back to article India seizes $725 million of Xiaomi's cash

India's government has seized over $724 million of bank deposits held by Chinese gadget-maker Xiaomi and alleged the company has improperly moved funds offshore. The Directorate of Enforcement, an arm of the Department of Revenue charged with investigating money laundering and violations of foreign exchange laws, did the deed …

  1. Anonymous Coward
    Anonymous Coward

    Transfer pricing

    Having worked for the UK branch of a multinational, it's not just an issue for India.

    There's always a juggling act to move profits to the lowest tax country and development costs to the place with the best R&D credits.

    Generally those pull in opposite directions so things balance out.

    But if you have aggressive accountants, or departments doing their own thing on budgets .....

  2. Anonymous Coward
    Anonymous Coward

    Everyone does it

    It is not right

    The tax should be paid in the jurisdiction it was earned

    Otherwise you bleed the market dry

    We are experiencing this in the UK massively with US companies

    How can Amazon a super massive organisation earn soo much in the uk but pay so little

    1. Anonymous Coward
      Anonymous Coward

      Re: Everyone does it

      >earn soo much in the uk but pay so little

      Because there's a difference between turnover and profit, and corporation tax is only payable on the latter.

      Amazon has a low single digit profit margin on the *goods* they sell.

      Even at their level of sales, there's not much tax to pay on that.

      Their margin on *services* is much higher, and accounts for most of their profits.

      But online services can be delivered from anywhere. And that anywhere is where the profit is earned for tax accounting.

      So even for services sold to companies based in the UK, the majority of the profit lands elsewhere.

      That's not a simple thing to realign.

      1. Warm Braw Silver badge

        Re: Everyone does it

        there's a difference between turnover and profit

        Increasingly, only for businesses. It used to be the case that individuals could deduct some of their existential costs (rent or mortgage, tuition fees, dependent relatives...) from their income and tax applied only to the remainder. There has been a great push for tax simplification over the last few decades with the result that, generally speaking, the type and value of of permitted deductions has declined in many places.

        There's no reason why you can't apply the same logic to business and simply tax turnover above a certain threshold. If your personal tax stays the same despite escalating food and fuel prices, why should corporations be treated differently?

        The big problem is that most of the companies potentially affected are US-owned and the US has the power to prevent other countries applying taxes that adversely affect its interests (see row over minimum corporation tax levels and digital services taxes).

        Economically, it is simple to realign. Politically, though, it would require international collaboration and perhaps a trade war. Now is perhaps not the right time...

        1. AMBxx Silver badge

          Re: Everyone does it

          You can't tax turnover.

          If I sell £1000 of software, I make about £200

          If I sell £1000 of my time, I make £1000

          Taxing turnover would need to take into account the mix of business. I'd have to stop selling software as the tax would probably be greater than the profit.

          That's why we simplify and tax profit.

        2. DS999 Silver badge

          Re: Everyone does it

          Stores like Amazon that mostly sell someone else's goods have very thin profit margins - they might make only a few percent for every dollar/pound in sales they have, but when you sell several hundred billion dollars worth of goods like Amazon or Walmart it adds up.

          Compare to say Google or Microsoft who have nearly 100% profit margin on each additional dollar of revenue, because their costs are almost entirely fixed costs - the cost to operate the servers that show you ads, the cost to develop/maintain Windows, etc.

          There is no way taxing on revenue/turnover can be fair for both types of company at once, because their business models are completely different. And you can't say "well then you have one rule for one type and another for the other type" because many companies are a mix of the two. Even those examples are: Amazon's cloud and Microsoft's Surface/Xbox hardware are different than the rest of their respective business.

      2. Missing Semicolon Silver badge

        Re: Everyone does it

        It's nothing to do with profit/turnover. It's the use of mysterious costs that must be paid by the in-county subsidiary to the international parent as a way of minimising the subsidiary's taxable profits.

        Sometimes its a "IP license fee". Sometimes its a brand licence charge. But always it's off the bottom line, hiding profit.

        Once again, the Indian Government shows us soft lot how it should be done!

        1. martinusher Silver badge

          Re: Everyone does it

          >Once again, the Indian Government shows us soft lot how it should be done!

          Extortion? Expropriation? That's not going to encourage international trade.

          This business of business units paying each for IP royalties and licensing is commonplace among multinational companies. Its the way they work. I may not agree with it personally but its the rules that all companies abide by. I'd venture to suggest that being "Chinese" allows the Indian government to pull stunts they'd never dare do with a US based multinational.

          1. pradeepvasudev

            Re: Everyone does it

            What makes you say it's extortion and expropriation? Just because you like the idea of these brown mofos behaving like beasts? You may find it difficult to believe but India has a properly run, though slow and tedious, legal system that is NOT beholden to the government at all! It regularly makes life VERY difficult for the government and acts in the interests of justice, sometimes at the expense of law.

            Compare that with, let's say, the UK. Vijay Mallya, Nirav Modi - literally every criminal fraudster in India runs off to the UK because he knows that the UK, despite having an extradition treaty with India, will never extradite anyone who is sufficiently rich - legalized, organized, system-approved corruption - follow the law, even when it does not meet the ends of justice.

            As for IP, royalties and so on, I have been running companies since 2005 - all of which have American arms and Indian ones, so all of them have IP, royalties, transfer pricing and so on in place. And not once have I faced any trouble. You know why? Because I am careful - I make sure we have copious documentation, proper planning, clear agreements, solid filings...

            Simple truth that applies all over the world - it's best to minimize your dealings with the government, and the best way to do so is to make sure that you follow the rules and prepare ample documentation. As the old folks used to say - measure 5 times, cut once. Too many companies eff this up and then blame the BIG BAD GOVERNMENT (especially if it's run by brown, yellow, or black folks), because they don't want to accept that they screwed up.

    2. aks

      Re: Everyone does it

      Corporation tax is a tax on profits.

      VAT is a tax on turnover.

      Many other taxes apply to a company with a footprint in the country.

      At the end of the day, all taxes on companies are paid for by the end consumer.

      1. Insert sadsack pun here Silver badge

        Re: Everyone does it

        VAT is not a tax on turnover. VAT is a tax on consumption. A B2B business ultimately generates little in the way of VAT for the exchequer because anything it does collect ends up being reclaimed (offset) by its client.

      2. Paul Crawford Silver badge

        Re: Everyone does it

        At the end of the day, all taxes on companies are paid for by the end consumer.

        True, but where the taxes are collected and spent makes a difference to how worthwhile they are to the consumers.

      3. DS999 Silver badge

        Re: Everyone does it

        At the end of the day, all taxes on companies are paid for by the end consumer.

        That's not true. A corporation's tax burden is shared between its customers and its owner(s). If you own a business and a new tax resulted in your cost increasing by 10%, you can't simply raise your prices to compensate and assume everyone will pay it. You may lose some customers who go to your competition or decide not to buy your product at all, cutting into your owner's profit.

        1. pradeepvasudev

          Re: Everyone does it

          Exactly! The whole point of a competitive market economy is to make sure that a corporation cannot pass on all taxes to the consumer - someone out there might use the difference to grab some customers. As Jeff Bezos so eloquently put it - your margin is my opportunity.

          Only idiots think that customers pay all taxes - that is as reductionist as thinking that a human body is a bunch of chemicals - so a tub full of the same chemicals is a human body. Basic classification error.

  3. Pascal Monett Silver badge

    "it licenses designs of the kit it sells and therefore owes royalties"

    It licenses designs to an entity that is part of the global corporate structure - therefor it is an internal issue and not something that should avoid tax.

    If tax laws were capable of dealing with that, then the loophole would be closed.

    The fact that every multinational does it, everyone knows it and no country has done anything about it is a clear sign that there is something wrong with taxation laws.

  4. First Light Silver badge

    Murthy money

    Somebody at Xiaomi didn't pay someone enough. I don't notice Akshata Murthy's offshore Mauritius income being investigated by the ED.

    1. pradeepvasudev

      Re: Murthy money

      Ha! What a crock! Akshata Murthy may or may not be investigated, but India regularly investigates its tycoons - some of who run away to Corruptistan (also known as UK) to avoid being investigates, remanded, or jailed. Notably Akshata's father, Narayana Murthy, known to be a super honest, straight, simple living guy was investigated when his company Prione was being acquired by Amazon. The investigation was clean and was allowed to go ahead.

      But you are right - The Finance Guy at Xiaomi didnt pay the Tax Authorities enough. And guess what - tax evasion is a CRIME, unless you are in the UK, of course.

      Bloody white boy asses.

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