According to a government notification seen by Reuters, Indian authorities have requested $244 million from Pernod Ricard’s local subsidiary for undervaluing concentrate imports for more than ten years in order to avoid paying all applicable charges.
In India, a crucial growing market, where Pernod has long lobbied PM Narendra Modi & his tax officials to settle conflicts related to the valuation of liquor imports, demand is the company’s most recent setback. The manufacturer of Chivas Regal and Absolut vodka has previously claimed that the disagreements have prevented new investments from entering the nation.
In-depth details about Pernod is being sued by India for $250 million for undervaluing imports:
The second-largest spirits company in the world and in India is Pernod. The notification from India’s customs authority, dated June 27, is being reported here for the first time; it concerns liquor concentrates imported from a Pernod subsidiary, UK-based Chivas Brothers.
A court in India will consider Pernod’s appeal of the tax demand.
For foreign businesses operating in India, high taxes and protracted legal issues have frequently been a sore spot. For instance, the manufacturer of electric vehicles Tesla Inc. has long complained about the excessive taxes imposed on imported autos, while the telecom company Vodafone has contested issues involving unpaid taxes.
According to the notice, Indian officials determined Pernod Ricard India had devalued liquor concentrates in its filings, which led to lower import duty payments when they investigated import bills for the years 2009–2010 to 2020–21.
It said that the business owes interest and an additional 20.1 billion rupees ($244 million) in duties for imports made up to 2020.
Pernod India paid “hefty” dividends to the group’s controlling company, Pernod Ricard in France, which also owns Chivas Brothers, to make up for the devalued imports, according to the notice.
Dividends are subject to lesser taxes than liquor concentrates, which have import tariffs of 150%.
The 27-page notification to Pernod from the Indian customs department stated that there were “ample grounds to suspect the truth or correctness of the value declared in regard to the imported items.”
The matter of undervaluation has been addressed by the payment of sizable sums as dividends to the ultimate holding company. “It appears that the import price has been determined in such a manner to maximize profits accruable to holding corporations.”
Pernod Ricard India stated in a statement that it was working to “assert and demonstrate its position to the Indian authorities.”
As the matter was still pending in court, it stated, “We have always attempted to behave in full openness and conformity with customs and regulatory standards.”
According to IWSR Drinks Market Analysis, Pernod accounts for 17% of the volume of the nation’s alcoholic beverage market with brands like Chivas Regal, Glenlivet, Blenders Pride, and 100 Pipers.
Pernod has previously stated that import taxes should be considerably reduced because India has a highly regulated alcohol market. Additionally, each state imposes local taxes on alcohol that, in some areas, can reach 250%.
Pernod reported $2.4 billion in revenue from operations in India in 2020–21; however, it claimed that taxes and tariffs, which comprise federal, import, and state levies, accounted for 79% of that. Its net profit in India for the year was $130 million, or approximately half of the levy the government is now requiring the corporation to pay.
The warning from the Indian tax authorities also instructed Pernod to raise the invoice prices of the various malt concentrates it imports by 67.49% starting with invoices from 2021.
In accordance with “arm’s length” standards, which mandate that all cross-border transactions between group firms be valued as if they were with unrelated parties, the notification claimed Pernod was not abiding by them.
Aside from the court appeal, Pernod requested a settlement in a letter to the federal tax office on July 7. The letter, which Reuters reviewed, made no mention of the recent notice, but stated that the company’s import prices continue to confront “many problems.”
“We are confronted with serious business continuity issues. Our supply chain is being suffocated by operational issues “According to the letter.
It was unclear whether the tax authority responded.
