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India seizes over $700M in Xiaomi assets over forex violationsIndia seizes over $700M in Xiaomi assets over forex violations

India's authorities are hinting that Xiaomi has illegally transferred funds to its Chinese parent company's subsidiaries. The move is part of the country's broad investigation into all kinds of business dealings involving Chinese companies and executives.

Gagandeep Kaur

May 4, 2022

3 Min Read
India seizes over $700M in Xiaomi assets over forex violations

India's Directorate of Enforcement (ED) has seized INR55 billion (US$725 million) held in Xiaomi India's bank accounts over an alleged violation of the country's Foreign Exchange Management Act.

The move comes two weeks after the ED questioned the company's global vice president. The agency is also investigating Xiaomi's foreign funding, shareholding and other financial activities.

Xiaomi India, a wholly-owned subsidiary of China-based Xiaomi Group, was launched in 2014. Since 2015, it has sent foreign currency equivalent to $725 million to three foreign entities, including Xiaomi Group, under the guise of royalties, according to the ED.

Meanwhile, the smartphone maker has claimed that all its operations and transactions are compliant with the country's laws and regulations.

It further said that the royalty payments Xiaomi India made were for licensed technologies and IP used in the Indian version of its products. The company stated that it would be cooperating with the government agency to clarify what it is calling "misunderstandings."

Figure 1: As well as forex violations, government agencies are also investigating Xiaomi India for tax evasion.
 (Source: SOPA Images Limited/Alamy Stock Photo) As well as forex violations, government agencies are also investigating Xiaomi India for tax evasion.
(Source: SOPA Images Limited/Alamy Stock Photo)

A larger probe

The ED's investigation of Xiaomi is not a singular effort. Indeed, the smartphone maker is caught up in a sprawling effort spanning the whole country and dozens of government agencies. In all, the Ministry of Corporate Affairs has registered more than 700 cases across India over transactions against companies that have Chinese nationals as promoters and directors.

Intelligence agencies said that these firms were misused for money laundering and tax evasion, among other things. The majority have been registered in Delhi, with Bangalore and Mumbai following suit.

Mobile money

Xiaomi India procures completely manufactured mobile handsets, accessories and other products from its local vendors in India.

The ED said that the vendor has not benefited from any services from the three foreign-based entities to which it has sent money. This massive amount of money was transferred as royalties only.

The government agency further revealed that the company created a façade of various unrelated documents to remit the funds to the foreign entities.

This is said to be in violation of Section 4 of the Foreign Exchange Management Act. The government agency maintains that Xiaomi also provided misleading information to banks while transferring money overseas.

Want to know more? Sign up to get our dedicated newsletters direct to
your inbox As well as forex violations, government agencies are also investigating Xiaomi India for tax evasion. The income tax department claims that one of the companies under the Xiaomi umbrella inflated expenses and payments on behalf of associated enterprises. This led to a reduction in taxable profits for Xiaomi India of over INR14 billion ($183 million). Xiaomi is the market leader in India with 24% market share. It competes with other device makers, including Samsung, Oppo, Vivo, Apple, Lava and HMD. Related posts: India probes finances of Chinese device makers Xiaomi profits collapse as fortunes reverse Xiaomi denies censoring as Lithuania advises ditching phones Indian telcos want more control in procuring gear — Gagandeep Kaur, contributing editor, special to Light Reading

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About the Author(s)

Gagandeep Kaur

Contributing Editor

With more than a decade of experience, Gagandeep Kaur Sodhi has worked for the most prominent Indian communications industry publications including Dataquest, Business Standard, The Times of India, and Voice&Data, as well as for Light Reading. Delhi-based Kaur, who has knowledge of and covers a broad range of telecom industry developments, regularly interacts with the senior management of companies in India's telecom sector and has been directly responsible for delegate and speaker acquisition for prominent events such as Mobile Broadband Summit, 4G World India, and Next Generation Packet Transport Network.

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