax case, authorities in February blocked about Rs 3,699 crore under a legal provision that allows officials to take such steps to protect New Delhi’s tax interests, a court document from Xiaomi showed.
Xiaomi did not respond to a request for comment.
The tax authorities spokesperson declined to comment.
Two sources with direct knowledge of the matter said the amount blocked by tax inspectors was a result of raids carried out in December on Xiaomi India offices over alleged tax evasion.
According to one of the sources, the investigation relates to allegations that the Chinese company bought smartphones from contract manufacturers in India at inflated prices, allowing the company to make less profit from selling the smartphones to customers and avoid corporate income taxes.
It is not clear whether the company has appealed the decision.
The freeze by the income tax authorities was cited by Xiaomi in a May 4 court filing in the southern state of Karnataka, where it is challenging another seizure of bank accounts by the federal crime-fighting agency, the Enforcement Directorate, in the royalty case.
The directorate said Xiaomi had illegally made overseas remittances to certain entities “under the guise of” royalties even though it had not used any of their services, a claim the company denies. The Indian court stayed the directorate’s decision till May 23 on Xiaomi’s appeal.
Xiaomi states in its court document that it “cooperated with each of these investigations and provided all required information.”
The Indian tax authorities on February 18, 2022, pledged an amount of USD 478 million (approximately Rs 3,699 crore) of its deposits, Xiaomi said in its filing.
Chinese companies have struggled to do business in India since 2020, when a border dispute erupted between the two countries. India has cited security concerns in banning more than 300 Chinese apps since then, including popular ones like TikTok, and tightening standards for Chinese companies investing in India.
Xiaomi recently made headlines with allegations that its executives were facing harassment from officials in the Indian directorate, prompting public rebuttals from the agency and endorsements from the Chinese government.
According to Counterpoint Research, Xiaomi saw its share of the Indian smartphone market quadruple from just 6 percent in 2016 to 24 percent last year, making it the market leader.
© Thomson Reuters 2022
