ED seizes Rs. 5,551cr from Xiaomi's bank accounts: Details here
What's the story
The Enforcement Directorate (ED) has seized Rs 5,551.27 crore from Xiaomi India in a massive crackdown under the 1999 Foreign Exchange Management Act (FEMA) provisions. The money, according to the ED, was in the smartphone giant's bank accounts and was confiscated in connection with alleged illegal foreign remittances in February. Notably, Xiaomi India is a subsidiary of the China-based Xiaomi Group.
Context
Why does this story matter?
The Income Tax Department had raided the premises of Xiaomi and some other Chinese companies over alleged tax evasion recently. In January, Xiaomi was directed to pay Rs. 653 crore of unpaid taxes by tax authorities. However, Chinese authorities had described India's crackdown as "politically motivated." Notably, Chinese phones are highly popular in India, with Xiaomi holding a whopping 24% market share in 2021.
Statement
What does ED say about the action?
On Saturday, the ED said Xiaomi India fraudulently transferred large sums to three foreign-based companies. It stated the company obtains completely assembled phones and other items from Indian manufacturers but transfers funds to overseas firms that have not offered any service to it. The remitted foreign currency is equivalent to Rs. 5,551.27cr and it was transferred "in the guise of royalty," the ED said.
Violation
Xiaomi has violated Section 4 of FEMA: ED
"Under the cover of various unrelated documentary facade created amongst the group entities, the company remitted this amount in the guise of royalty abroad which constitutes a violation of Section 4 of the FEMA (sic)," the ED said in a statement. The agency also accused Xiaomi India of providing "misleading information" to the banks while sending the money abroad.
Twitter Post
Here is what ED tweeted about the fund seizure
ED has seized Rs.5551.27 Crore of M/s Xiaomi Technology India Private Limited lying in the bank accounts under the provisions of Foreign Exchange Management Act, 1999 in connection with the illegal outward remittances made by the company.
— ED (@dir_ed) April 30, 2022
Response
How did Xiaomi India respond?
In response to the ED's action, Xiaomi India stated that the company assures compliance with all rules and abides by all Indian laws. "We are cooperating with authorities with their ongoing investigation to ensure they have all the requisite information," the company told Reuters. Notably, the ED is investigating fund transfers, including royalty payments, between Xiaomi India, its contract-based manufacturers, and its parent company.
Details
Another tech giant too under scanner
Like Xiaomi, another Chinese tech giant, Huawei, was also being investigated by Indian authorities. In February, Huawei Technologies confirmed that Indian tax officials had visited numerous locations of the company and questioned its local staff as well. However, the corporation stated that it was fully compliant with all rules and regulations in India. It also assured complete cooperation with Indian authorities in the matter.