India seizes $725 million of Xiaomi's cash
- Reference: 1651561085
- News link: https://www.theregister.co.uk/2022/05/03/india_seizes_xiaomo_cash/
- Source link:
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 [1]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."
[2]
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.
[3]
[4]
Xiaomi has denied all wrongdoing, as follows.
[5]pic.twitter.com/QPfHboEP8X — Xiaomi India (@XiaomiIndia) [6]April 30, 2022
Xiaomi is India's mobile phone market share leader, with analyst firm Counterpoint [7]rating its 21 per cent slice of the market as four points larger than second-placed realme, and five points more than Samsung.
[8]Xiaomi adds earthquake alert system to some smartphones
[9]India reveals plan to become major RISC-V design and production player by 2023
[10]Chip shortage to end this year – at least for us: Xiaomi
[11]India inks tech pact with EU – only the US has the same deal
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.
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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. ®
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[1] https://enforcementdirectorate.gov.in/sites/default/files/latestnews/Press_release_XIAOMI_30_04_22.pdf
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YnD9TBy9h66q4KovTf@4TwAAAEc&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YnD9TBy9h66q4KovTf@4TwAAAEc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YnD9TBy9h66q4KovTf@4TwAAAEc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://t.co/QPfHboEP8X
[6] https://twitter.com/XiaomiIndia/status/1520420788418998273?ref_src=twsrc%5Etfw
[7] https://www.counterpointresearch.com/india-smartphone-share/
[8] https://www.theregister.com/2022/04/05/xiaomi_indonesia_smartphone_earthquake_warnings/
[9] https://www.theregister.com/2022/04/29/india_risc_v_microprocessor_program/
[10] https://www.theregister.com/2022/03/23/xiaomi_q4_2021/
[11] https://www.theregister.com/2022/04/26/india_eu_trade_and_technology_council/
[12] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YnD9TBy9h66q4KovTf@4TwAAAEc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[13] https://whitepapers.theregister.com/
Everyone does it
It is not right
The tax should be paid in the jurisdiction it was earned
Otherwise you bleed the market dry
We are experiencing this in the UK massively with US companies
How can Amazon a super massive organisation earn soo much in the uk but pay so little
Re: Everyone does it
>earn soo much in the uk but pay so little
Because there's a difference between turnover and profit, and corporation tax is only payable on the latter.
Amazon has a low single digit profit margin on the *goods* they sell.
Even at their level of sales, there's not much tax to pay on that.
Their margin on *services* is much higher, and accounts for most of their profits.
But online services can be delivered from anywhere. And that anywhere is where the profit is earned for tax accounting.
So even for services sold to companies based in the UK, the majority of the profit lands elsewhere.
That's not a simple thing to realign.
Re: Everyone does it
there's a difference between turnover and profit
Increasingly, only for businesses. It used to be the case that individuals could deduct some of their existential costs (rent or mortgage, tuition fees, dependent relatives...) from their income and tax applied only to the remainder. There has been a great push for tax simplification over the last few decades with the result that, generally speaking, the type and value of of permitted deductions has declined in many places.
There's no reason why you can't apply the same logic to business and simply tax turnover above a certain threshold. If your personal tax stays the same despite escalating food and fuel prices, why should corporations be treated differently?
The big problem is that most of the companies potentially affected are US-owned and the US has the power to prevent other countries applying taxes that adversely affect its interests (see row over minimum corporation tax levels and digital services taxes).
Economically, it is simple to realign. Politically, though, it would require international collaboration and perhaps a trade war. Now is perhaps not the right time...
Re: Everyone does it
Corporation tax is a tax on profits.
VAT is a tax on turnover.
Many other taxes apply to a company with a footprint in the country.
At the end of the day, all taxes on companies are paid for by the end consumer.
"it licenses designs of the kit it sells and therefore owes royalties"
It licenses designs to an entity that is part of the global corporate structure - therefor it is an internal issue and not something that should avoid tax.
If tax laws were capable of dealing with that, then the loophole would be closed.
The fact that every multinational does it, everyone knows it and no country has done anything about it is a clear sign that there is something wrong with taxation laws.
Transfer pricing
Having worked for the UK branch of a multinational, it's not just an issue for India.
There's always a juggling act to move profits to the lowest tax country and development costs to the place with the best R&D credits.
Generally those pull in opposite directions so things balance out.
But if you have aggressive accountants, or departments doing their own thing on budgets .....