The Enforcement Directorate (ED) announced on Friday that it has issued a show cause notice to Chinese smartphone giant Xiaomi as part of an investigation into alleged illegal remittances. The notice has been issued to Xiaomi Technology India Private Limited, along with its officials and three banks, under the provisions of the Foreign Exchange Management Act (FEMA).
The ED’s complaint alleges that Xiaomi made illegal remittances totaling INR 5,551.27 crore (approximately $744 million). The show cause notice was specifically issued to Sameer Rao, Xiaomi India’s current Chief Financial Officer (CFO), and former Managing Director Manu Jain. Additionally, notices were sent to Citibank, HSBC Bank, and Deutsche Bank AG for their involvement in facilitating the remittances without conducting proper due diligence.
According to the ED, these banks violated FEMA sections 10(4) and 10(5) by allowing Xiaomi to send remittances overseas under the guise of royalty payments without obtaining the required “Technical Collaboration Agreement” from the company.
In response to the ED’s actions, a Xiaomi spokesperson stated that the company is studying the matter and awaiting the written order. The spokesperson further emphasized that Xiaomi’s operations in India are compliant with local laws and regulations.
This development follows the Karnataka High Court’s recent dismissal of a petition filed by Xiaomi, challenging the ED’s seizure of INR 5,551 crore in funds over alleged FEMA violations.
The ED’s overarching investigation accuses Xiaomi India of unauthorized remittances amounting to INR 5,551.27 crore to three overseas entities, disguised as royalty payments without any corresponding services. One of these entities is a Xiaomi group company, while the other two are based in the United States, allegedly established for the benefit of Xiaomi’s parent company in China.
The OEM is also facing allegations of providing misleading information to banks during the remittance process.
Previously, the ED had summoned Xiaomi’s former India head Manu Jain and seized INR 5,551 crore in proceeds. The Competent Authority confirmed the seizure, stating that the funds had been remitted outside India in contravention of existing norms and in an unauthorized manner.
Other Chinese smartphone manufacturers, including OPPO and Vivo, have also faced scrutiny for tax evasion and customs duty violations. Vivo India is accused of illegally remitting INR 62,476 crore to foreign entities, while OPPO India is alleged to have evaded taxes amounting to INR 4,389 crore.
