Over the last decade or so, Xiaomi has grown from one of many Chinese companies trying to establish a foothold in India to one of the biggest brands in the country. Xiaomi is the market leader in smartphones in the country, while its other devices – televisions, fitness bracelets – also remain very popular. However, over the past few months, issues have erupted between Xiaomi and the Indian government, leading to the Indian Execution Directorate (ED) seizing the assets of the company. Here we explain what the problem is:
What prompted the Law Enforcement Directorate to take action against Xiaomi?
Xiaomi is accused of breaking India’s foreign exchange laws. In a tweet posted on ED’s official Twitter account, the agency revealed that “ED has seized Rs.5551.27 Crore from M/s Xiaomi Technology India Private Limited lying in the bank accounts under the provisions of the Act of 1999 on the management of foreign exchange in relation to illegal outward remittances made by the company.
The ED revealed that it had been investigating Xiaomi since December 2021 and found that the company had disbursed funds – in the form of royalty payments – to three overseas-based entities. The ED in a statement, according to Reuters, said “such enormous sums in the name of royalties were paid on the instructions of their Chinese parent group entities,” it said. In addition, he also disclosed that two other US-based “unrelated entities” also received funds intended for the “ultimate benefit of Xiaomi Group entities”. The ED said Xiaomi had “provided misleading information to banks when transferring the money overseas”.
According to reports, the government had pushed Chinese companies to use local companies and not their partners from back home. The Indian government has tightened rules – largely due to cross-border tensions with China – on inbound investment from foreign countries.
What was Xiaomi’s response?
In an official statement released, Xiaomi denied using the services of the three overseas-based entities. “These royalties which Xiaomi India realized related to licensed technologies and IP addresses used in our Indian version products. It is a legitimate business agreement for Xiaomi India to make such royalty payments. The company further said it was committed to working closely with government authorities to “clarify any misunderstandings”.
The Income Tax Department in December 2022 had raided the offices of Xiaomi – together with Oppo. A report by The Economic Times said the raids were carried out based on “actionable intelligence contributions” on “several breaches” by Xiaomi and others.
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