India has reportedly launched “a multi-agency probe” against top Chinese smartphone companies Xiaomi, Oppo and Vivo to look into their business practices along with allegations of tax evasion by means of suppressing profits.
The move follows recent search operations at the premises of Xiaomi and Oppo by the country’s Income Tax Department, as well as its anti-smuggling agency, the Directorate of Revenue Intelligence (DRI). The DRI and the Income Tax Department are currently evaluating “lapses and discrepancies” in the handset companies’ statutory financial filings.
The Times of India newspaper reported that the Competition Commission of India may also join the probe to investigate whether these companies abused their dominant position and engaged in restrictive trade practices.
The newspaper conducted an analysis of filings with the registrar of companies (RoC), which showed that Xiaomi, Oppo and Vivo reported operational losses despite clocking strong sales and cornering top spots in the Indian smartphone market.
“An initial assessment of the statutory financial reporting filed by the companies over the past few years has thrown up lapses, especially pointing to possible tax evasion, concealment of earnings, and manipulation of books. There are major concerns, and we are looking into all possible issues,” a top official was quoted as saying.
The report added that the authorities, along with the Ministry of Electronics and IT (MeitY), will also look into policies related to “alleged non-transparent methods” in sourcing components.
Notably, the Indian government, via MeitY, unofficially advised Oppo and Vivo to stop operating through their Chinese partners for distribution and leverage local companies instead. However, so far neither company has opened up the chain to local players.
Xiaomi, India’s top smartphone player, was ordered last week by the DRI to pay $87 million in import taxes the handset maker evaded for over three years. According to the DRI, Xiaomi India was remitting royalty and licence fees to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation, but none of the parties were adding those fees into the transaction value of the goods imported by Xiaomi India and its contract manufacturers, which constituted evasion of customs duties under Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007.
The Times of India report said that the all three companies had a cumulative turnover of over Rs 1 lakh crore in 2019-20 but paid no taxes in India. “In fact, Oppo and Vivo have been showing negative net worth in India since fiscal 2016-17,” an official told the publication.
Oppo and Vivo are owned by Chinese electronics giant BBK, which also owns the OnePlus and Realme smartphones brands.
Separately, the Indian government is exploring a potential regulation to mandate teardown testing of mobile handsets to ensure that Chinese smartphones and their operating system and applications are not snooping on users.
All of this is happening at a time when both India and China are involved in a border dispute which has been ongoing since last year.