(Yicai Global) June 14 -- Xiaomi is seeking to reassure the Chinese tech firm plays by the rules after the Indian government confiscated USD725 million from the third-largest smartphone seller in India due to alleged tax evasion caused by different calculation methods of imports.

"Xiaomi adheres to laws and rules worldwide, and complies with the laws and regulations of the places where it operates," the Beijing-based company said to Yicai Global today. 

On June 9, the Indian Enforcement Directorate issued a show cause notice to Xiaomi Technology India, Chief Financial Officer Sameer Rao, and former managing director Manu Jain, as well as three lenders under the Foreign Exchange Management Act to formally inform them about the case of "illegal remittances" to foreign entities that were seized in April 2022, Economic Times reported on June 10.

The money laundering watchdog accused Xiaomi of transferring foreign currency abroad to entities, including Xiaomi affiliates, calling the transfers royalty payments. However, these payments are not included in imports so that would constitute tax evasion.

At the time, Xiaomi responded that the payments were made for in-licensed technologies and intellectual property featured in Xiaomi products sold in India. "It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments. However, we are committed to working closely with government authorities to clarify any misunderstandings."

Xiaomi is facing bigger challenges in the Indian market with financial impacts, Lu Weibing, president of the firm, said during the earnings call for the fourth quarter of 2022. Xiaomi is still operating normally in India and will take further legal moves to protect its interests, Lu said, adding that the company hopes to solve its difficulties while complying with laws and rules.

From January to March, Xiaomi ranked as the third-largest smartphone vendor in India with a 16 percent market share, according to Counterpoint Research. Its shipments have declined for seven straight quarters, according to Sohu.Com.

Editors: Zhang Yushuo, Emmi Laine