On Saturday, the enforcement directorate seized a sum of Rs.5551 Cr in bank accounts of the Chinese mobile manufacturer and maker of the MI brand of phones, Xiaomi, for allegedly violating Indian Foreign Exchange rules under FEMA.
According to ED, Xiaomi India (a wholly-owned subsidiary of the china-based Xiaomi group) has been remitting foreign currency worth Rs.5551.27 Cr in Indian money to three foreign entities, including one from the Xiaomi group, in the name of royalty.
ED stated, “under cover of various unrelated documentary facades created among the group entities, the company remitted this amount in the guise of royalty abroad which constituted violations of Section 4 of FEMA. The company also provided misleading information to the banks while remitting the money abroad.”
However, in a statement of defense, Xiaomi’s spokesperson said that the company’s operation in India is in firm compliance with the local laws and regulations. It is working closely with government authorities to clarify any misunderstandings.
“We have studied the order from government authorities carefully. We believe our royalty payments and statements to the bank are all legit and truthful. These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products. Therefore, it is a legitimate commercial arrangement for Xiaomi India to make such royalty payments,” said the spokesperson.
Nonetheless, ED has been monitoring Xiaomi’s outward remittances since it started its operations in India in 2014. The agency initiated an investigation against the company in February this year. The probe has revealed that Xiaomi India did not avail of any services from the said foreign-based entities, which have been receiving huge remittances from the company.
ED said that the amount was remitted to two other US-based entities under the instructions of the Chinese parent group, ultimately benefitting Xiaomi group entities. Regarding these remittances, ED questioned Xiaomi’s global vice president (V-P) Manu Kumar Jain on the 13th of April. Already, the Chinese group is facing tax evasion charges by the IT department.
Reference: The Times of India