Foxconn faces tax probe in China amid Taiwan elections – sources

TAIPEI, Oct 23 (Reuters) – Foxconn (2317.TW), the main supplier of Apple Inc’s iPhones, faces a tax investigation in China, two sources close to Foxconn confirmed on Monday, saying they believed it had been uncovered. By a state-backed newspaper for political reasons related to the upcoming elections in Taiwan.

China’s state-backed Global Times newspaper said on Sunday that some of Foxconn’s key subsidiaries in China had undergone tax audits and that the China Natural Resources Administration had conducted field investigations into Foxconn’s land use in Henan and Hubei provinces and elsewhere.

The two sources, who requested anonymity due to the sensitivity of the matter, said several companies they did not name had come under review by Chinese authorities in recent months, but they believed only the Foxconn investigation was made public for political reasons.

They highlighted that the audit comes less than three months before Taiwan’s presidential election and amid Foxconn’s diversification drive to move some production outside China.

Chinese authorities in Henan, Hubei, Guangdong and Jiangsu did not immediately respond to Reuters’ faxed requests for comment on Foxconn’s audits.

Foxconn, formally known as Hon Hai Precision Industry Co Ltd, employs hundreds of thousands of people in China and is a major investor there, and is regularly praised by Beijing as an example of the success of Taiwanese investors in the country.

The first source told Reuters they viewed the review as a “warning” to Foxconn, which is moving some of its production lines, including those for iPhones, from China to India.

“Their economy is not doing well. It is a warning, seeing big companies like us moving to India,” the source said.

The first source said: “They want you to take sides. Either you stay with us or you leave.”

The source said it could not be a coincidence that the audit was announced by a state-backed news outlet at a time when Foxconn founder Terry Gou is seeking to become Taiwan’s next president in the January election.

The second source said the review was “unexpected” and relatively “unusual.”

The Global Times, known for its nationalistic tone, did not provide details of the tax or land use investigations, which have not been officially announced by any Chinese government department.

Foxconn said in a statement on Sunday that legal compliance is a “fundamental principle” for its operations everywhere, and that it will “actively cooperate with relevant units in relevant businesses and operations.”

Foxconn said Monday it had no further comment.

China’s Taiwan Affairs Office did not immediately respond to a request for comment.

Foxconn’s billionaire founder Gou, who no longer has a role in the company’s day-to-day operations and stepped down as company chairman in 2019, is running as an independent presidential candidate despite being at the bottom of the polls.

He accused Taiwan’s ruling Democratic Progressive Party of pushing the island to the brink of war with China through its hostile policies, and that it alone is capable of maintaining peace through its extensive commercial and personal contacts in China and the United States.

Jo’s campaign spokesman, Huang Shih-hsiu, referred questions about Foxconn’s investigation into the company, saying that Jo had handed over management of the company four years ago, was no longer a board member and was now just a shareholder.

Taiwan Prime Minister Chen Chien-jin offered government assistance to Foxconn, while Economy Minister Wang Mei-hua said her ministry was already in contact with the company.

Speaking at a campaign rally on Sunday, Taiwan Vice President Lai Ching-tei, the Democratic Progressive Party’s presidential candidate who is leading in opinion polls, said the Chinese report on the investigation was “unexpected” and “unfortunate.”

“So I hope all our people can support Hon Hai and support Taiwanese companies,” he said in comments reported by Taiwanese television stations.

Foxconn shares fell as much as 3% on Monday. The broader market (.TWII) fell about 1%.

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