New Delhi: Suspected financial crimes, it seems, are not the only reason Indian law-enforcement agencies are cracking down on Chinese companies in the country.
There are equally worrying security concerns about their operations in India, and law-enforcement agencies, including the tax department, have been told to share information with each other to remain on top of the cases against these companies, ThePrint has learnt.
The ministries of home, finance and external affairs are going to work together, for instance, to ensure that if there is a case of tax evasion by a Chinese company where foreign channels are involved, then the information on related transactions could also be shared with the Enforcement Directorate (ED).
The development comes on the back of action taken by different agencies against some of the biggest Chinese telecom companies that do business in India, including Oppo, Vivo, Huawei and Xiaomi.
These companies are being investigated for a host of alleged offences like tax evasion, wrongfully availing of duty exemptions, and money laundering. While the firms claim to be working in compliance with the law, China has taken a dim view of the crackdown.
Senior government officials ThePrint spoke to said some companies that are registered in India but take instructions from China have their data saved in cloud servers, where information about the Indian entities’ accounts is directly being shared with Chinese parent companies.
“Oppo and Vivo are some companies that you see but there are many Chinese companies, for instance, in financial technology, that do not have businesses here, but they are registered and use these companies to send money back to their parent companies based in China. It is mainly a security issue,” a top government official told ThePrint.
“They are not transparent, their books of accounts are in the cloud, the password of that cloud is in Beijing. We want proper coordination between government departments,” he added.
Said a senior finance ministry official on the condition of anonymity, “Even in the tax department, we have communicated that in case there is information, please share it with other agencies.”
According to government officials, although these companies are registered in India as entities separate from their parent firms, they are taking directions from China and routing substantial sums of money back to the neighbouring nation so that they do not have to pay tax in India.
The government has been cracking down on such entities since the beginning of 2020 — first by banning Chinese mobile applications and then by finding Chinese firms violating Indian laws by allegedly evading income tax and laundering money.
In September 2020, the Ministry of Electronics and Information Technology invoked its power under Section 69A of the Information Technology Act, 2000, and blocked 118 mobile apps “in view of the emergent nature of threats”, saying that they were engaged in activities prejudicial to the sovereignty and integrity of India, the defence of India, security of state and public order.
In July, the income tax department filed a case against top officials of Huawei Telecommunications (India), including its chief executive officer Li Xiongwei, for allegedly withholding important information required for computation of taxes and repatriating a huge sum to the parent company as dividends, reducing its taxable income in India.
In May, Li was stopped by tax officials at New Delhi’s Indira Gandhi International Airport from flying to Bangkok.
While Xiaomi is being investigated by the ED for alleged “illegal remittances” to the parent Chinese company, in July, the agency carried out searches at 48 locations belonging to Vivo Mobiles India Private Limited and 23 of its associated companies in connection with allegations of money laundering.
Also Read: ‘Fake address, intent to defraud’: Why India is cracking down on firms with Chinese directors
Cross-border tension escalated crackdown?
The frequency of actions against Chinese firms is said to have escalated after relations between India and China reached a new low due to the border standoff in Ladakh, which began in 2020. It especially got worse after the Galwan Valley clash in June 2020, which led to the death of soldiers on both sides.
Experts ThePrint spoke to believe that cross-border tensions have intensified the government’s actions against Chinese-owned companies, with domestic authorities having little trust in Chinese firms investing in India.
An 8 August Bloomberg report said that India seeks to restrict Chinese smartphone makers from selling devices cheaper than Rs 12,000 (around $150) to “kickstart its own faltering domestic smartphone industry, dealing a blow to brands including Xiaomi Corp”.
In the first three months of the current financial year, India’s trade deficit with China has grown in the latter’s favour. India’s imports from China stood at $24.3 billion in the April-June period, registering a growth of 18 per cent from the previous year. But its exports to China contracted by 31 per cent in the quarter to $4.6 billion.
Top goods that India imports from China include electronics, chemicals, computer hardware and telecom instruments, while it exports petroleum products, marine products, iron ore, castor oil and spices.
(Edited by Gitanjali Das)
Also Read: ED seizes Rs 55.51 billion from Chinese company Xiaomi for forex violation