A closer look: China’s Xiaomi launches investigations into India’s main market

A man walks past the logo of Xiaomi, the Chinese consumer electronics manufacturer, outside a store in Mumbai, India, May 11, 2022. REUTERS/Francis Mascarenhas

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NEW DELHI (Reuters) – Chinese smartphone giant Xiaomi Corp (1810.HK) It faces legal problems in India as a federal financial crime agency and tax authorities are investigating its business practices.

Xiaomi denies any wrongdoing. But it recently made headlines with accusations that its executives faced intimidation from Indian law enforcement officials, prompting public criticism from the agency and words of support from China.

Here are the details of the controversies in one of Xiaomi’s main markets:

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What is the ROYALTY issue about?

India’s Financial Crimes Control Agency, Enforcement Directorate, has been investigating Xiaomi since February. On April 30, the agency said the smartphone maker had illegally transferred funds abroad to three entities, including one from the Xiaomi Group entity, “under the guise of royalty payments.”

$725 million has been confiscated from Xiaomi’s local bank accounts, although this decision was halted by an Indian court after a legal challenge from Xiaomi. Read more

The Chinese company says the royalty payments were all legitimate and were for “licensed IP technologies and gateways” used in its Indian products.

Xiaomi says in its court filings, that such payments were made to companies including US chip giant Qualcomm Inc (QCOM.O) and that the relevant disclosures have been submitted to the Indian authorities. Read more

Threats of ‘physical violence’

Xiaomi’s Indian court filing revealed that the company alleged that its top executives faced threats of “physical violence” and coercion by the enforcement department.

The company alleged that Indian agents had repeatedly questioned Xiaomi’s global vice president and former president of India, Manu Kumar Jain, as well as current CFO Samir B. S. Rao, warning them of “grave consequences” if they did not provide the data as requested by the agency. Read more

The Reuters report that exposed the accusations prompted a response from the federal agency, which called Xiaomi’s allegations “incorrect and baseless” and said executives had been sacked “voluntarily in the most appropriate circumstances.”

China’s Foreign Ministry also responded in Beijing, asking New Delhi to conduct investigations into compliance with laws and ensure that Chinese companies are not discriminated against. Read more

Other tax sensors, China’s strictest

Chinese companies have struggled to do business in India since 2020, when a border clash occurred between the two countries. India has cited security concerns in blocking more than 300 Chinese apps since then, including popular apps, such as TikTok, and has tightened standards for Chinese companies investing in India.

Xiaomi’s India offices and manufacturing units were raided in December in an ongoing separate investigation into alleged income tax evasion.

And in another case in January, India’s Revenue Intelligence wing asked Xiaomi to pay $84.5 million for allegedly evading some import taxes.

Xiaomi expressed its concerns in its latest court filing against the enforcement department, saying that the agency’s action “creates an atmosphere of mistrust and that the country’s image is affected in international circles”.

India’s main market for Xiaomi

Xiaomi also sells other tech gadgets, including smartwatches and TVs, and has a lot of riding in the Indian market.

However, the company is known for its affordable smartphone price range which has helped it grow rapidly in India. In March, the company told analysts that it held the “No. 1 position in India for 17 consecutive quarters.”

Its market share has quadrupled from just 6% in 2016 to 24% last year, making it the leader in the Indian market, according to Counterpoint Research.

The company said in its court filing that the company has 1,500 employees in India and provides a source of income for at least 52,000 workers working for third-party manufacturers.

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Additional reporting by Monsef Vengatell and Aditya Kalra in New Delhi; Editing by Kim Coogle

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