India tax authority froze $478 million of Xiaomi funds in February-sources, document
12/05/2022 12:45
By Aditya Kalra and Munsif Vengattil
NEW DELHI, May 12 (Reuters) - Indian tax officials froze
$478 million worth of deposits lying in local bank accounts of
China's Xiaomi Corp 1810.HK in February as part of an
investigation into alleged tax evasion, according to two sources
and a court filing reviewed by Reuters.
The fund freeze by tax authorities, being reported for the
first time by Reuters, comes on top of another legal tussle
Chinese smartphone giant Xiaomi faces where it has challenged -
successfully so far - a block on $725 million of its funds by
another Indian enforcement agency for alleged illegal foreign
remittances. urn:newsml:reuters.com:*:nL2N2WS058
In the income tax case, authorities blocked 37 billion
rupees ($478 million) in February under a legal provision that
allows officials to take such actions to protect New Delhi's
revenue interests, a Xiaomi court document showed.
Xiaomi did not respond to a request for comment.
The spokesperson for the income tax department declined to
comment.
Two sources with direct knowledge said the amount blocked by
tax inspectors was a fallout of the December raids conducted at
Xiaomi India offices for alleged income tax evasion.
That investigation, said one of the sources, concerns
allegations the Chinese company purchased smartphones from its
contract manufactures at inflated costs in India, allowing it to
record a smaller profit by selling them to customers and evading
corporate income taxes.
It is not clear if the company appealed the decision.
The freeze by the income tax department was cited by Xiaomi
in a May 4 court filing in southern Karnataka state, where it is
challenging the other bank account seizure done by the federal
crime fighting agency, the Enforcement Directorate, in the
royalty case.
The Directorate says Xiaomi illegally made foreign
remittances to certain entities "in the guise of" royalties even
though it did not avail any service from them, an allegation the
company denies. The Indian court has put on hold the
Directorate's decision until May 23 on Xiaomi's appeal.
Referencing the two probes, Xiaomi states in its court
document it "has cooperated in each of these investigations and
provided all requisite information."
India's Income Tax Department "put under lien" $478 million
of its deposits by an order dated Feb. 18, 2022, Xiaomi stated
in its filing.
Chinese companies have struggled to do business in India
since 2020, when a border clash occurred between the two
nations. India has cited security concerns in banning more than
300 Chinese apps since then, including popular ones, such as
TikTok, and tightened norms for Chinese companies investing in
India.
Xiaomi recently hit the headlines with accusations that its
executives faced intimidation from Indian Directorate's
officials, drawing public rebuttals from the agency and words of
support from the Chinese government. urn:newsml:reuters.com:*:nL3N2X234E
Xiaomi saw its share of the Indian smartphone market
quadruple from just 6% in 2016 to 24% last year, making it the
market leader, according to Counterpoint Research.
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EXPLAINER-China's Xiaomi battles probes in key India market
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(Reporting by Aditya Kalra and Munsif Vengattil in New Delhi;
Additional reporting by Abhirup Roy; Editing by Alexandra
Hudson)
((munsif.vengattil@thomsonreuters.com;))