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India seizes $725 million of Xiaomi's cash
Chinese giant really got something in return for those cross-border payments, say money laundering cops
India's government has seized over $724 million of bank deposits held by Chinese gadget-maker Xiaomi and alleged the company has improperly moved funds offshore.
The Directorate of Enforcement, an arm of the Department of Revenue charged with investigating money laundering and violations of foreign exchange laws, did the deed. In a statement [PDF], the Directorate justified the seizure of ₹5551.27 Crore with a claim that Xiaomi has sent similar sums abroad under the guise of paying royalties and payments to other members of the Xiaomi group but did not receive any services in return.
"Xiaomi India has not availed any service from the three foreign-based entities to whom such amounts have been transferred," the statement reads, later adding an allegation that Xiaomi "also provided misleading information to the banks while remitting the money abroad."
The Directorate alleges the payments were ordered by Xiaomi HQ in China, that the three disputed transactions were all made in February 2022, and that two of the entities that received cash from Xiaomi India were US-based and benefited the Chinese company in an unexplained fashion.
Xiaomi has denied all wrongdoing, as follows.
Xiaomi is India's mobile phone market share leader, with analyst firm Counterpoint rating its 21 percent slice of the market as four points larger than second-placed realme, and five points more than Samsung.
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India has in recent years been hostile to Chinese app-makers on grounds they represent a privacy risk to citizens and pursued a policy of encouraging global tech players to build their kit locally for both domestic consumption and export.
Xiaomi is not accused of flouting privacy laws and has well and truly come to the party in terms of supporting India's tech manufacturing ambitions by operating half a dozen plants on the subcontinent and planning to build more (including one to build TVs).
If Delhi is trying to send a message to Beijing with this seizure, it's being rather oblique about it.
However, sending money to parent companies is a known tax minimization tactic. Xiaomi India is owned by Xiaomi China but could well be structured so that it licenses designs of the kit it sells and therefore owes royalties.
Some of the international work on preventing tax avoidance aims to ensure that if such arrangements are used, the entities involved still pay tax in the nations where they make profits.
The Directorate's remit does not cover such matters. But the Department of Revenue – the Directorate's parent agency – has responsibility for all taxes in India. ®