Xiaomi ordered by India to pay $87 million in evaded import taxes

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India’s anti-smuggling agency, the Directorate of Revenue Intelligence (DRI), has ordered the local unit of Chinese smartphone maker Xiaomi to pay Rs 653 crore ($87 million) in import taxes the handset maker evaded for over three years.

The DRI, along with the country’s Income Tax Department, conducted searches at Xiaomi India offices last month. The DRI also conducted searches at factories of the company’s contract manufacturing partners, Bharat FIH (Foxconn India unit) and Dixon Technologies in South India.

“Based upon an intelligence that Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation, an investigation was initiated by the DRI against Xiaomi India and its contract manufacturers,” the DRI said in an official statement issued on Wednesday evening.

The DRI said that the investigation led to the recovery of incriminating documents indicating that Xiaomi India was remitting royalty and license 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 the handset maker and its contract manufacturers.

The DRI said that by not adding royalty and license fees into the transaction value, Xiaomi India was evading “customs duty”, being the beneficial owner of such imported mobile phones, the parts and components, and thus in violation of Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007.

The DRI said the $87 million covers the period from 1 April 2017 to 30 June 2020.

Xiaomi India sells Mi brand mobile phones that are either imported or assembled in India by importing parts and components of mobile phones by its contract manufacturers. The Mi brand mobile phones manufactured by the contract manufacturers are sold exclusively to Xiaomi India, in terms of the contract agreement.

Last month, the Income Tax Department conducted searches at Oppo and its partners’ premises across various states, and subsequently said that both Oppo and Xiaomi can be fined Rs 1,000 crore ($133 million) for non-compliance with the law pertaining to non-disclosure of related-party transactions, among other violations.

The Indian government had reportedly pushed Oppo and Vivo to stop operating through their Chinese partners for distribution, and leverage local companies instead.

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