Xiaomi Challenges India Over Royalty Taxes

Xiaomi has challenged an Indian tax ruling that alleged the company evaded $72 million in tariffs on royalty payments, marking a key test of India’s contract manufacturing legal framework. The dispute centers on royalties paid to foreign firms like Qualcomm for technology used in imported components. Xiaomi contends that the tribunal erred by classifying it as the “beneficial owner” of imported parts and taxing its royalty payments.

The Supreme Court case, closely watched by global investors, has implications for the broader manufacturing sector, with former contract manufacturers Flextronics India and Bharat FIH also opposing the tribunal decision. Tax lawyers note that a ruling in favor of Indian authorities could increase scrutiny of royalty agreements across multiple industries, including pharmaceuticals, automobiles, and manufacturing.

The financial stakes are high: Xiaomi India’s $72 million customs tax demand could escalate to $150 million with penalties and interest. Coupled with frozen bank funds totaling around $610 million due to unrelated financial investigations, the company faces pressure amid declining market share in India. Xiaomi argues that import taxes should fall on contract manufacturers and its royalties should not be taxable.

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