Investigations In India May Adversely Impact Cash Flows, Operating Results: Xiaomi

On Friday (August 19), Chinese smartphone maker Xiaomi said that the ongoing investigations in India could take a long time to settle, which may lead the company to receive judgements or settlement options that ‘may adversely affect its operating results or cash flows’.

In its quarterly report, Xiaomi said, “The management assessed the aforesaid matters related to Xiaomi India, taking into consideration opinions from professional advisors and concluded Xiaomi India has valid grounds to respond to the relevant Indian authorities.”

The company has reported a 20% drop in its global sales, reaching $10.31 Bn in the quarter ended June 30, 2022. Noting further about the probes ongoing in India, the Chinese smartphone maker said that it was not possible to quantify the related financial effects of the same at this stage.

According to Xiaomi, its India unit has been involved in various investigations from Indian authorities, including the Income Tax Department, the Directorate of Revenue Intelligence (DRI) and the Enforcement Directorate (ED). These investigations have been related to compliance with regulations related to income tax, customs duties and foreign exchange.

The investigation into Xiaomi India has been going on since late February this year, when the ED summoned former India head Manu Jain and seized INR 5,551.27 Cr in Xiaomi India’s bank accounts under the provisions of the Foreign Exchange Management Act (FEMA), in connection with the illegal outward remittances made by the company.

In a turbulent series of events, Xiaomi did manage to get the funds released from the Karnataka High Court. At the same time, it alleged that ED officials threatened physical violence against its top officials and any statements made were under duress.

In the Monsoon Session of the Parliament, Union Finance Minister Nirmala Sitharaman informed that there were probes going on in Xiaomi and compatriots OPPO and Vivo related to alleged tax evasion and money laundering.

Similar probes are underway in OPPO and Vivo’s India units, both of which have been accused of tax evasion, evading customs duty and in Vivo’s case, of ‘financial terrorism’, a charge that the Chinese smartphone maker vehemently denied. However, the numbers that are being stated are staggering.

Xiaomi has been accused of remitting an equivalent of INR 5,551.27 Cr to foreign entities as royalties. Vivo India has been accused of remitting INR 62,476 Cr to foreign entities as remittances and of evading customs duty worth INR 2,217 Cr. Finally, OPPO India has been accused of INR 4,389 Cr in tax evasion.