Pernod Ricard fined for tax evasion
The world’s number two drinks company, France’s Pernod Ricard, reportedly got slapped on the wrist by South Korea’s National Tax Service (NTS) and fined 10 billion won (EUR 7.5 million) for tax evasion, the Korea Times newspaper wrote on 10 October 2014.
The tax agency found that Pernod Ricard had inflated costs for advertising and other transactions so it could report lower profits and thereby avoid taxes, the newspaper said.
The NTS refused to confirm the report.
This scandal is another blow to the company, which already suffers from declining foreign spirits consumption in Korea because of the prolonged economic slump.
Pernod Ricard Korea's operating profit plunged 73.6 percent year-on-year in its 2013 financial year that ended in June 2014, according to its report to the Financial Supervisory Service (FSS). It posted an 8.9 billion net loss on sales of 124.7 billion won (EUR 94 million), down 4.6 percent.
The newspaper said that the NTS investigated the case for nearly six months. The company had allegedly overstated spending on advertisements and promotional campaigns between 2009 and 2013 so it could report an operating profit lower than it really was.
The company reported to the NTS that cumulative spending on advertising and promotional events during the five years were 506.6 billion won (EUR 379 million), accounting for 31 percent of its sales. By rule of thumb, drinks companies tend to spend about 15 percent of sales on marketing and this could have been the reason why the NTS came after Pernod Ricard. Its figure is nearly double the advertising and promotional spending of Diageo, Korea's number one drinks company by market share. During the same period Diageo reportedly spent 280 billion won (EUR 210 million).
The newspaper claimed that Pernod Ricard’s domestic sales in Korea have declined since its 2010 financial year, despite aggressive sales and marketing campaigns. In June, the company planned to lay off high-paid staff in a cost-saving drive, but withdrew the plan amid a fierce backlash from unionized workers.
