TAIPEI, Oct 23 (Reuters) – Foxconn ( 2317.TW ), a key supplier of Apple ( AAPL.O ) iPhones, is facing a tax investigation in China, two sources close to Foxconn confirmed on Monday. Through a state-backed paper for political reasons related to Taiwan’s upcoming elections.
On Sunday, China’s state-backed Global Times tabloid said some of Foxconn’s key subsidiaries in China were subject to tax audits and that China’s Ministry of Natural Resources had conducted on-site investigations into the land use of Foxconn companies in Henan and Hubei provinces and elsewhere.
Both sources, who declined to be named because of the sensitivity of the matter, said several companies they did not name had been audited by Chinese authorities in recent months, but they believed Foxconn’s investigation was the only one made public for political reasons.
They highlighted the audit as coming less than three months before Taiwan’s presidential election and amid Foxconn’s diversification drive to move some manufacturing out of China.
Chinese officials in Henan, Hubei, Guangdong and Jiangsu did not immediately respond to faxed requests from Reuters about Foxconn’s audits.
Foxconn, known as Hon Hai Precision Industry Co Ltd, employs hundreds of thousands of people in China and is a major investor there, regularly hailed by Beijing as an example of the success of Taiwanese investors in the country.
The first source told Reuters they saw the audit as a “warning” to Foxconn, which is shifting some of its products from China to India, including products for iPhones.
“Their economy is not good. It’s a warning to see big companies like us moving to India,” the source said.
“They want you to be on one side. You stay with us or leave,” said the first source.
The source said it could not be a coincidence that the audit was made public by a state-backed news agency just as Foxconn founder Terry Gou was set to become Taiwan’s next president in January elections.
A second source said the audit was “unexpected” and relatively “unusual”.
The Global Times, known for its nationalistic tone, did not provide details of tax or land-use surveys that were not officially announced by any Chinese government department.
Foxconn said in a statement on Sunday that legal compliance is a “fundamental principle” of its operations everywhere and that it will “actively cooperate with relevant departments in related work and activities.”
On Monday, Foxconn said 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 has no role in the company’s day-to-day operations and stepped down as the company’s chairman in 2019, is running as an independent candidate for president despite being down in the polls.
He accused Taiwan’s ruling Democratic Progressive Party (DPP) of bringing the island to the brink of war with China with its hostile policies, and that only he, with his extensive business and personal connections in China and the United States, could keep the peace.
Huang Shih-hsiu, Gou’s campaign spokesman, referred questions about the Foxconn probe to the company, saying Gou was entrusted to run the company four years ago, no longer sits on the board, and is now only a shareholder.
Taiwanese Premier Chen Hsien-jen offered Foxconn government support, while Economy Minister Wang Mei-hua said his ministry was already in contact with the company.
Speaking at a campaign rally on Sunday, Taiwanese Vice President Lai Ching-te, the DPP’s presidential candidate and poll frontrunner, said the Chinese report on the investigation was “unexpected” and “regrettable”.
“So I hope all of our people can support Hon Hai and support Taiwanese companies,” he said in comments carried by Taiwanese television stations.
Foxconn shares fell as much as 3% on Monday. The broader market (.TWII) was down about 1%.
Reporting by Yimou Lee and Ben Blanchard; Additional reporting by Shanghai Newsroom; Editing by Jacqueline Wong, Edwina Gibbs and Sonali Paul
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