84% of ₹5,551 cr seized by ED was royalty payment to Qualcomm: Xiaomi

Chinese phone maker Xiaomi has said that over 84% of the ₹5,551.27 crore seized by the Enforcement Directorate were royalty payments made to chipmaker Qualcomm Group for intellectual property (IP) used in Indian smartphones.

The probe agency had in April seized a sum of ₹5,551.27 crore deposited in the bank accounts of Xiaomi Technology India Pvt Ltd, the domestic arm of the Chinese tech major.

The seizure was made under the provisions of Foreign Exchange Management Act, 1999 in connection with the alleged illegal outward remittances made by the company. The ED had charged Xiaomi of remitting foreign currency equivalent to ₹5,551.27 crore to three foreign based entities which include one Xiaomi group entity in the guise of royalty.

"We have studied the order from the Competent Authority and are disappointed with the decision as none of the factual and legal contentions raised by us have been addressed. We believe our royalty payments and statements to the bank are all legitimate and truthful," Xiaomi India says in a statement.

Xiaomi India entered into a legal agreement with Qualcomm Group (USA) to licence IP for manufacturing smartphones. Both Xiaomi and Qualcomm believe that it is a legitimate commercial agreement for Xiaomi India to pay Qualcomm royalty, the Chinese smartphone manufacturer says.

“Of the entire ₹5,551.27 crore Xiaomi India paid to foreign entities, more than 84% were royalty payments made to Qualcomm Group (USA), a third party US listed company, towards the in-licensed technologies, including Standard Essential Patents (SEPs) and IPs used in our version of smartphones,” it says.

“These technologies and SEPs are used across the entire global smartphone industry. Without these technologies, our smartphones would not have worked in India,” Xiaomi India says.

“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),” the phone manufacturer says.

These royalty payments were made via RBI approved banking channels under legitimate commercial agreements, it says.

“We would like to clarify that Xiaomi Technology India Private Limited does not own or hold any assets outside India. Hence, as per our understanding, the Section 4 of FEMA does not even apply in this situation,” Xiaomi adds.

The Enforcement Directorate launched an investigation into the alleged illegal remittances in February this year. The agency had also questioned Xiaomi’s global vice-president Manu Kumar Jain for alleged contravention of the foreign exchange law.

In April, the ED had said that Xiaomi India has provided misleading information to the banks while remitting the money abroad.