Xiaomi's Legal Clash: A Precedent-Setting Battle Over Import Tariffs in India

Xiaomi has launched a challenge against a ruling by Indian tax authorities, which accused the electronics giant of evading $72 million in tariffs linked to royalty payments, as detailed in legal documents. This dispute is poised to test the strength and flexibility of India's legal system in handling contract manufacturing issues.

For years, Xiaomi's contract manufacturers in India have imported parts from China, assembled them locally, and paid applicable customs duties. However, a November decision by an Indian tax tribunal claimed these import values were significantly undervalued as they excluded royalties ranging from 2% to 5% paid by Xiaomi to tech firms like Qualcomm for key technologies used in components.

This case, now also involving influential former manufacturers such as Flextronics and Bharat FIH, is being closely monitored by international investors, as any judgment could potentially expand scrutiny over the royalty agreements many foreign companies engage in within various sectors in India, such as pharmaceuticals and automotive manufacturing.