Xiaomi, Suning, HNA Flagged for Tax Flaws

Chinese authorities Tuesday cited technology industry leaders including Smartphone maker Xiaomi Corp. and e-commerce giant Suning.com for accounting and taxation irregularities.

The Ministry of Finance said in a statement that an inspection of companies’ 2016 financials found that Xiaomi incorrectly recorded some corporate costs, loosely managed its invoice reimbursement system and made tax errors on corporate gifts. Xiaomi has made corrections based on regulators’ requirements, the ministry said.

The news sent Xiaomi’s Hong Kong-traded shares down as much as 5% Tuesday morning, in addition to losses of more than 30% since its $5.4 billion initial public offering in July amid the market’s recent sell-off. Xiaomi finished the day 3% lower.

In response, Xiaomi said it made errors because of miscalculation of some rental and refurbishment costs, rather than intentionally evading taxes. In addition, accounting flaws related to corporate gifts and reimbursements led to underpayment of over 600,000 yuan ($86,000) of taxes. Xiaomi said it has rectified the related operations.

The ministry also criticized some internet companies for evading taxes by shifting profits overseas, without naming any violator. Xiaomi denied the allegation and said it has never transferred profit to skirt tax payments.

Suning.com was accused of accounting errors related to 5.3 million yuan of income from a 2016 asset transfer and inadequate disclosure of some income and research costs. Suning is making rectification moves, the ministry said.

Suning said the error in booking the 5.3 million yuan of income didn’t affect the company’s tax payment, but an accounting error related to 3.4 million yuan of research costs led to an underpayment of about 400,000 yuan of taxes. The company said it fixed the problems.

Xiaomi and Suning were among a number of companies named by the finance ministry for irregularities in a recently published inspection report. Other companies cited for violations include aviation-to-finance conglomerate HNA Group, debt-ridden online video provider Leshi Internet Information & Technology Corp. and online game developer Wuhu Shunrong Sanqi Interactive Entertainment Network Technology.

HNA Infrastructure Investment Group, a subsidiary of HNA Group, was found evading more than 28 million yuan of taxes in 2015 and 2016 by under-reporting income, as well as other violations involving 74 million yuan, according to the report. HNA didn’t comment.

Leshi, the Shenzhen-listed unit of debt-ridden LeEco, was accused of inadequate disclosure about transactions with connected parties, misappropriation of borrowed funds and flaws in capital management. Leshi has yet to respond.

Rattled by the debt woes of the parent company and founder Jia Yueting, Leshi has reported 1.5 billion yuan of losses for the first three quarters this year and faces the risk of being delisted.

The Finance Ministry said it will continue to focus on the internet industry in the next inspection because of concerns that often-intertwined equity investment among industry players and boundaryless business operations allow some companies to transfer profits and evade tax payments. The results of the inspection will be made public next year, the ministry said.

Contact reporter Han Wei (weihan@caixin.com)