NEW DELHI (AP) — French spirits group Pernod Ricard has suspended new Indian investment due to long-running tax disputes with authorities over the valuation of liquor imports, according to two sources with direct knowledge and company letters seen by Reuters. .
Its shares fell 1.8% after the news, below its peers.
The world’s second-largest spirits group said its legal disputes have gotten progressively worse since they began nearly 30 years ago, making it difficult to do business in the country and raising the possibility of a major financial hit.
The maker of Chivas Regal, Glenlivet Scotch whiskey and Absolut vodka is pressing Indian authorities, including Prime Minister Narendra Modi’s office, to resolve the matter.
“This perennial litigation has been a great strain on our ease of doing business and has inhibited further investment from our Paris (France)-based group for business expansion in India,” Pernod wrote in a Nov. 24 letter to the Mod’s office. .
“These disputes initially arose in 1994 in the valuation of imports by the customs authority, they have worsened year after year and still continue.”
Pernod’s stance casts a shadow over the company’s future growth in a region it says is among its “key strategic markets”. He expects India and China, the world’s two most populous nations, to drive most of the alcohol industry’s growth in the next decade.
India’s $20 billion alcohol market is set to grow 7% annually in the 2021-25 period, with whiskey and spirits among the favourites, according to IWSR Drinks Market Analysis. Pernod accounts for 17% of the country’s alcohol market by volume, while Diageo has a 29% share.
In his letters, Pernod said there is disagreement with officials over how the company values its imported liquor bottles and raw materials and pays taxes on them. The first source said that the Indian authorities have often alleged that Pernod suppresses costs on imports, which attract a 150% federal import tax.
Enclosing the letter to Modi, Pernod wrote to India’s Central Board of Indirect Taxes and Customs (CBIC) on May 27 saying that the lack of certainty in the valuation of imports was affecting its current business and had a “severe impact”. ” in the expansion plans.
The CBIC and Modi’s office did not respond to requests for comment on the letters, which were previously unreported.
Pernod, in a statement to Reuters, said he has been in “ongoing dialogue” with Indian authorities as he seeks to find “a speedy resolution to this long-standing matter.”
The company is compiling all relevant information to assist in the correct reassessment by the authorities and aims to preserve Pernod’s rights while “avoiding any business interruption,” the statement added.
RISK OF “FINANCIAL CHARGE”
Foreign companies in other industries have also raised concerns about the strict regulatory regime in India, where Modi is seen promoting domestic businesses. Global automakers, including Tesla Inc, for example, have complained for years about high taxes on imported cars and electric vehicles.
In its November letter, Pernod shared its upcoming business proposals in India, which included a plan to establish new production lines to increase capacity by more than 40% annually by 2025 and boost export earnings by a third to $126 million. in the next five years. .
The company’s plans were going very slowly in light of the legal disputes, and “everything is on hold,” the first source said of the company’s new investment plans.
His written pleas to Indian officials urge a reasonable resolution of the disputes, asking for “comprehensive consideration”.
The letters raise two issues: disputes in various courts over the valuation of concentrated alcohol brought in by Pernod to manufacture liquor locally; and fights related to “bottled at source” products like Chivas that are imported in bottles.
On both types of imports, authorities have questioned Pernod’s costing and tax payment methods, which has often led to shipments being held up at various ports, according to the first source and the company’s letter. of May 27.
In the case of importing bottles such as Chivas, specifically, the authorities propose to add advertising and promotion expenses to the import value and pay taxes on that, a methodology that Pernod does not agree with, the letters say.
Any tax increase that is recovered many years after the products have been imported could “expose the company to a huge financial burden,” Pernod said in its May communication.
(Reporting by Aditya Kalra in New Delhi; Editing by Muralikumar Anantharaman)