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.
The sources highlight that the audits come less than three months before Taiwan’s presidential election and amid Foxconn’s push to expand production outside China.
The government of Taiwan, which China claims as its own territory, often accuses Beijing of trying to exert military or economic pressure to ensure its election results go in China’s favor.
Foxconn’s founder Terry Goh, who stepped down as the company’s chairman in 2019, is running as an independent in the presidential race.
The Global Times said in an English-language story late Sunday that Gou could split the opposition’s vote by running, which would ensure victory for incumbent Vice President Lai Ching-deo.
Beijing hates Lai, whom it believes is a separatist. He says only the people of Taiwan can decide their future, and Beijing has rejected his talks.
Citing unnamed experts, the Global Times said Goh’s “action to contest the election could further divide the island’s opposition camp and ultimately favor the candidate of the separatist ruling Democratic Progressive Party, Lai Ching-deo.”
Expansion outside of China
Foxconn’s audits have not been officially announced by any Chinese government department.
Local officials, who the Global Times said were conducting audits and inspections in Henan, Hubei, Guangdong and Jiangsu provinces, did not immediately respond to Reuters’ faxed requests.
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.
However, the company has been pushing to diversify its manufacturing base outside of China, and the first source told Reuters that they saw the audit as a “warning” to Foxconn.
“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.
A second source said the audit was “unexpected” and relatively “unusual”.
Foxconn said in a statement on Sunday that legal compliance is a “fundamental principle” of its operations 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. Taiwanese Premier Chen Hsien-jen offered his government’s support to Foxconn, though did not provide details.
Foxconn shares fell 2.9% on Monday, undercutting the broader market’s (.TWII) 1.2% decline.
A ‘war or peace’ election
Gou, the billionaire founder of Foxconn, is trailing in the polls despite running a high-profile campaign for president.
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 no longer on the board and was now only a shareholder.
But the Foxconn investigation is now an election issue.
Hu Yu-eh, the presidential candidate of Taiwan’s main opposition party, the Kuomintang, called the vote a “war or peace” vote, and when asked about the Foxconn investigation on Monday, Taiwanese companies feared more instability between Taiwan and Taiwan. China.
Speaking at a campaign rally on Sunday, TPP candidate and poll leader Lai said China’s report on the investigation was “unexpected” and “regrettable”.
“Taiwanese businesses have always contributed to China’s economic growth,” DPP spokesman Chang Chih-hao said on Monday.
“However, the Chinese Communists often use Taiwanese businesses as bargaining chips for political pressure or electoral interventions against Taiwan.”
Reporting by Yimou Lee and Ben Blanchard; Additional reporting by Shanghai Newsroom; Editing by Edwina Gibbs and Sonali Paul
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