Previously we reported that the offices of Xiaomi and OPPO Chinese distribution partners were raided by the Income Tax Department on 21 December 2021. The searches were carried out in Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, and Rajasthan.
Now, according to the Income Tax department, Mobile phone makers Xiaomi and OPPO can be fined ₹ 1,000 crores ($134 million) for violating the law pertaining to non-disclosure of related party transactions(tax evasion).
As per a report by the economic times, The IT department found that two major companies have made payments (remittances) in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than Rs.5500 crore ($738 million).
The IT department stated in its press release that “These companies had not complied with the regulatory mandate prescribed under the Income-Tax Act, 1961, for disclosure of transactions with associated enterprises. Such a lapse makes them liable for penal action under the Income-Tax Act, 1961, the quantum of which could be in the range of more than ₹ 1,000 crores ($134 million).”
One of the companies inflated its expenses by making payments on behalf of the associated enterprises, which led to the reduction of taxable profits of the Indian mobile handset manufacturing company. “Such an amount could be in excess of Rs.1400 crore ($188 million).” revealed the IT department in its press release.
Additionally, the department is also probing the two companies for alleged bogus borrowings of over Rs. 5,000 crore ($671 million). One of the companies utilized the services of another entity located in India but did not comply with the provisions of tax deduction at the source, which leaves them liable for Rs.300 crores ($40 million) in taxes (TDS).
The seized documents and electronics are still under scrutiny by the Income Tax Department as well as the Directorate of Enforcement, so it is still not clear what might become of this situation. But going by the press release of the IT department, Xiaomi and OPPO could potentially face penalties and legal action in the near future for various kinds of tax evasion practices.
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