Xiaomi India has issued an in-depth statement regarding the assets worth Rs 5,551.27 crore that were seized by the Foreign Exchange Management Act (FEMA) authority, claiming that nearly 84 per cent of the same is due to be paid as royalties to Qualcomm. Xiaomi’s assets were seized for alleged violations of foreign exchange regulations with the ED claiming the company remitted large amounts of money abroad to related entities in the name of royalties without actually utilising any services from them. ED had also questioned Xiaomi’s global vice-president Manu Kumar Jain and earlier India managing director over the issue.
The Enforcement Directorate (ED) seized the assets in April this year and the FEMA authority held on September 30 that the ED is right in holding foreign exchange equivalent to Rs 5,551.27 crore.
So what is Xiaomi’s defense? Here’s a look at the company’s response to the latest order
Xiaomi has stated that it is Xiaomi India is an affiliate and one of the Xiaomi Group companies, which entered into a legal agreement with Qualcomm Group (USA) to license intellectual property for manufacturing smartphones. The statement adds that both Xiaomi and Qualcomm “believe that it is a legitimate commercial arrangement for Xiaomi India to pay Qualcomm royalty.” Xiaomi says the payments are for Standard Essential Patents (SEPs) and IPs used in our “Indian version of smartphones.”
For those who are not aware, Xiaomi and other smartphone manufacturers license several technologies from chipset manufacturers such as Qualcomm, Mediatek, etc, and must pay royalty fees as part of the agreement. Xiaomi notes in the statement that this is standard practice across the entire global smartphone industry and without it, the smartphones will not work in India.
The statement adds that “all royalty payments made by Xiaomi India were only related to sales done by Xiaomi India, and not for any other countries or regions. This has also been confirmed by the Qualcomm Group (USA),” adding that these payments were done via “RBI-approved and mandated banking channels and are legitimate commercial arrangements.”
The company has also denied that it holds any assets outside India, the company, in this case, being Xiaomi Technology India Private Limited. Xiaomi adds that “Section 4 of FEMA does not even apply in this situation,” which is the Foreign Exchange Management Act. According to Section 4, no person or entity shall transfer, hold any foreign exchange or immovable property outside of India.
What has ED stated against Xiaomi?
As we had noted in this earlier article, ED’s charge is that “Xiaomi India has not availed any service from the three foreign-based entities to whom such amounts have been transferred.”
“Under the cover of various unrelated documentary façade created amongst the group entities, the company remitted this amount in the guise of royalty abroad which constitutes violation of Section 4 of the FEMA. The company also provided misleading information to the banks while remitting the money abroad,” the ED statement had said earlier.