UPDATE:
Xiaomi has released an official statement regarding this matter.
“At Xiaomi India, we give utmost importance to ensuring we comply with all Indian laws. We are currently reviewing the notice in detail. As a responsible company, we will support the authorities with all necessary documentation.”
[Original story]
Last week we reported on Xiaomi and OPPO facing a potential fine of Rs. 1,000 Crore ($134 million) for tax evasion in India. Now, more details regarding the investigations have been revealed which sheds a light on the crux of the matter.
According to a new report by NDTV Gadgets 360, the Chinese smartphone maker Xiaomi has evaded customs duty of around 653 crores ($88 Million approx) in India. The investigation into the brand began with intelligence that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation. The investigation was conducted by the Directorate of Revenue Intelligence (DRI) against Xiaomi India and its contract manufacturers.
The raids conducted at Xiaomi India’s premises led to the recovery of incriminating documents indicating Xiaomi India was remitting fees to Qualcomm USA and to Beijing Xiaomi Mobile Software, under contractual obligation.
We know that Xiaomi India imports some of their mobile phone devices to India and other devices are assembled in India by importing parts and components of mobile phones by contract manufacturers of Xiaomi India. The brand has to pay royalties and license fees to brands like Qualcomm USA and Beijing Xiaomi Mobile Software, China (related party of Xiaomi India) for using their technology.
The investigation revealed that these royalties and license fees were not being added to the transaction value of the goods imported by Xiaomi India and its contract manufacturers, which on paper resulted in reduced cost of the imports and in turn reduced import duties.
The Ministry of Finance stated that these actions by Xiaomi India are in violation of Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007.
The Ministry of finance also added that “After completion of the investigation by the DRI, three show cause notices have been issued to M/s Xiaomi Technology India Private Limited for demand and recovery of duty amounting to Rs. 653 crore ($88 Million approx) for the period 01.04.2017 to 30.06.2020, under the provisions of the Customs Act, 1962.”
Xiaomi India is yet to issue any statement on this recent development, so stay tuned for more updates.
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