Xiaomi Tax Evasion: ICEA Writes To Govt Over Indiscriminate ED Actions

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The letter reminded that both Indian and international smartphone companies have been “scarred” by these lawsuits in the past, which led to seized consignments, factories in lockdown, and numerous injunctions

ICEA has written to the government has written to the government saying that the Enforcement Directorate’s (ED) recent actions against smartphone brands’ royalty payments on intellectual property has sent “shivers through the industry.”

This comes at close heels of the ED’s crackdown at the Xiaomi India headquarters amid accusation of tax evasion. 

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The agency, after interrogating senior Xiaomi India executives in April, had passed an order freezing the company’s bank assets worth over Rs 5,500 crore for allegedly parking money out of the country under the guise of royalties in violation of the Foreign Exchange Management Act (FEMA).

ICEA has sought intervention of the ministers to give clarity to the enforcement agencies, since “there is deep and unnecessary panic in the industry around the agencies’ actions with respect to royalty payments”.

The letter claimed that a case is being built by ED against royalty payments, which is duly acknowledged by Indian law. “Patent implementers are doubly embattled, paying onerous royalty on one side, and facing and fearing enforcement actions on the action,” it said.

Companies paying royalties for intellectual properties (IPs) used in India is not illegal and not prohibited by any Indian law or regulation, ICEA said, adding it is a common practice adopted by many companies that implement SEPs (standard essential patents) or other patents – something that Xiaomi has also claimed in its court filings.

The ICEA letter also alleged that companies like Nokia, Ericsson, and Qualcomm have developed a business model of demanding royalties on their intellectual property rights (IPRs) and have engaged in litigating companies to coerce them to sign licensing agreements.

Considering this inescapable ground reality, ICEA said, smartphone brands would not have been able to use mobile technology without these royalty payments, and that “smartphones sold in India would be nothing more than toys”.

If the royalties were not paid, these companies would have been sued by these global legacy patent holders, it said.

The letter reminded that both Indian and international smartphone companies have been “scarred” by these lawsuits in the past, which led to seized consignments, factories in lockdown, and numerous injunctions. 

This would also have a potential impact on the ‘Make in India’ programme, which the letter said, has been pioneered by the smartphone industry.

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