India's Department of Income Tax stated phone makers Xiaomi and OPPO will be fined 1,000 crore for violating laws relating to confidentiality of related party transactions (tax evasion).
It was previously reported by Gizmochina, Monday (3/1/2021) that the offices of distribution partners of Xiaomi and OPPO China were raided by the Income Tax Department on December 21, 2021.
The searches were carried out in a number of cities including Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar and Rajasthan.
As per the Economic Times report, the IT Department found that these two large companies had made payments (remittances) in the nature of royalties, to and on behalf of group companies located overseas which amounted to more than Rs 5,500 crore .
"These companies are not complying with the regulatory mandate specified under the Income Tax Act 1961, for disclosure of transactions with related companies." IT Department statement in its press release.
"Such negligence makes them liable for criminal acts under the Income Tax Act 1961, which can amount to more than 1,000 crore ." he continued.
One company inflated its spending by making payments on behalf of the associated company, which led to a reduction in the taxable profit of an Indian mobile handset manufacturer.
"Such an amount could be more than Rs 1,400 crore," the IT department said in a press release.
Apart from that, the department also investigated two companies for alleged fake loans of more than Rs 5,000 crore.
One of the companies uses the services of another entity which is located in India but does not comply with the tax deduction provisions at the source, which makes them liable to a tax (TDS) of Rs 300 crores.
The seized documents and electronic goods are still being examined by the Directorate General of Taxes and the Directorate General of Enforcement, so it is not clear what will happen in this situation.
However, according to an IT department press release, Xiaomi and OPPO could potentially face penalties and legal action in the near future for various types of tax evasion practices.
